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Volume XI, Number 126


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April 2016 Tax Credits & Incentives Update

Tip of the Month: Given the fall elections, this spring legislative session is a time for legislators to show their constituents their support for growing the economy in their respective jurisdictions.  Therefore, if you are in the process of site selection, we advise that you pay extra attention to the legislation being introduced and passed in the various state and local jurisdictions as it could have a great impact on the site selection decision.

Recent Announcements of Credit/Incentives Applications and Packages

California- The California Governor's Office of Business and Economic Development (GO-Biz) announced on April 14, 2016 that the California Competes Tax Credit committee approved $70 million in credits for 103 companies that are expanding or creating jobs in California; the companies will create a projected 9,369 jobs and generate over $1.3 billion in investment. 

Indiana- Indiana Governor Pence announced that, in response to Carrier Corp. and United Technologies Electronic Controls (UTEC) relocating their manufacturing operations to Mexico, the companies have repaid state training grants given to them by the Indiana Economic Development Corporation.

Legislative, Regulative and Gubernatorial Update

Alabama- Alabama HB 34, signed into law as Act 2016-102, would create a port credit for increased use of the state's port facilities, and the Growing Alabama credit, which is available for taxpayers contributing cash to a local economic development organization approved by the Renewal of Alabama Commission.

Alaska- Legislation to rein in Alaska's tax incentives for oil companies has hit an apparent roadblock in the House, but the Senate is proceeding with its own version of Governor Walker's plan to reduce the amount the state pays out to the industry.  HB 247, which would reduce oil industry incentives, was amended on the House floor April 12 and April 13 but was sent back to the House Rules Committee instead of going to a third reading.  SB 130, the Senate version of Walker's oil incentives reforms, was sent to the Senate Finance Committee with some amendments to the governor's original proposal.

Georgia- Governor Deal on April 21 signed legislation exempting tickets to major sporting events from state and local sales taxes, to lure the Super Bowl to Atlanta's new football stadium.  The bill, HB 951, defines a major sporting event as any game sponsored by the National Football League; any collegiate national tournament semifinal or championship game; or a Major League Baseball, National Basketball Association, or Major League Soccer all-star game. The bill also gives the commissioner of economic development and the state revenue commissioner the authority to determine that a sporting event qualifies as major, thus making its ticket sales eligible for the exemption. HB 951 was designed to attract the 2019 or 2020 Super Bowl to Mercedes-Benz Stadium in Atlanta, which is due to open in 2017.

Illinois- The Department of Commerce and Economic Opportunity published a proposed rule, 14 Ill. Adm. Code 520, that affects enterprise zones.  First, the proposed rule updates the regulations to reflect the amended scoring regime for evaluating enterprise zone applications.  Secondly, it clarifies that the expanded manufacturing and machinery sales tax and utility tax exemptions held by businesses that are in an existing enterprise zone will remain in effect if the enterprise zone is redesignated as a new enterprise zone.  

Illinois- - SB 517 establishes a new Targeted Tax Credit Act. This new Act is similar to the existing EDGE credit and would establish an EDGE-like credit for border counties with unemployment rates in excess of the state average, as well as census tracts with unemployment rates in excess of the state average. 

Iowa- Iowa SF 2300, as signed into law, creates the renewable chemical production tax credit, which provides a refundable individual and corporate income tax credit that is equal to 5 cents per pound of qualified chemicals produced.  The credit is available for chemicals produced beginning January 1, 2017 and ends December 31, 2026. 

The law also reduces the annual amount of tax credits that may be awarded by Iowa's Economic Development Authority under the high quality jobs program for five fiscal years, capping the annual limit at $105 million.  

Taxpayers would be subject to clawback provisions that could reduce, terminate, or rescind their credits, which could then be subject to payback if they failed to comply with the terms of their agreements.  SF 2300 would therefore reduce the available job credits by about $185 million over the life of the biochemical credit. Assuming the credits are claimed at the same rate as in years past, that would save the state approximately the same amount as the new program is expected to cost. 

Maine- Maine Governor LePage's late-in-the-session attempt to sharply limit the state's tree growth property tax break program died after the Joint Taxation Committee rejected his bill April 5.  LD 1691 got a unanimous "ought not to pass" vote, just one day after a contentious committee work session and public hearing on the bill. The measure would have amended the statewide tree growth tax law program, a current use assessment that substantially reduces property taxes for landowners who promise to engage in commercial forest operations.

Maine- Maine LD 1542, enacted as Chapter 490, creates a nonrefundable corporate and personal income tax credit for employers who provide qualified short- or long-term disability income protection plans to their employees, starting in the 2017 tax year and limited to $30 for each employee; unused credits may not be carried over or back by an employer.

Maryland- The General Assembly passed SB 1112, which could provide Northrop Grumman with $37.5 million in tax credits over five years in exchange for creating or retaining jobs. The bill passed the House on the final day of the session on a vote of 74 to 59, just three days after passing the Senate on a 31-13 vote.

SB 1112 would create a tax credit against the state income tax for businesses that operate a qualifying aerospace, electronics, or defense contract tax credit project. The bill doesn't mention Northrop Grumman specifically, but a fiscal note says that Northrop Grumman would be the "primary beneficiary" of the tax credit. The credit, which would be limited to $7.5 million a year, would take effect July 1, 2016, and terminate on June 30, 2021.

Maryland- Maryland HB 1012, signed into law as Chapter 289, increases the maximum allowable amount per employee of the income and insurance premium tax credit for a business's cost of providing commuter benefits for its employees from $50 to $100, and lowers the minimum seating capacity of a commuter vehicle that may be used to qualify for the credit to six.

Nebraska- Nebraska LB 1022 as signed into law amends the Legislative Performance Audit Act to require the Office of Legislative Auditor to submit tax incentive performance recommendations electronically by December 1 of the year before the incentive's sunset date, and extends the sunset date for several incentive programs.  The legislation also allows the legislative auditor to review some confidential taxpayer information. 

The legislation extends the following state incentive programs to December 31, 2022: the "Nebraska Advantage Rural Development Act"; the "New Markets Job Growth Investment Act"; the "Nebraska Job Creation and Mainstreet Revitalization Act";  the "Nebraska Advantage Research and Development Act"; and the "Nebraska Advantage Microenterprise Credit". The "Nebraska Advantage Act" under Neb. Rev. Stat. § 77-5725 is extended to December 31, 2020.

Nebraska- Nebraska LB 884 as signed into law adopts the Affordable Housing Tax Credit Act, which creates a nonrefundable state income tax credit modeled after the federal credit to incentivize investment in affordable housing developments for low- and moderate-income residents.

New Jersey- Legislation intended to lift Atlantic City, New Jersey, out of economic despair without an immediate state takeover of city finances went before the state Assembly in April, as a chamber committee unanimously approved measures that rival those supported by the governor and Senate president.

The Assembly Judiciary Committee gave full support to a bill cobbled together by Assembly Speaker Vincent Prieto that would provide Atlantic City with annual payments in lieu of property taxes from casinos and create a new planning committee, composed of Atlantic City and state officials, with powers to develop and adopt financial reforms and updated plans for the cash-strapped city.

Unlike legislation passed by the Senate, which Governor Christie has proclaimed as the only way forward for the city, the Assembly bill would not grant state officials the authority to, among other things, consolidate departments, sell city assets and renegotiate collective bargaining agreements. Instead, it would create a commission of state and local officials to set financial benchmarks for the city that would have to be met to prevent a state takeover.

In a statement, Prieto repeated himself saying that the governor has failed to use his existing authority to help Atlantic City, and said that the legislation passed by the Senate does not "do enough to protect core values such as collective bargaining, fair labor practices and civil liberties.

Prieto's legislation would provide $120 million total to the city for tax year 2016 in casino payment in lieu of taxes payments that would continue for a 10-year period at a rate that could change annually based on gross casino revenues and inflation. Of that money, 13.5 percent would be remitted to Atlantic County.

Additionally, the bill would require the casinos to make additional payments to the state for 2015 through 2023, starting at $30 million, which would be remitted by the state to the city upon approval of a financial plan submitted by the city.

The crucial difference between A-3614 and the measures advanced by Senate President Steve Sweeney is the creation of the five-member Atlantic City planning committee, which would be charged with implementing a five-year financial plan for the city with specific annual fiscal benchmarks.

New Jersey- A bill introduced April 21 in the New Jersey Senate would incentivize telecommuting by providing tax credits to employers that allow an employee residing in the state to work from home.  Under S-2066, the credit would be equal to 1 percent of the telecommuting employee's salary multiplied by the percentage of the employee's services that are delivered from home. The credit could be taken against the corporation business and gross income taxes.  The tax credit would be available from 2017 through 2019, and only telecommuting arrangements that are put in place after the enactment of the bill would qualify for the credit.

Oklahoma- A price collapse in the energy sector and the subsequent plummet in both individual and corporate tax revenue have decimated Oklahoma's budget, mandating the need for tax policy and other changes, Governor Fallin said April 13.

Speaking at a news conference, the governor proposing additional tax policy changes on top of those she proposed in February.  One of the key items for negotiation, Fallin said, will be the tax breaks the state gives out in the name of economic development. She said she had met with some business leaders who told her that incentives are important to companies wishing to enter or expand business in the state. The governor said that was a key consideration for herself and the Legislature but that everything would be reviewed.

Tennessee- L. 2016, S1728, effective 04/12/2016, provides that the current 20-year period in which property taxes may be limited to the value of the leased properties for the period immediately preceding the date of their acquisition by the industrial development corporation, may be extended by a reasonable construction period, not to exceed three years.

Tennessee- L. 2016, S302, effective 04/19/2016, redefines the term "qualified job" to claim a tax credit against franchise and excise taxes to include permanent and seasonal jobs that may or may not provide minimum heath care, as long as the jobs are created in an adventure tourism district and the duties of the positions primarily involve adventure tourism. If a created job is seasonal or part-time, it is counted as one-half of a job when calculating the jobs created by capital investment. The law applies to adventure tourism jobs created in adventure tourism districts, and applications filed, on or after July 1, 2017.

Washington- Less than a year after capping the price of electric vehicles eligible for tax breaks, Governor Inslee has signed new legislation raising that price threshold in response to industry concerns.

In July 2015 Inslee signed SB 5987, which renewed an expiring sales tax exemption for electric cars but capped the maximum price for an eligible vehicle at $35,000. Now with his signing of HB 2778 on April 18, that cap is increased to $42,500 for vehicles with an extended 200-mile range.  The new law means cars such as the Chevrolet Volt, Nissan Leaf, and potentially the Tesla Model 3 will be eligible for the incentive program.

HB 2778 also limits the number of cars that can benefit from the tax break to 7,500 since the 2015 renewal, which McCoy said would probably result in the program running out of credits by 2018. Regardless of sales, the incentive program will sunset on June 30, 2019.

Review of Incentive Programs

California- According to an April report by the California State Auditor evaluating the state's business incentives, lawmakers aren't keeping adequate tabs on corporate tax incentives and they sometimes fail to outline clear goals for some programs.  The auditor's office evaluated six of California's largest tax expenditures, including the research and development credit, the minimum franchise tax exemption, the water's-edge election, the film and television credit, the low-income housing credit, and the subchapter S corporation election. Collectively, the incentives cost the state over $2.6 billion in fiscal 2013.

The audit found that as a result of a general lack of established oversight and review, there was insufficient evidence to determine whether the R&D credit and the minimum franchise tax exemption were fulfilling their purpose.  The report said the water's-edge election, film and television credit, and low-income housing credit appear to be serving the state's interest, but should be reviewed and made more effective.

Michigan- The Michigan House has approved a bill to improve accountability for a pair of local property tax incentive programs.  HB 4580 would impose new requirements on recipients of tax incentives available for businesses expanding their operations in specific economically distressed areas in programs in which their applications are approved by the state treasurer or by the board of a Next Michigan economic development corporation.

Under HB 4580, the incentives would be revoked if the taxpayer is found to be in violation of any terms for the exemption that were laid out in the initial resolution authorizing them, or if continuing to permit the exemption would be contrary to any other statutory provisions, such as the law's definition of an "eligible business," which includes businesses engaged primarily in manufacturing, mining, research and development, wholesale trade, or office operations.

The bill would also expand the new and existing clawback provisions to incentives that were approved by a local taxing authority rather than by a Next Michigan board.  The changes would apply to agreements entered into after December 31, 2016.

Virginia- Virginia's fiscal 2017 budget creates a new unit within the state's Joint Legislative Audit and Review Commission (JLARC) that will be dedicated to analyzing and evaluating the state's economic development tax incentives.  According to the budget document, the new unit will oversee and evaluate incentive programs "on a continuing basis" and will make periodic reports to the Virginia General Assembly, particularly the House Appropriations Committee and the Senate Finance Committee.  The unit will examine spending and performance, economic benefits to the state, effectiveness and value to taxpayers, and accountability, among other measures. It will have powers allowing it access to any documents or employees dealing with tax incentives, including access to all executive sessions and access to any records provided by companies seeking tax incentives.  Virginia has been working with the Pew Charitable Trusts for several years toward this level of tax incentive evaluation. It is one of six states that participated in Pew's Business Incentives Initiative, a partnership for states looking to make their incentives process as transparent as possible.

Case Law

Colorado- The Colorado Supreme Court has rejected an appeal of a decision allowing a regional tourism board to hand out $81 million in tax subsidies to a hotel in the city of Aurora.  The court's brief order in 1405 Hotel LLC v. Colorado Economic Development Commission lets stand an appellate court decision finding that the plaintiffs in the case, a group of hotel operators in the area, lacked standing to challenge the award.

The case centers on plans to build an $800 million hotel and conference center. The project was pitched by Gaylord Entertainment Co., which owns a variety of resorts throughout the South. Gaylord and Aurora officials sought to secure funding for the project under the state's Regional Tourism Act (RTA), which permits the use of tax increment financing for two large-scale projects in the state every year.

Gaylord and the city began working together on plans for a hotel in 2011, but shortly before the commission gave the project its tentative approval, Gaylord pulled out. The company sold its name and management rights to Marriott International, and merged with a wholly owned subsidiary, Ryman Hospitalities, which owns the Grand Ole Opry and WSM-FM, the radio station that broadcasts its shows.

A year later, the city announced plans to proceed with a new project, led by a different development company building a similar hotel to be managed by Marriott. The city did not submit a new application reflecting the changes, but the commission began preparing to finalize its approval nonetheless.

That prompted the plaintiff hotels to petition the commission to force the city to restart the process with application materials reflecting the scope, cost, feasibility, and impact of its revised proposal. The attorney general denied the petition on behalf of the commission, which finalized its approval of the project soon thereafter.

That led the hotels to bring the commission and the city into court, where they sought review of the agency's denial of their petition, a writ of mandamus to force the state to start the review process over again, and declaratory judgments invalidating the commission's approval of the project and finding that portions of the program were unconstitutional.

The trial court rejected all those claims, accepting the state's argument that the hotels lacked standing to bring the first three and that the statute was constitutional.  The appeals court affirmed saying that any harm to the hotels would be only an indirect result of the actions of the actual defendants. 

Michigan- InVitec LLC v. Dep't of Treasury; No. 324330 (April 7, 2016), the Michigan Court of Appeals held that a company was entitled to a refund of its unused brownfield redevelopment tax credits carried over from the Single Business Tax to the Michigan Business Tax because the court's precedent allowed for the carryforward and refund of the credit if the credit exceeds the taxpayer's liability. 

New York- InSouth Bronx Unite! et al. v. New York City Industrial Development Agency et al., case number 260462/12, a New York appeals court affirmed a lower court's order denying a community group's attempt to renew a challenge to $84 million in city tax subsidies approved for FreshDirect LLC to move its distribution center to Harlem River Yard in the Bronx, saying they offered no new facts.

Even if the groups, which include South Bronx Unite, had presented new information, the appellate court has already dispensed with the underlying contention that Fresh Direct's lease is invalid, said the New York Supreme Court, Appellate Division, First Department, said 

The groups first lodged the suit in June 2012, alleging the New York City Industrial Development Agency greenlighted FreshDirect's development of its new warehouse based on a faulty environmental review in violation of the New York State Environmental Quality Review Act. The groups had also sought to invalidate FreshDirect's leasing rights for the Harlem River Yard property. 

The Appellate Division, First Department, however, ruled in 2014 that the NYCIDA took a hard enough look at the environmental assessment for FreshDirect's plan to move its distribution center from Long Island City, Queens, to Harlem River Yard. FreshDirect did not need to complete a supplemental environmental impact study on top of the environmental assessment it already submitted, the court said.

The groups' suit also challenged the approval of about $18 million for FreshDirect under New York state's Excelsior Jobs Program. The community groups said that, as a retailer, FreshDirect should have been explicitly excluded from the program, which is intended to focus on projects in the manufacturing and agricultural industries.

FreshDirect is expected to receive a total $127 million in state and city subsidies as it invests more than $100 million to build its new headquarters at Harlem River Yard. The company broke ground on the facility in 2014 and it is expected to open this year

New York- A New York appellate court affirmed the dismissal of a suit seeking to void the state's landmark casino-siting Gaming Act and the Start-Up NY Act to create tax-free business zones, saying both acts met the constitutional standard and lawmakers had enough time to consider the bills.

Constitutional activist Robert L. Schulz failed to join the Indian Nations and two counties as necessary parties for his Gaming Act challenge, and he also failed to prove that the Start-Up NY Act violates the state constitution's municipal home rule clause.

"Plaintiff contends that the passage of the Gaming Act and the Start-Up NY Act by messages of necessity denied him his right to petition for redress of grievances" under the New York and U.S. constitutions, the appellate panel said. "Although plaintiff indeed cited these constitutional provisions as jurisdictional bases for his complaint, he raised no substantive arguments with respect thereto before the Supreme Court."

Schulz, founder of a group called We The People of New York Inc. and a former Libertarian gubernatorial candidate known for filing constitutional challenges, sued Governor Cuomo in July 2013.  He claimed the New York legislature's casino-siting deal, informally reached after Cuomo published "messages of necessity" to allow for quick passage as the legislative session wound to a close, violated the state constitutional requirement that lawmakers be given time to read the bill.

Cuomo's messages of necessity to the State Senate and Assembly said the last-minute changes were made to correct technical errors, but Schulz in his suit charged that numerous policy changes such as the removal of a ban on political donations from casino interests accompanied any housekeeping changes.

The appellate panel said the need for haste that prompts the governor to issue a certificate of necessity in the first place may make it difficult to prepare a detailed statement of the reasons for it. In addition, the panel said, the legislature has its own remedy for an inadequate certificate, because if it does not think the governor's reasons are good ones, it is not required to act in fewer than three days or even to consider the bill at all.

As for Schulz's challenge to the constitutionality of the Start-Up NY Act, the appellate panel noted that legislative enactments enjoy a strong presumption of constitutionality, and it is presumed that the legislature investigated the legislation and found there was a need for it.

The casino-siting bill, which provides for four new gaming facilities across the state that will feature table games like craps and poker, was passed along with a proposed constitutional amendment making those table games legal. New York voters in November 2013 approved the constitutional amendment to expand casino gambling.

Schulz, who represents himself, could not be reached for comment Thursday. He has lodged scores of lawsuits, with varying degrees of success. His challenges to other Cuomo initiatives, including gun control and marriage equality, were thrown out.

The case is Schulz v. State of New York Executive et al., docket number 520670, in the State of New York Supreme Court, Appellate Division, Third Judicial Department, Albany, N.Y. 

Interesting Updates 

California- The California Film Commission (CFC) has announced new application dates, i.e., the application windows, for the California Film & Television Tax Credit Program 2.0. The TV application window for non-transferable tax credits will be open from May 18 through May 27, 2016, only for: (1) relocating TV series ($33 million in tax credits available); and (2) recurring TV projects (TV series, relocating TV series in their second season in California, or series from pilots that have previously received a credit allocation letter). All TV series must have pick up orders. The CFC's online application portal will go live on Wednesday, May 18, 2016, at 8:00 a.m. and will close on Friday, May 27, 2016, at 5:00 p.m. By May 31, 2016, projects that rank in the top 200% will be notified to submit Phase II documents. The CFC will make every effort to notify applicants if they will receive a reservation of tax credits by June 24, 2016, but credit allocation letters will not be issued until July 1, 2016.

Due to the success of the first year of Program 2.0 in attracting television production to California, the CFC will not be accepting applications for any new TV series, TV pilots, movies of the week (MOWs) or mini-series during the May application window in order to accommodate the anticipated recurring applications, but funds are available for relocating TV series. The application dates for independent projects (transferable film credits) and non-independent feature films (non-transferable tax credits) will be open from June 27 through July 8, 2016. By July 11, 2016, projects that rank in the top 200% will be notified to submit Phase II documents. (Application Dates, California Film & Television Tax Credit Program 2.0, California Film Commission, 04/01/2016; Production Alert, California Film Commission, 04/15/2016.)

Iowa- The Iowa General Assembly on April 25 approved a bill that would provide tax incentives to encourage development around the site where the movieField of Dreams was filmed.  SF 2312 was in the House and in the Senate and now goes to Governor Branstad who signed off on a previous attempt to provide the same tax incentives. Under current law, the state permits a qualifying owner of a "baseball and softball tournament facility and movie site" to apply for and receive a rebate of sales tax collected at its facility if ground was broken by July 1, 2013, which did not happen. SF 2312 would give the developers another opportunity to claim the incentive, eliminating the deadline to break ground and replacing it with a requirement that the project not be completed before July 1, 2016 -- a requirement that the ballpark should easily meet.

The bill would also eliminate some of the provisions prior legislation had sought to limit the incentives to that one project, allowing incentives at facilities other than those built on a maximum of 279 acres, in a city with a population between 4,000 and 5,000, and in a county with a population between 93,000 and 100,000.  That change is expected to benefit Prospect Meadows, a 17-field baseball complex being planned in the city of Cedar Rapids.  Rebates would be capped at $2.5 million per project and $5 million in total over the life of the program.  Given those restrictions, the Department of Revenue projects that the bill would cost the state $2.5 million for theField of Dreamssite and another $1.8 million for the Cedar Rapids facility.

Kansas/Missouri- A recent move by Kansas Governor Sam Brownback to end the corporate tax incentive war with Missouri that lured companies across state lines was shot down by a leading Missouri senator Ryan Silvey who stated that he doesn't believe the legislature will act on Brownback's proposal before the session adjourns at the end of May.

On April 15 Brownback released a memo outlining his counteroffer to Missouri to end the years-long corporate tax incentive war.  Brownback's directive comes two years after Missouri Governor Jay Nixon signed a bill (SB 635) that bars tax credits to companies relocating across the Kansas border to qualify for tax breaks. But that law will take effect only when Kansas enacts a similar measure, such as the proposal put forth by Brownback.

Since 2009 Missouri and Kansas have paid out more than $200 million in incentives to get about 6,000 jobs to move across state lines, according to a study by the Hall Family Foundation presented to a Missouri House committee in 2014.  The impetus for Brownback's proposal came from business leaders who thought it would be more beneficial to use the incentives to recruit companies on a national level, instead of between the two states. 

Michigan- On April 8, 2016, the Michigan Department of Treasury has released bulletins listing the contact information of the community foundations and education foundations that have been certified for tax year 2015 as foundations that a business may contribute to in order to receive a Michigan business tax credit.  Taxpayers must elect to file under the Michigan Business Tax Act, instead of the Income Tax Act, in order to claim the credits

© Horwood Marcus & Berk Chartered 2021. All Rights Reserved.National Law Review, Volume VI, Number 131



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