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State by State Legislation and Regulation: March 2016 Tax Credits & Incentives Update

This post continues a monthly series outlining updates in state tax credits and incentives; included here are 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 in which states compete with each other for jobs and investment. Regardless of the criticisms, state tax credits and incentives benefit many kinds of entities in a number of different ways.  

Tip of the Month:  The 2016 spring legislative session is in full swing and based on prior years, 2016 is no exception.  Given that 2016 is an election year, depending on the status of state and federal elections, I anticipate that certain states will be very active while other states, like my home state of Illinois, will be the opposite.  Therefore, it is more crucial than ever to be aware and up-to-date with newly enacted legislation as such legislation may affect projects that are under consideration or pending in certain states.     

Recent Announcements of Credit/Incentives Applications and Packages 

Nevada- Nevada has approved $9.2 million in tax abatements for Hyperloop Technologies Inc., a company developing an experimental rapid, land-based transportation system.  The project is expected to bring 89 jobs and comes as the company is already building a smaller test track there.  The incentives mainly involve reducing the sales tax rate the company will pay on $120 million in capital investments, from about 8 percent to 2 percent. 

Legislative, Regulative and Gubernatorial Update

Alaska- An Alaska House committee on March 19 proposed smaller cuts to the state's generous oil and gas tax incentives than those called for by Governor Walker.

To help close a then $3.5 billion projected deficit, Walker in January proposed HB 247, along with its counterpart bill SB 130, which would eliminate some tax credits and scale back the state's incentives program. The governor also proposed HB 246 (counterpart bill SB 129) to create a new oil and gas development loan program to partially offset the credit cuts. 

The House Resources Standing Committee's proposed modifications to HB 247, which come after numerous hearings, would result in substantially smaller savings for the state.

According to the Department of Revenue, Walker's plan would save $500 million in fiscal 2017 and $425 million in fiscal 2018, while the committee's proposed amendments would save the state only $45 million and $60 million, respectively. However, the bill's passage from the committee -- whose members include lawmakers from oil-rich regions -- would signal that the proposed incentives reform could move this year.

Delaware- On March 17, 2016, Governor Markell signed SB 200 into law which is titled the Commitment to Innovation Act.  First, the Act ensures all companies receive the full research and development tax credit for which they qualify by removing the annual expenditure cap of $5 million and making the credit refundable.  Second, SB 200 makes modifications to the New Economy Jobs tax credit, which provides an incentive for companies to establish global corporate headquarters in Delaware. Companies that choose to do this are eligible to receive a tax credit calculated based on the value of their total income tax withholding payments to the state.  

Florida- Florida HB 627, signed into law as Chapter 131, amends the community contribution tax credit program to specify that a donation of real property may include the transfer of 100 percent ownership of a real property holding company. 

Florida- One item noticeably absent from the state budget and tax cut package recently approved by the Florida Legislature is an extension of the state's film tax incentive program, which expires July 1.  Florida's film tax credit -- the Film and Entertainment Industry Financial Incentive Program -- was enacted in 2010 with $296 million in credits, which were all allotted by 2013. Without an extension of the program, Florida will have no film tax incentives to entice production companies with beginning in July.

Iowa- The Iowa Senate on March 16 approved a bill (SF 2300) to allow tax credits for businesses that produce renewable chemicals using biomass feedstock. 

Maryland- Two Maryland bills to provide tax incentives for manufacturers appear to have stalled in the Senate Budget and Taxation Committee, even though one of the bills has 43 cosponsors.  SB 181 would establish the Manufacturing Development Zone Program to be administered by the Department of Commerce. Counties and municipalities could apply to be designated as development zones and receive 10-year property and income tax credits.  A similar bill, SB 386, which was introduced at the request of the Governor would target low-income areas to receive tax credits under the Manufacturing Empowerment Zone Program. 

Mississippi- The Mississippi Department of Revenue has proposed changes to rules on the motion picture production tax incentive to clarify reporting and documentation requirements, including how to document expenditures that qualify for rebate. 

New Mexico- New Mexico SB 211, signed into law as Chapter 77, updates the Film Production Tax Credit Act to conform to 2015 amendments and allows film production companies to assign payment of a tax credit to a third-party financial institution. 

South Dakota- South Dakota HB 1177 as signed into law makes solar facilities eligible for a tax incentive that was previously available only to wind farms. 

South Dakota- South Dakota SB 159 as signed into law creates the partners in education tax credit to allow insurance companies to claim a credit against the premium tax for up to 80 percent of total contributions made to a scholarship granting organization in a year. 

Utah- Utah HB 31 as signed into law modifies requirements for county or municipal enterprise zones, amends requirements for businesses to obtain an enterprise zone tax credit, and requires the Revenue and Taxation Interim Committee to review the credit's effectiveness every five years beginning in 2018. 

Utah- Utah SB 16 as signed into law allows a person to carry forward a tax credit if the Utah State Tax Commission is required to remove the credit from a tax return, and exempts corporate and individual historic preservation tax credits from being removed by the Tax Commission on some returns.

Utah- Utah SB 171, effective 01/01/2016 as signed into law repeals refundable corporate and individual income tax credits for business entities generating state tax revenue increases, and provides for additional income tax credits for investments in life science establishments, limited to a total of $150,000 in fiscal years 2017 and 2018.  Also, S102, effective 03/28/2016, authorizes the Office of Energy Development to establish rules to implement the high cost infrastructure tax credit program and to establish criteria to qualify for the tax credit. 

Utah- Utah HB 162 as signed into law amends reporting requirements for motion picture cash rebate incentives and refundable tax credits by requiring companies to identify both the dollars left in the state and new state revenues generated by the state-approved production. 

Virginia- Virginia SB 58, signed into law as Chapter 300, increases the research and development expenses tax credit annual cap from $6 million to $7 million; extends the expiration date of the credit from January 1, 2019, to January 1, 2022; and prohibits businesses with Virginia qualified R&D expenses in excess of $5 million from claiming the credit.

Virginia- Virginia Gov. Terry McAuliffe (D) vetoed a bill March 11 that would have extended some coal-related tax credits, claiming that the credits haven't been effective; West Virginia also recently abandoned legislation that would have reduced the coal severance tax, resulting in strong criticism from the struggling coal industry. 

Virginia- H1093 (c. 392), effective 07/01/2016, provides that for taxable years beginning January 1, 2016 through January 1, 2022, an income tax credit is available to any taxpayer engaged in the business of farming that donates food crops to a nonprofit food bank. The bill defines "food crops" as grains, fruits, nuts, or vegetables. The credit is 30% of the fair market value of food crops donated to a nonprofit food bank but cannot exceed $5,000 during the taxable year. 

Case Law

Arkansas- In Opinion No. 20160102, the Arkansas Department of Finance and Administration advised a taxpayer that it may apply InvestArk credits to both the standard rate of sales and use tax and the reduced rate of sales and use tax paid for repair and replacement of manufacturing equipment on its sales and use tax return. 

Michigan- In Hudsonville Creamery and Ice Cream Co., LLC, v. Department of Treasury, Mich. Ct. App., Dkt. No. 322968, 03/29/2016, the Michigan Court of Appeals in a split decision found that certain brownfield tax credits issued to a taxpayer under the former Michigan Single Business Tax Act (SBTA) were eligible for a tax refund under the now repealed Michigan Business Tax Act (MBTA). The common understanding of the term "credit," as used in Mich. Comp. Laws Ann. § 208.1437(18) encompassed a carryforward of a tax credit earned under the SBTA. Additionally, that statute permitted a refund of 85% of the amount of such unused credits, without limitation. Accordingly, the taxpayer was entitled to a refund of 85% of its unused brownfield credits in the 2008 tax year at issue. 

New York- The New York Tax Appeals Tribunal affirmed an administrative law judge's finding that a manufacturer may not include its site remediation costs in the site preparation credit component of the brownfield redevelopment credit because it deducted the costs at the federal level under an IRC section 198 election, disqualifying them for the state credit.  Matter of Coltec Industries Inc., DTA No. 825211.  

New York- A New York Division of Tax Appeals administrative law judge ruled that the shareholders of two corporations were not entitled to real property tax credits for payments made in lieu of tax to local development agencies because the corporations were lessees, not owners, of the property and did not make a direct PILOT agreement with the agencies.  Matter of Rouse, DTA Nos. 826194; 826318; 826319; 826320; 826321. 

New York- An administrative law judge for the New York Division of Tax Appeals found that the tax division properly denied an investment tax credit refund for a New Hampshire-based corporation, which attempted to claim the credit based on its ownership in a limited liability company, because the corporation was not a new business.  Matter of Wagner Forest Mgmt. Ltd., DTA No. 826509. 

Interesting Updates 

Various- A report by Good Jobs First has found that in Florida, Missouri, and New Mexico, large companies receive at least 68 percent of overall state economic development spending, despite the fact that 99.7 percent of U.S. employers are small firms with fewer than 500 employees. 

Boston, Massachusetts- Boston Mayor Martin Walsh (D) on March 8 defended the use of tax incentives to lure companies such as General Electric Co. to the Bay State.  During an annual address to the Municipal Research Bureau, Walsh cited evidence that tax incentives have helped Boston become a hub for thriving small businesses and start-up companies. He also said that two credit rating agencies, Moody's Investor Service and Standard & Poor's, recently reaffirmed the city's Aaa stable bond rating and strong economy.

Louisiana- Two film producers convicted last year of swindling Louisiana out of $1.1 million in film infrastructure tax credits to renovate a mansion used in HBO's "True Detective" escaped prison time Wednesday for their roles in the scheme to defraud the state. 

Missouri- Missouri's film tax incentive program expired in 2013, but there are signs that film tax credits are coming back to life in the Show Me State.  Most notably, for the first time, Missouri's largest city has enacted its own film tax incentive program. On February 25, the Kansas City Council created the program on a rebate basis -- companies with projects that meet certain requirements can get up to 7.5 percent of their costs back from the city.  In addition, HB 1645 has been introduced which would reinstate the film tax incentive program in Missouri. Under the bill, companies could get a credit of 20 percent for qualifying expenses, both in and out of the state. They would be able to get an additional 5 percent credit if at least 50 percent of the project were filmed in Missouri. 

New Jersey- Similar to last year, a New Jersey Senate Committee advanced a bill on March 14 that would provide a gross income tax credit for A-list performing artists.  S 351, approved by the Senate State Government, Wagering, Tourism and Historic Preservation Committee, would provide top-ranked national performers a 100 percent tax credit for income earned from live performances within the Atlantic City Tourism District on a recurring basis, and within the state. 

New York City- New York City Mayor Bill de Blasio (D) and New York State Attorney General Eric Schneiderman (D) announced that the city will fund almost 600 new affordable apartments with $10 million collected from settlements with property owners who abused tax incentive programs. 

Wisconsin- The Wisconsin Department of Revenue, in an updated publication, Publication 131, explained what is "qualified research," who is eligible for and how to claim research expense credits and sales and use tax exemptions, and what records must be kept to document the qualified research activities being conducted.

© Horwood Marcus & Berk Chartered 2021. All Rights Reserved.National Law Review, Volume VI, Number 110

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