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Groundwater tax credit program in Arkansas

Income tax credits are available to water users who invest in groundwater conservation projects.

Whitney Haigwood, Staff Writer

June 11, 2024

4 Min Read
Tractor pulling landplane over bare field for land leveling.
Arkansas offers tax credit incentives for groundwater conservation projects that include land leveling, surface water conversion, impoundments, and irrigation efficiency technologies such as timers, flow meters, and soil moisture sensors.Farm Press Staff

Farmers and water users in Arkansas can take advantage of tax incentives when they invest in groundwater conservation projects on their acres. Here is what you should know about the application process, qualifying projects, and the maximum tax credit amounts. 

This tax credit program has been available since 1995 through Act 341, Water Resource Conservation and Development Incentives Act. Since then, it has been amended four times with the most recent amendments signed during the regular legislative session in 2021. These amendments increased tax credit allowances and extended the project completion timeframe. 

Blake Forrest, geology supervisor in the Arkansas Department of Agriculture’s Natural Resources Division (Department), gave an overview of the groundwater tax credit program during the recent board of director’s meeting of the Agricultural Council of Arkansas. 

“We are trying to push this program more, because partners like Andrew Grobmyer have done so much work to make it a better incentive,” Forrest said referencing the Ag Council’s executive vice president and the organization’s partnership in improving the tax incentive program. 

“We have $20 million per year in available state income tax credits we can award, however, we are only awarding around $1 to $1.5 million annually. We have more room for projects to improve groundwater conservation,” he said.   

Related:Arkansas water plan: Update on phase one

Man speaking at a podium, giving a presentation to meeting attendees.

Application and types of projects 

The application process starts by contacting your local conservation district. The application must be approved by the county conservation district then submitted to and approved by the Department before the project starts, according to the Arkansas Department of Agriculture website

Three project categories for tax credits include land leveling, surface water conversion, and impoundments. Any taxpayer taking advantage of these incentives has five years to complete the project, and a Certificate of Completion is required before claiming the tax credits. 

Credits can be used as soon as approval is received from the Department, and the project does not have to be completed before credits can be utilized. 

Forrest gave an overview for each project category and the available incentives. For most projects, there is a 15-year carryover for unused tax credits. 

Land leveling

Agricultural land leveling projects are focused on conserving irrigation water. Incentives include: 

  • Tax credit equal to 25% of the project cost 

  • A maximum credit of $18,000 per year 

  • Total maximum tax credit capped at $35,000 

Related:Tailwater recovery shows savings

Surface Water Conversion

Surface water conversion projects encompass things like tailwater recovery, water meters, irrigation efficiency, and small reservoirs, all of which convert from using groundwater to surface water. Incentive maximums depend on the project's location, with those in a critical groundwater area receiving more. 

Outside of a critical groundwater area, surface water conversion projects qualify for: 

  • Tax credit equal to 25% of the project cost 

  • A maximum credit of $18,000 per year 

  • Total maximum credit capped at $35,000 

Within a critical groundwater area, surface water conversion projects for agricultural and recreational uses can receive: 

  • Tax credit equal to 50% of the project cost 

  • A maximum credit of $18,000 per year 

  • Total maximum tax credit capped at $35,000 

There are also tax credit incentives inside critical groundwater areas for industrial use of surface water conversion. These incentives include a tax credit equal to 50% of the project cost, a maximum per-year claimable credit of $200,000 with a 15-year carryover, and a total maximum tax credit capped at $1 million. 

Impoundments

Impoundment projects qualify for tax credits to construct, install, or restore a water impoundment of 20-acre feet or more. Incentives for impoundments include: 

  • Tax credit equal to 50% of the project cost 

  • A maximum credit of $18,000 per year 

  • Total maximum tax credit capped at $120,000 

Participation encouraged 

Forrest encouraged participation in the groundwater tax credit program. “It is a three-step process: apply, build, and complete the project,” he said. “We have room within the tax credit program for additional projects.” 

He also noted the efforts of the Department and partnering organizations to get the word out in Arkansas. “We have seen a 90% increase in total land acres covered by the groundwater tax credit compared to 2022,” he said of the campaign’s success. 

“In 2023 we had 64 land leveling projects, up from 42 in 2022. We had 13 impoundments in 2023, up from 3 in 2022; and there were 12 surface water conversion projects in 2023, up from 7 in 2022,” he reported. 

Projects are already underway in 2024. Forrest said these include five impoundments, two conversions, and six land leveling projects. 

For more information on the groundwater conservation tax credit program, you can visit the website of the Arkansas Department of Agriculture or contact your county conservation district

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