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August 2016 Tax Credits & Incentives Update

Tip of the Month: Given the fact that the fall election is right around the corner, we expect that there will be an uptick of activity in some markets, especially with negotiated incentives, while other markets will face a standstill, depending on the political landscape of the particular market.  Also, we also expect a flurry of activity during the lame duck sessions in particular markets.  As a result, it makes sense to have internal and/or external resources whose boots are close to the ground during these turbulent times.              

Recent Announcements of Credit/Incentives Applications and Packages

California- The Walt Disney Company will receive roughly $267 million in tax rebates over the next two decades in connection with a luxury hotel that the company is planning to build near its Anaheim, California, theme park, thanks to an Anaheim City Council. 
The council voted 3-1 in favor of the tax breaks, which over the first 20 years of the hotel's operation will send 70 percent of the collected hotel occupancy taxes back to Disney as an incentive for the hospitality giant to bring the luxury hotel to the area.

New Jersey- New Jersey has approved over $7 billion in new tax breaks for corporations since January 2010, according to data analyzed by New Jersey Policy Perspective (NJPP).  The state topped the $7 billion mark when the New Jersey Economic Development Authority (NJEDA) approved an additional $174 million in tax breaks on July 14.  The NJPP noted that the total given out since 2010 is $1.2 billion more than was awarded in the entire preceding decade. 

Pennsylvania-  Governor Tom Wolf announced that has agreed to expand its presence within the state after receiving a funding proposal that includes $15 million in job creation tax credits to be distributed upon the creation of 5,000 new, full-time jobs over the next three years.  The company has also committed to investing at least $150 million statewide and agreed to maintain new and retain its current positions statewide for an additional four years.\

Utah- On July 15, the Utah Legislature approved a bill to authorize a new sales tax incentive for data centers.  SB 3002 would allow a sales tax exemption for data centers of at least 150,000 square feet built after July 1, 2016.  The rumor is that the incentive was specifically designed for Facebook. 

Legislative, Regulative and Gubernatorial Update

California- On June 29, the California Governor's Office of Business and Economic Development (GO-Biz) announced that, for fiscal year 2016&2017, applications for the California Competes Tax Credit will be accepted online during the following periods: (1) July 25, 2016, through August 22, 2016 ($75 million available); (2) January 2, 2017, through January 23, 2017 ($100 million available); and (3) March 6, 2017, through March 27, 2017 ($68.3 million plus any remaining unallocated amounts from the previous application periods). GO-Biz also announced that the California Competes Tax Credit Committee meetings will be held on the following dates (with the times and locations to be determined): November 17, 2016; April 13, 2017; and June 15, 2017.

Florida- In Florida Tax Information Publication No. 16ADM-02, 07/19/2016, the Department announced that the Florida tax credit scholarship program tax credit cap will increase to $698,852,539 for the 2017-2018 state fiscal year. The Florida tax credit scholarship program allows taxpayers to make private, voluntary contributions to nonprofit scholarship funding organizations and receive a dollar-for-dollar credit against specific Florida taxes. Oil and gas production taxpayers; taxpayers who pay sales tax under a direct pay permit; corporate income taxpayers; taxpayers who pay excise tax on liquor, wine, and malt beverages; and insurance premium taxpayers may participate in the program. Beginning January 3, 2017, taxpayers may apply for the 2017-2018 state fiscal year, or for tax years that begin in 2017 (in the case of corporate income tax and insurance premium tax). Taxpayers may apply for a credit allocation using the Department's website.

Hawaii- L. 2016, H1689 (Act 258), applicable to taxable years beginning after 12/31/2016, establishes an organic foods production tax credit for each qualified taxpayer subject to Hawaii income taxes. The credit will be deductible from the taxpayer's net income tax liability, if any, for the taxable year in which the credit is properly claimed. The amount of the credit will be equal to the qualified expenses of the qualified taxpayer, up to a maximum of $50,000. In the case of a partnership, S corporation, estate, or trust, the tax credit allowable is for qualified expenses incurred by the entity for the taxable year.  The credit is capped at $2 million for all qualified taxpayers in any taxable year, provided that any taxpayer who is not eligible to claim the credit in a taxable year due to the cap having been exceeded for that taxable year, will be eligible to claim the credit in the subsequent taxable year.  Excess credit may be carried forward until exhausted. The tax credit sunsets December 31, 2021.

Hawaii- L. 2016, S2652 (Act 202), applicable to taxable years beginning after 12/31/2016, establishes a five-year renewable fuels production tax credit for each taxpayer subject to Hawaii income taxes that is producing renewable fuels. The credit will be applied to the taxpayer's net income tax liability for the taxable year in which the credit is properly claimed. The annual dollar amount of the credit during the five-year credit period will equal 20¢ per seventy-six thousand British thermal units of renewable fuels using the lower heating value sold for distribution in Hawaii, provided the taxpayer's production of renewable fuels is not less than fifteen billion British thermal units of renewable fuels per year. The credit is capped at $3 million per taxpayer per taxable year.  Excess credit may be carried forward until exhausted. The renewable fuels production tax credit sunsets December 31, 2021. The bill also repeals the ethanol facility tax credit.

Illinois- P.A. 99-0615, effective 07/22/2016, provides that an Enterprise Zone certified prior to January 1, 2016 or on or after January 1, 2017 will be effective on January 1 of the calendar year after the Illinois Department of Commerce and Economic Opportunity's certification. An Enterprise Zone certified on or after January 1, 2016 and on or before December 31, 2016 will be effective on the date of the Department's certification.

Indiana- Governor Mike Pence announced his plan to advance innovation and entrepreneurship in Indiana by investing $1 billion over the next 10 years; $100 million will go to efforts aimed at approving transferability of the venture capital investment tax credit, so as to increase the accessibility of private sector funding for startup companies.

Kentucky- The Kentucky Department of Revenue has announced that the new markets tax credit cap for fiscal year June 30, 2017, $5 million of the $10 million credit cap, is now available. A refundable performance fee is required when a new markets credit application is submitted. The refundable performance fee is equal to 0.5% of the amount of the equity investment or long-term debt security requested to be certified as a qualified equity investment, not to exceed $500,000. There is also a $1,000 application fee that should accompany the application.  Kentucky New Markets Development Program Tax Credit, Ky. DOR, 07/15/2016.

Kentucky- The Kentucky Department of Revenue has announced that the Endow Kentucky tax credit cap for fiscal year June 30, 2017 is now available up to $1 million. The Application for Preliminary Authorization of the Endow Kentucky Tax Credit must be used to obtain preliminary approval of the tax credit. Taxpayers who donate money to permanent endowment funds of qualified community foundations, county-specific component funds, or affiliate community foundations may claim a nonrefundable credit against the corporate or personal income taxes and the limited liability entity tax.  Kentucky Endow Tax Credit Cap, 07/11/2016. 

Louisiana- In Press Release, Louisiana Department of Revenue, 07/10/2016, the Department announced that the amount of claims submitted for Louisiana's solar energy system tax credit exceeds the amount of money available to pay claims on purchased systems through the scheduled end of the credit program on December 31, 2017. According to the Department, consumers purchasing residential solar energy systems from this point forward should not expect to receive that tax credit from the state. Taxpayers who do not receive refunds under the 2016 fiscal year cap will be notified in writing if they are eligible for deferred claims under the $10 million cap for fiscal year 2016-2017 or the $5 million cap for the 2017-2018 fiscal year. Any taxpayer who is denied a solar energy system tax credit due to lack of funds will receive a certified letter of denial.

Missouri- On July 1, 2016, Missouri Governor Jay Nixon signed legislation that authorizes an income tax deduction equal to 50% of the expenses associated with eliminating a business unit located outside Missouri and reestablishing that unit within the state, creates three types of income tax deductions for entities transporting cargo through water port facilities and airports in Missouri, and provides a tax credit for certain costs associated with the redevelopment of former automobile manufacturing plants. L. 2016, S861, effective 08/28/2016.

Massachusetts- The Massachusetts House of Representatives approved a comprehensive economic development bill, H 4461, on July 7 that included tax incentive reform and tax deductions for college-saving families.  If passed in the Senate and signed into law, the bill would allow the state to borrow more than $915 million over the next five years as part of a comprehensive approach to spur economic growth in Massachusetts.

H 4461 would reform the state's economic development incentive program, allowing Housing and Economic Development Secretary Jay Ash and Finance Secretary Kristen Lepore to determine a company's eligibility for tax credits.  The Economic Assistance Coordinating Council would then be authorized to award up to $30 million annually in tax incentives. The council could authorize additional credits -- up to $50 million on total annual tax incentives -- for projects or businesses deemed to be an "extraordinary economic development opportunity," a designation for candidates with the biggest potential payoff.

Michigan- HB 5786 would allow individual income tax payers to claim a credit of 20 percent of qualified angel investments made in 2017 or later.  Credits would need to be approved by the Michigan Strategic Fund, and taxpayers receiving certification of their eligibility would be required to take the credits in two equal installments, first in the tax year of the certification and then in the following year.  The incentive would be available for investments of at least $20,000 in seed or early-stage businesses with a pre-investment valuation under $10 million and less than 100 full-time equivalent employees. Qualifying businesses would also need to be headquartered in Michigan and have a majority of their employees in the state.

HB 5787 would authorize the Michigan Strategic Fund's board of directors to determine applicants' eligibility for the program and certify qualified investments.

Montana- On July 19, 2016, Montana Governor Steve Bullock announced plans to propose legislation to promote job growth by offering a waiver of 75 percent of a new or expanding business's equipment tax for the first five years of operation, a $1,000 tax credit for every worker hired and offered training, and a $2,000 tax credit for every veteran hired and offered training.

Nevada- The Nevada Tax Commission has adopted commerce tax regulation LCB File No. R123-15, effective June 28, 2016. The regulation adopts provisions for the administration and calculation of the credit against the payroll tax imposed on certain businesses for the payment of the commerce tax by a business. Existing law authorizes a business entity that has paid the commerce tax to receive a credit against the excise tax on the wages paid by certain businesses in an amount equal to 50% of the commerce tax paid by the business for the preceding taxable year. The adopted regulation authorizes a business entity that is a member of an affiliated group of entities, and provides certain payroll services for the other members of the affiliated group, to receive a credit in an amount equal to 50% of the sum of the commerce tax paid by the payroll provider and certain other members of the affiliated group if the Department determines that the payroll provider satisfies certain criteria.

New Jersey- On June 30, Governor Christie signed A 4002 which delays the payment of some tax credits under the Business Employment Incentive Program, saving the state about $133 million in fiscal 2017, according to a fiscal note. The bill revises the priority schedule for the issuance of converted tax credits by decreasing the percentage of accrued amounts that are required to be issued as tax credits in the first two years of the program's five years and increasing the percentage amounts for the last three years.  The New Jersey Business and Industry Association (NJBIA) also criticized the bill, arguing that it punishes businesses that moved jobs and investment to New Jersey in good faith.

North Dakota- Effective July 1, 2016, N.D. Admin. Code 81-03-01.1-06 dealing with the income tax exemption for new and expanding business is provide that the amount of the yearly income tax exemption for new and expanding business is limited to income earned from the new business or expansion in each tax year that was included in federal taxable income.

North Dakota- Effective July 1, 2016, N.D. Admin. Code 81-03-05.1-05 dealing with S corporation tax credits is revised to provide that S corporations may only claim the corporate tax credit for new industry and the corporate tax credit for research and experimental expenditures.

North Dakota- Effective July 1, 2016, N.D. Admin. Code 81-03-05.1-06 dealing with the tax credit for research and experimental expenditures is amended to provide that when calculating the tax credit, the taxpayer may include in the base amount, only those amounts that were incurred in or attributable to North Dakota.

Tennessee- In Tennessee Important Notice No. 16-06, 07/01/2016, the Tennessee Department of Revenue discussed the changes in the requirements for a qualified data center that became effective on July 1, 2016. Under the amended law, the taxpayer, in order to be considered as a qualified data center, must do the following over a 3-year investment period: (1) make a capital investment of more than $100 million in real property, tangible property or computer software; and (2) create at least 15 new full-time permanent jobs paying at least 150% of the state average occupational wage with minimal health care. Prior to July 1, 2016, the required capital investment was $250 million and the requirement for new jobs created during the investment period was at least 25 jobs. Beginning July 1, 2016, qualified data centers may make purchases of cooling equipment and backup power infrastructure exempt from sales and use tax. A new application for the certificate that authorizes the taxpayer to make qualifying purchases for use in the operation of a qualified data center exempt from sales and use tax is available on the Department's website.

Review of Incentive Programs

Alabama- Alabama is seeking a specialist to evaluate those tax expenditure programs.  At the request of the Senate President, the Alabama Department of Revenue has put out a request for proposal (RFP) from individuals or firms with a highly specific set of skills.  By close of business on August 5, the state is hoping to find a vendor with experience in "evaluating the direct and indirect economic impact of state tax expenditure programs; communicating highly technical tax policy and economic impact information in a manner understandable for lay people; and working with state governments and regulatory entities."

Hawaii- L. 2016, H1527 (Act 245), effective 07/01/2018, provides for a periodic review by the state auditor of certain tax credits, exclusions, and deductions under the income tax and financial institutions tax. The auditor must determine the amount of tax expenditure for the credit, exclusion, or deduction for each of the previous three fiscal years; estimate the amount of tax expenditure for the current fiscal year and the next two fiscal years; determine whether the credit, exclusion, or deduction has achieved and continues to achieve the purpose for which it was enacted; determine whether the credit, exclusion, or deduction is necessary to promote or preserve tax equity or efficiency; if the credit, exclusion, or deduction was enacted because of its purported economic or employment benefit to Hawaii, determine if a benefit has resulted and the extent of the benefit, as well as if the benefit outweighs the cost; and estimate the annual cost of the credit, exclusion, or deduction per low income resident of Hawaii.

The auditor must recommend whether the credit, exclusion, or deduction should be retained, amended, or repealed. The law specifies which credits, exclusions and deductions under the income tax and the financial institutions tax must be reviewed in years 2019 through 2023, and every fifth year thereafter.

Louisiana- Louisiana Governor John Bel Edwards has announced on July 5, 2016 that Louisiana Economic Development (LED) will conduct a comprehensive review of the state's Motion Picture Production Tax Credit program, with recommendations for reform and best practices to be addressed in the 2017 fiscal session. The goal will be a sustainable Louisiana film and TV production industry that provides fiscal predictability for the state. LED's analysis will include an independent examination of the program's economic impact in Louisiana as well as input from all stakeholders, including the film industry.

Rhode Island- In Tax Credits and Incentives: Disclosure and Reporting Requirements, R.I. Div. of Taxation, Notice 2016-03, 07/18/2016, Rhode Island announced that entities must annually disclose certain information to the Division of Taxation. The applicable tax credits and incentives are: Rhode Island Commerce Corporation Project Status; Incentives for Innovation and Growth; Jobs Development Act; Distresses Areas Economic Revitalization Act; Motion Pictures Production Tax Credit; and Historic Preservation Tax Credits. The deadline for filing Form TC-100 (Tax Credits and Incentives Disclosure Form) is August 15, 2016 and the deadline for filing the applicable Annual Employee Report is September 1, 2016. Taxpayers that receive multiple incentives must file an annual report for each incentive.

Utah- L. 2016, H3001, effective 07/17/2016, requires the Revenue and Taxation Interim Committee to review certain tax credits related to corporate income tax, personal income tax, motor and fuel tax, taxation of admitted insurers, and economic development every three years (previously, every five years) and make recommendations whether they should be continued, modified, or repealed. The bill also establishes requirements for the review.

Washington- Washington state legislative committee staff have advised lawmakers to change, end, or phase out 10 tax breaks, and to review and clarify the goals of eight others. They advised legislators to eliminate six unused tax breaks involving semiconductor material manufacturing and repeal a tax break for various venues' purchase of soft drink syrup.  Staff also recommended that the Legislature clarify the purpose of several tax incentives, including a preferential B&O tax rate for solar and silicon product manufacturers, a tax credit to compensate utilities that pay customers for renewable power generation, a sales tax exemption for wood-based flavor-imparting items used by restaurants, and a reduced B&O tax rate on timber-harvesting businesses.

Case Law

New Mexico- A hearing officer for the New Mexico Administrative Hearings Office, after reviewing the legislative intent of the sustainable building tax credit, found the Taxation and Revenue Department properly denied a taxpayer's request to transfer a portion of the credit to her fiancé after she had previously claimed the credit for herself.  The Department had previously allowed the taxpayer to transfer a portion of the credit.  However, the hearing officer agreed with the Department who argued that its previous position was erroneous and that a more careful reading of the statute revealed that the document granting the credit is what may be transferred. The statute allows for the building owner to either use the document his/herself or to transfer it to someone else. The statute does not allow the Taxpayer to make use of the document in some years and then to transfer a portion of the remaining credit granted by the document in other years.  Docket No. 16-37; Matter of Ericksen, July 15, 2016.

Interesting Updates

Chicago, Illinois- Chicago's take from tax-increment financing districts has unexpectedly gone way up, an action likely to set off a free-for-all about to do with the windfall. 
According to a new report dated July 19, 2016 by Cook County Clerk David Orr, city TIF receipts leapt 23.9 percent in the most recent property-tax year, 2015. That will give City Hall an extra $89 million to spend, with total receipts hitting $460.6 million, the highest since the great recession.

Louisiana- Horizon Entertainment and Productions LLC either inflated, never incurred, or lacked sufficient documentation for about $3.5 million in expenses it reported for two television productions. This resulted in over $1 million in motion picture investor tax credits that never should have been issued, according to a report from the Louisiana Office of the State Inspector General.  The investigation further revealed that Horizon engaged in circular bank transfers with subsidiaries, creating the impression that it had spent more on projects than it actually did.  The report included several recommendations for preventing further abuses of the tax credit program.

New Jersey- The New Jersey Division of Taxation announced that effective May 2016, taxpayers who are required by law to obtain a business assistance or incentive tax clearance certificate and are registered with the Division of Revenue may apply for the certificates online.

New York- New York state audit has called into question the tax credits Chobani LLC received under two separate programs, since the company qualified due to a road dividing its yogurt plant. Chobani received tax credits from both the state's Empire Zone and Excelsior programs from 2012 until 2015.  According to the 2015 Excelsior Jobs Program state audit released July 7, companies participating in the program cannot simultaneously receive Empire Zone tax credits at the same site.  However, a road divides Chobani's New Berlin plant, separating the company's manufacturing plant from its recent expansion across the road -- a warehouse. State officials said the road division and diverse activities taking place on each side allowed Chobani to qualify for both programs.

New York- Start-UP NY which was designed to create jobs and spur economic growth has produced a total of 408 jobs in its first two years, after state officials spent an estimated $53 million promoting the economic development initiative, according to a recently released report by Empire State Development Corp., the state's economic development agency.  A total of 159 companies were participating in the program as of December 31, 2015; they pledged to create over 4,140 jobs by 2020 and invest over $230 million in five years, according to the report, which was due by law April 1

© Horwood Marcus & Berk Chartered 2023. All Rights Reserved.National Law Review, Volume VI, Number 218

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