iThis post continues a monthly series outlining updates in state tax credits and incentives, including but not limited to legislative, gubernatorial and case law updates. While tax credits and incentives have their fair share of critics, they are a reality in today's competitive business environment with states competing with each other for jobs and investment. The good news for all types of entities is that state tax credits and incentives are available and can benefit an entity in many ways.
HMB Tip of the Month: Tax credits and incentives are subject to gubernatorial and legislative modification or revocation based on election cycles and changes in leadership. Therefore, it is vitally important to not only understand a jurisdiction's current credits and incentives, but follow what potential changes could occur with a change in administration. Often, a taxpayer may need to alter (in most cases, speed up) its internal review processes to be able to negotiate its incentive package with a known set of administrators.
Recent Announcements of Credit/Incentives Applications and Packages
Illinois: After months of indecision, Governor Rauner's administration is lifting a freeze it put on $100 million in business tax-incentive deals that had been approved in principle by outgoing Governor Quinn but not yet executed. The Rauner administration and business sources confirm that an internal review of such spending was conducted and a decision reached to fulfill "commitments made by the Quinn administration" to companies including eBay, CapitalOne, CDW and SAC Wireless. Some deals reportedly were finalized in the past month or so, while others are still in process.
Iowa: On April 17, 2015, the Iowa Economic Development Authority (IEDA) board awarded direct financial assistance and tax benefits to three companies for job creation and expansion projects. The three awards will assist in the creation of 150 jobs, retention of 6 jobs and will result in almost $16 million in new capital investment for the state. In addition, the board approved an amendment request for additional tax incentives through the High Quality Jobs Program (HQJP) for Google's Council Bluffs project that was originally approved in 2012. Google will create an additional 35 jobs and make an additional $1 billion of capital investment.
New York: The New York Department of Economic Development and Empire State Development reported that in 2014, 72% of public colleges and universities participated in the START-UP NY program, establishing 356 tax-free areas, and the state approved 54 businesses for the program to create 2,100 new jobs and invest $91 million over five years.
Ohio: Governor Kasich announced the approval of assistance for nine projects set to create 480 jobs and retain 351 jobs statewide. During its monthly meeting, the Ohio Tax Credit Authority (TCA) reviewed economic development proposals brought to the board by Jobs Ohio and its regional partners. Collectively, the projects are expected to result in more than $21 million in new payroll, and spur nearly $111 million in investment across Ohio. One of the approved projects is for Pentaflex, Inc., which manufactures heavy gauge stampings for the heavy truck market; Pentaflex expects to create 40 full-time positions generating $1.3 million in additional annual payroll and retaining $4.9 million in existing payroll as a result of the company's expansion project in the City of Springfield. The TCA approved a 45%, seven-year Job Creation Tax Credit for this project.
Virginia: On April 21, 2015, Governor McAuliffe announced that Andros Foods North America will invest $73 million in the next three years to expand its operation in Shenandoah County. The company was approved for a $400,000 grant from the Governor's Opportunity Fund, will be eligible for a job tax credit, and is expected to create 160 jobs.
Legislative, Regulative and Gubernatorial Update
Alabama: Governor Bentley signed House Bill 57, the Alabama Veterans and Rural Jobs Act, on April 14 and the related House Bill 58, the Alabama Jobs Act, on April 3 as part of a package of bills designed to revise the way the state rewards companies for investing and creating jobs. Both bills are set to take effect on July 3.
H.B. 58 provides a fully refundable jobs credit, refunding an expanding or relocating company up to 3% of the previous year's employee wages against its utility taxes for up to 10 years. In addition, companies can qualify for a credit up to 1.5% of capital invested in an expansion annually for up to 10 years. To qualify for the jobs credit, companies would need to create at least 50 new jobs as part of their expansion. Certain industries and types of operations - chemical manufacturing, data centers, engineering, design or research - would be exempt from the 50-job minimum requirement.
H.B. 57 acts as a piggy-back bill to H.B. 58. H.B. 57 gives give companies the chance to earn additional tax credits for certain types of hiring and expansion. Under the bill, the potential 3% credit for employee wages would be increased to a maximum of 4% for business expansions in rural counties, where the capital investment credit also could be extended to 15 years instead of 10. The bill also lowers the number of new jobs required to earn the credit to 25 for projects in rural counties. The bill also would allow an additional 0.5% credit against employee wages if at least 12% of the qualifying employees are military veterans.
Alaska: The Alaska Legislature on April 19, 2015, approved a bill (SB 39) that would kill the state's film tax credit program. The credit is scheduled to sunset in December 2018. SB 39 is awaiting transmittal to Governor Walker.
Georgia: Georgia's Legislature approved a pair of new tax credit programs, worth a combined $155 million, aimed at encouraging small business investment in low-income communities and seeding a state venture capital fund. H.B. 439, which was approved by the House and Senate April 2, 2015, will create a Georgia New Markets Investment Credit modeled after the federal New Markets Tax Credit. The bill is awaiting the signature of Governor Deal, whose office has declined to comment on legislation prior to Deal signing or vetoing it.
The second part of H.B. 439 would create the Invest Georgia Tax Credit. Under this program, the state would auction $55 million of tax credits that can be claimed over a five-year period beginning in the third year after their purchase. The proceeds of the auction, which legislative staff estimate could be $45.7 million to $47.6 million, would go into the Invest Georgia Fund, a state-run fund that seeks to invest in Georgia businesses indirectly through investments in privately run venture capital funds.
On April 6, 2015, H.B. 237, which would extend a tax credit for angel investors in qualified businesses through calendar year 2018, was sent to Governor Deal for approval. Under H.B. 237, investors can claim 35% of the amount invested, and the maximum credit available to an individual investor is $50,000 per year. The total amount of credits the state may grant under this program is capped at $5 million per year for 2016, 2017 and 2018.
On April 8, 20145, H.B. 339, which extends a tax credit for film, TV and video game production companies through 2018, was sent to Governor Deal for approval. Under H.B. 339, the maximum credit for any one company is $1.5 million per year, and the state may grant credits up to a cap of $12.5 million annually. The legislature also revised the tax credit program to add new reporting requirements, so that companies receiving the credit must report their number of employees to the state Department of Revenue, which must make an annual report to the legislature.
Illinois: An amendment to HB 574 which was filed by House on April 20, 2015, would create the Illinois Business and Economic Development Corp. as a private, nonprofit corporation. Among its responsibilities, according to the bill, would be to "negotiate tax incentives with private businesses." This responsibility and others would be subject to review by the Department of Commerce and Economic Opportunity (DCEO). Illinois would become the ninth state to adopt the controversial practice of creating a private entity to award state tax incentives.
Maryland: The Maryland General Assembly on April 13, 2015 approved and sent to Governor Hogan SB 905 which would extend the state's film tax credit program by establishing the Film Production Activity Tax Credit Reserve Fund, a special, continuing, non-lapsing fund, any interest or investment earnings of which would be transferred to the general fund. Funding would begin in fiscal 2017 and be included as an appropriation in the governor's budget. Once the General Assembly approves the state's budget for the year, any appropriations in the fund could not be reduced.
The governor's appropriations would be based on an annual report from the state's Department of Business and Economic Development that would detail the amount of tax credits needed to maintain current levels of film production activity in the state and the amount of new tax credits needed to attract new projects. SB 905 would also require projects qualifying for existing film credits to include some manner of marketing for Maryland, with a minimum of a five-second-long "static or animated logo that promotes the State in the end credits ... and a link to the State's Web site on the project's Web site."
Missouri: S.B. 149, which was signed by the Governor on April 14, 2015, creates state and local sales and use tax exemptions for data storage centers. S.B. 149 also allows municipalities to enter into loan agreements, or sell, lease, or mortgage municipality property for a technology business facility project. In order to receive the sales tax exemption provided for new data storage center facilities, the project must result in at least $25 million of new facility investment and create at least 10 new jobs with wages of at least 150 percent of the county average wage over a three year period. In order to receive the sales tax exemption provided for existing data storage center facilities, the project must result in at least $5 million of new facility investment over a one year period and create at least 5 new jobs with wages of at least 150% of the county average wage over a two-year period. New data storage centers may receive incentives for a maximum project period of 15 years. Existing data storage centers may receive incentives for a maximum project period of 10 years.
On March 19, 2015, the Missouri House passed H.B. 325 that would allow businesses choosing to relocate within Missouri to deduct up to 50% of the cost of moving their operations. The bill now moves to the Senate for consideration.
Businesses claiming the deduction would be allowed to eliminate the out-of-state unit in a year other than the year of the relocation, and would be required to incur the expenses under a written insourcing plan. To be eligible for the deduction, the number of full-time employees in Missouri for the year the deduction was claimed must exceed the number of full-time employees for the year preceding the year in which the expenses were paid or incurred.
Businesses would be required to take eligible insourcing expenses into account during the taxable year that the plan was completed and the expenses incurred, or the following year. The maximum annual amount of tax deductions allowed under the program would be capped at $20 million.
In addition, the bill provides that: (a) deductions would be awarded on a first-come, first-served basis; (b) deductions may be carried forward up to five years; and (c) taxpayers that eliminate the business unit for which the deduction was allowed within 10 years of claiming it must repay the deduction to the state. The bill would sunset in six years.
Montana: Governor Bullock vetoed a bill (SB 114) that would have expanded a renewable energy incentive program to cover existing hydroelectric power facilities, saying the bill would undermine the purposes of the program, discourage the creation of clean energy jobs, fail to benefit ratepayers, and devalue the state's renewable credits.
New York: On April 13, 2015, S.B. 2006 was signed by Governor Cuomo to revamp the state's brownfields cleanup program, extending the program for 10 years and changing the terms of the tax credits. The brownfields program would have expired Dec. 31. The bill scales back the brownfields program's tangible property tax credit, which is intended for redevelopment. For sites in New York City, the credit will only be available for those that are located in so called environmental zones, "upside-down" or under-utilized sites, or affordable housing projects.
The bill also changes the program's remediation tax credit, which will be limited to the actual cleanup costs for remediating a site. It previously covered all site preparation costs, including construction costs. The bill creates a fast-track option to provide a liability release - but no tax credits - for remediating sites that don't present a significant risk to public health or the environment; and expands eligibility for the program from sites that are classified as Class 1 under the state Superfund program to include Class 2 sites and sites covered by the Resource Conservation and Recovery Act. Sites that were admitted into the program before 2008 will have until 2017 to complete remediation, while those that entered the program between 2008 and 2015 will have until 2019.
Nevada: On April 8, 2015, the Nevada Senate passed SB 170 which specifies that a data center making a capital investment of at least $50 million in a Nevada facility could apply for a tax abatement of up to 75% of its property taxes, along with sales and use taxes for eligible equipment and machinery, for up to 10 years. Businesses investing at least $100 million would be eligible for the same abatements, but for a maximum of 20 years.
On April 8, 2015, the Nevada Senate passed SB 93 which would apply to a business that "owns, operates, manufactures, services, maintains, tests, repairs, overhauls or assembles an aircraft or any component of an aircraft." A qualifying business could apply to the Office of Economic Development for a partial abatement of property or sales taxes, or both, if the business meets one of a list of other criteria. The criteria include making a new capital investment of at least $250,000 in Nevada within a year of being approved for an abatement; maintaining $5 million in property in the state during the abatement period; or paying its employees an average hourly wage higher than the average hourly wage in Nevada. The abatements period granted under SB 93 would be capped at 20 years.
North Dakota: On April 9, 2015, Governor Dalrymple signed legislation that will allow corporations and pass-through entities to claim tax credits on their charitable contributions to non-profit private schools in the state (H.B. 1462).
On April 2, 2015, Governor Dalrymple signed legislation that will extend the carry forward period from 20 to 30 years for wind energy income tax credits for wind energy devices that were installed several years ago (H.B. 1228).
Oregon: SB 611 as signed into law grants a property tax exemption for centrally assessed data centers based on the market value of a qualifying gigabit Internet provider's real and personal property or $250 million for up to 20 years and provides exemptions for the value of franchises and satellites used in connection with FCC license agreements.
Tennessee: On April 9, 2015, Tennessee SB 86 was signed into law which authorizes, rather than requires, professional employer organization employees to be considered as employees of a company for employment-based tax credits and economic incentive purposes.
Utah: Utah HB 411 as signed into law amends the requirements for allocating and issuing contingent tax credits to investors in the Utah Fund of Funds, amends requirements for redeeming the credits, revises the aggregate amount of outstanding contingent credits issued for investments, and modifies reporting requirements.
Utah SB 216 as signed into law creates a tax credit for entities developing high-cost infrastructure projects, provides eligibility criteria, and directs the Office of Energy Development to administer the credit.
On April 1, 2015, Governor Herbert vetoed a bill that would quintuple one of the state's film incentives. SB 278 which was approved by the Legislature in March 2015 would have increased the maximum per production rebate from $500,000 to $2.5 million. The Governor stated that "Motion picture-related tax incentives, while important, do not provide the same return as other tax incentives we can and do offer." Herbert also said it would be premature to change the incentives before the Utah Film Commission finishes formulating its long-term plan to attract the film industry to the state.
Virginia: On April 22, 2015, Governor McAuliffe ceremonially signed six bills that seek to expand solar power generation, increase energy efficiency and stimulate job growth in the renewable and alternative energy sector. The bills, which will take effect July 1, create the Virginia Solar Energy Development Authority to facilitate and support the development of the solar power equipment industry and solar-powered facilities (H.B. 2267/S.B. 1099); double the allowable generating capacity of a solar net energy metering facility (H.B. 1950/S.B. 1395); authorize utility cost recovery for the construction or purchase of large solar power generating facilities (H.B. 2237); modify how costs are evaluated by the State Corporation Commission to increase approval of natural gas energy efficiency programs (S.B. 1331); expand an existing state program that facilitates loans to localities to finance energy efficiency projects on commercial buildings, using private capital (H.B. 1446, S.B. 801); and extend to 2018 a hiring tax credit available only to companies in the renewable and alternative energy industries (H.B. 2267).
States' Evaluation and Review of Credit and Incentive Programs
Indiana: Indiana HB 1142, signed into law as Public Law 36, transfers the responsibility to annually review state and local tax incentives and prepare a tax expenditure report from the Commission on State Tax and Financing Policy to the Legislative Services Agency.
New Jersey: On March 26, 2015, the New Jersey General Assembly gave final approval to a measure that would require more oversight of corporate tax subsidies. The bill now goes to Governor Christie for his signature.
Existing law requires the state to publish a report on tax initiatives of more than $100,000. The bill would expand the law to require the report to include a determination of whether an expenditure has achieved the goals for which it was enacted.
AB 939 would also require the governor's annual budget message to describe the data collection and reporting requirements that beneficiaries of tax subsidies must adhere to. The bill also more clearly lays out the information subsidy recipients must send to the treasurer each year, and grants the treasurer access to records necessary to fulfill its reporting requirements.
North Dakota: On April 1, 2015, Governor Dalrymple signed a bill that creates a legislative committee to review and answer specific questions about the tax incentives the state gives out in the name of economic development. SB 2057 mandates that the Legislative Assembly form a committee that would meet during interim periods to review at least 18 different tax incentives.
The new law makes North Dakota the 11th state to enact or strengthen a tax incentive evaluation statute. The District of Columbia has done so, also. Legislation is pending in Colorado, Indiana, Maine, Minnesota, Nebraska, Ohio, Oklahoma, Tennessee, Texas, and Vermont, according to the Pew Charitable Trusts, which tracks it. Pew has undertaken a long-term project to encourage more scrutiny and better policymaking in states' use of tax incentives.
Oklahoma: On April 27, 2015, Governor Fallin signed legislation (SB 806 and HB 2182) that will require all business tax incentives to be evaluated by an objective committee at least once every four years and will require all future incentives to include a statement of measurable goals in order to assess state economic development policies and practices.
On April 27, 2015, Oklahoma SB 806 was signed into law requiring all provisions allowing tax incentives for businesses to include a statement of measurable goals, effective for provisions enacted after January 1, 2016.
Case Law
Louisiana: In April 2015, a Louisiana federal jury on Monday found two attorneys - one a Hollywood producer and the other the husband of New Orleans' deputy mayor - guilty of defrauding the state out of $1.1 million in tax credits to renovate a mansion used in HBO's "True Detective."
Federal: On April 29, 2015, the Department of Justice reported that three Indiana brothers pleaded guilty to charges they participated in a $145 million scheme involving the sale of fraudulent biodiesel incentives (United States v. Ducey, S.D. Ind., No. 1:13-cr-00189, , 4/29/15).
Interesting Update
Illinois: As mentioned in the March update, on March 24, 2015, a Chicago TV and movie studio on the West Side, Cinespace Chicago Film Studios, handed back $10 million to the state of Illinois after Governor Bruce Rauner ordered the money's return amid questions about how the grant was awarded. This month, Alex Pissios, CEO of Cinespace Chicago Film Studios, said he was playing by rules set by the state when his company accepted a $10 million grant to purchase several nearby properties and develop an educational incubator. The film production company, which provides space for "Chicago Fire," "Chicago PD" and "Empire," among other productions, received the grant days after former Gov. Pat Quinn lost a re-election bid in November 2014.
