Arkansas introduces income tax credits for sustainable aviation fuel purchases and production

On March 12, 2025, Arkansas legislators introduced House Bill 1303, a significant piece of legislation aimed at promoting the production and use of sustainable aviation fuel (SAF) within the state. The bill proposes two main tax credits designed to incentivize both end users and producers of SAF, addressing environmental concerns and economic development in the aviation sector.

The first provision of HB1303 allows end users to claim an income tax credit of $1.09 per gallon for sustainable aviation fuel purchased beyond 100,000 gallons in a tax year. However, this credit is capped at 50% of the taxpayer's total income tax liability, and recipients are prohibited from claiming any other state tax credits or deductions for the same fuel purchases.

The second provision targets producers of sustainable aviation fuel, offering a tax credit equal to 30% of the costs associated with purchasing production equipment or constructing facilities in Arkansas. This credit is limited to a maximum of $10 million or the amount of income tax due, whichever is lesser. Notably, any unused credits can be carried forward indefinitely, and these credits can also be transferred, sold, or assigned, subject to confirmation by the Department of Finance and Administration.

A critical aspect of the bill is the requirement for a cost-benefit analysis before any tax credits are authorized. This analysis must evaluate existing state incentives related to SAF projects and be certified by the Arkansas Economic Development Commission. Additionally, the bill mandates the establishment of an incentive agreement that includes performance criteria and clawback provisions to ensure accountability.

The introduction of HB1303 has sparked discussions among lawmakers and stakeholders regarding its potential economic and environmental impacts. Proponents argue that the bill could position Arkansas as a leader in sustainable aviation fuel production, potentially attracting new investments and creating jobs in the green energy sector. However, some critics express concerns about the fiscal implications of the tax credits and the effectiveness of such incentives in achieving the desired environmental outcomes.

As the legislative process unfolds, the future of HB1303 will depend on further debates, potential amendments, and the overall reception from both the public and industry stakeholders. If passed, the bill could significantly influence Arkansas's approach to sustainable energy and its commitment to reducing carbon emissions in the aviation industry.