This is the fifth in 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: Considering that spring legislative sessions have or will expire soon, it is critical to monitor the status of legislation which could either enhance or detract from obtaining a reasonable tax credit and incentive package in a jurisdiction. For legislation that has been enacted into law, one must be aware that not all laws are effective immediately. In fact, it is not uncommon for new laws to be effective the beginning of the next calendar year. Entities must take effective dates into consideration when developing their internal timelines.
If you are interested in state tax credits and incentives and want further updates and more specific information, please email Jennifer Zimmerman, partner in HMB's State and Local Tax Practice.
Recent Announcements of Credit/Incentives Applications and Packages
Alabama: Tuscaloosa County has agreed to give additional property tax abatements to Mercedes-Benz to "offset" plant expansion costs that doubled from the original estimate. The Tuscaloosa County Industrial Development Authority agreed to increase the value of the company's tax abatements to about $28.1 million, up from the $12.5 million approved in 2011.
California: On May 19, 2015, the California Film Commission announced that 37 television projects applied for the first allocation of the state's expanded film and television tax credit program as enacted under 2014 AB 1839; $55.2 million is available for new television series, and $27.6 million is available for series relocating production to California. The Film Commission is currently reviewing the applications to assess each project's eligibility and jobs ratio score. Those with a jobs ratio score within the top 200% of applicants will be elevated to "Phase-Two" for further evaluation and review. The Film Commission will then assign credits to the highest ranking projects until the credits are allocated.
Illinois: Florida-based logistics company Saddle Creek plans to open a 1.1 million-square-foot warehouse in Joliet that will have more than 200 employees, after considering moving the facility out of Illinois. Construction of the $43 million project will create about 250 jobs, with 200 permanent workers to be based in the warehouse. Saddle Creek received a 50% tax abatement for five years to help offset the cost of the move.
Kentucky: On May 28, 2015, Kentucky Governor Beshear announced that GreenSky Trade Credit LLC and EOS USA will invest approximately $7 million and $4 million respectively to expand their operations in the state, creating a total of 350 new jobs; the companies were each approved for up to $2 million in tax incentives to encourage investment and job growth.
Michigan: General Motors will invest $1 billion in its Warren Technical Center and add about 2,600 jobs over the next four years. In April 2015, the Warren City Council approved tax abatements that will enable GM to earn a return more quickly on its upgrade of the 710-acre campus where the bulk of its engineering, advanced technology and safety research is focused. The U.S. Department of the Interior last year certified the tech center as a National Historic Landmark.
Tennessee: The state budget recently signed into law (H.B. 1437, P.A. 2015-427) allows about $166 million in economic incentives for Volkswagen AG, which plans to expand its factory in Chattanooga. A study released May 27 by the University of Tennessee's Center for Business and Economic Research said that when complete, the expansion of VW's facility - which includes a research and development center - could add about 10,000 new jobs for Tennessee and yield about $35.1 million in annual state and local tax revenue, in addition to other economic benefits.
Legislative, Regulative and Gubernatorial Update
Colorado: On May 11, 2015, Colorado lawmakers sent a bill (HB 15-1219) to Governor Hickenlooper that would expand the state's enterprise zone program to include a tax credit for investments in renewable energy projects. The state already maintains a comprehensive scheme that provides credits for taxpayers who rehabilitate vacant buildings, provide job training and create new jobs. House Bill 15-1219 would expand the scheme to renewable energy investments and allow investors to receive a refund of 80% of the credit. However, if 80% of the credit is $750,000 or less, the taxpayer will receive the full refund in the first year. If the 80% threshold exceeds $750,000, then the taxpayer will receive up to $750,000 each year until 80% of the credit is completely refunded.
The bill would also change the state's definition of "renewable energy investments." Colorado law currently defines such investments as solar, thermal electric, landfill gas, wind, hydroelectric, recycled energy, geothermal energy and renewable fuel cell projects, among others. The legislation changes that definition to include projects that generate electricity from eligible energy sources that electric utilities may use to comply with the state's renewable energy standard.
HB 1180, enacted on May 26, 2015, creates a sales and use tax refund for clean technology and medical device companies with 35 or fewer employees.
The Colorado Senate on May 6, 2015, rejected HB 1158, a proposal to consider the merits of allowing tax incentives for data centers. As amended, the bill would have tasked the General Assembly's Joint Technology Committee to research the issue before the next session convened, considering the benefits of data centers, their impact on revenue, and the length of their investments in communities.
Georgia: Georgia HB 237 as signed into law on May 5, 2015, extends the state's angel investor tax credit to 2020 for qualified investors and pass-through entities.
Georgia HB 339 as signed into law on April 30, 2015 extends the income tax credit available for qualified film, video, or digital production companies to January 1, 2019, but also requires the commissioner to develop an application process and requires credit recipients to report on the number of full-time employees subject to Georgia withholding.
Georgia HB 63, signed into law on May 1, 2015, as the Georgia Employer GED Tax Credit Act of 2015, provides state income tax exemption rates and procedures for the adult basic skills education program tax credit. Specifically, a tax credit is granted to an employer who provides or sponsors an approved adult basic skills education program. The amount of the credit is 1) $400 for each employee who passes the basic skills education test that was paid for by the employer in a taxable year; or 2) $1,200 for each employee who successfully completes an approved adult basic skills education program consisting of at least 40 hours of training while the employee is being compensated at his or her normal rate of pay, and passes the basic skills education test that was paid for by the employer in a taxable year.
Georgia HB 464 as signed into law provides that effective January 1, 2016, the aggregate amount of income tax credits available for water conservation facilities shall not exceed $30 million per calendar year and provides a December 31, 2016, sunset date for the credits.
Louisiana: The House passed HB 829, a bill that would scale back the state's film tax credit by capping it at $226.4 million annually and limiting the amount for any single state-certified production to $30 million. The law would also add credits for base investments in films that are conditioned on hiring state residents.
The House also passed a bill (HB 779) to reduce the maximum value of the solar energy systems tax credit for the purchase and installation of solar energy systems by Louisiana residents. The credit for purchases of those systems is currently 50% of the first $25,000 of the cost.
Under the bill, the maximum credit amount for purchases of solar energy systems between July 1, 2015, and January 1, 2018, would be reduced to the lesser of 50 percent of the purchase and installation cost, $2 multiplied by the size of the systems measured in direct current watts, or $10,000. Leased system credits would also be limited, and the overall credit amount available to residents would be subject to an annual cap of $10 million.
HB 402 which also passed the House, would limit the availability of the state's nonrefundable credit against Louisiana's personal income tax for income taxes paid to other states. The credit would also be limited to taxes paid to other states that provide a similar credit for their residents who pay tax to Louisiana.
The credit would also be limited to the lesser of the actual tax paid to the other state or the amount of Louisiana tax that would have been imposed had the income in question been earned in the state. The Louisiana Legislative Fiscal Office estimated that the bill would bring in $34 million annually.
The Louisiana House on May 7, 2015, passed HB 805 that would scale back the state's refundable inventory tax credit. HB 805 proposes to change the tax credit for ad valoremtaxes paid on certain inventory and natural gas from refundable credits to credits in which 75% of the excess credit amount shall be refundable and 25% of the excess credit amount may be carried forward and applied against subsequent tax liability for up to five years. HB 805 has been sent to the Senate for consideration.
Meanwhile, other bills making their way through the Legislature would also change the inventory tax credit regime. A bill (SB 177) that proposes a constitutional amendment to exempt businesses from the inventory property tax passed the Senate Finance Committee on April 22. Another bill, SB 126, would repeal state credits against the state income or corporation franchise taxes for 100% of inventory taxes paid to political subdivisions.
Maryland: On May 26, 2015, Governor Hogan distanced himself from Maryland's film production tax credit by announcing that he will allow legislation that indefinitely extends the credit to take effect on July 1 without his signature. Under Maryland law, Hogan had until the end of May to sign or veto bills passed during the General Assembly's 2015 legislative session, including the measure (S.B. 905) that will extend the tax credit most notably associated with Netflix's "House of Cards" and HBO's "Veep," both of which film in Baltimore.
Massachusetts: Members of the Senate on May 14 proposed more than 20 tax-related amendments to the Senate's fiscal 2016 budget, including (1) an increase to the amount of the research and development credit that a business could claim against the corporate income tax, (2) an increase to the aggregate amount available under the historic rehabilitation tax credit from $50 million to $75 million; and (3) an increase to the total amount available under the conservation land tax credit program from $2 million to $5 million.
Michigan: The Michigan House on May 7 overwhelmingly approved two bills that would eventually eliminate the Michigan business tax (MBT) and freeze at current levels the state's liability for the Michigan Economic Growth Authority tax credits. HB 4333 and HB 4334 were introduced in an attempt to prevent Michigan's liability for the MEGA credits, many of which go to Big Three automakers, from expanding past the current level of $9.38 billion. That total liability is expected over the next 16 years. HB 4333 and HB 4334 would bar MEGA from entering into new agreements or modifying existing agreements for MBT credits, unless a modification reduces the amount of the credit and does not extend the period during which a business is eligible to claim the credit.
Minnesota: In the latest round for control of the Minnesota budget and the state's $1.9 billion surplus, the Minnesota Senate on May 4 passed SF 826 containing $268 million in tax cuts. But now it has gone to conference with the Republican-controlled House, which on April 29 passed a bill that devotes the entire surplus to tax cuts. Among other things, SF 826 would give a $2,500 tax credit to an employer that hires an unemployed veteran and would create a workforce housing tax credit with $19 million available over the next three years.
Nevada: On May 27, 2015, SB 94 was passed into law which expands the state's film tax credit program. The bill removes the $10 million cap on the amount that can be awarded to a company over four years. Instead, the Legislature has discretion over the amount authorized each fiscal year. SB 94 also removes the program's June 30, 2023, expiration date, making the credit permanent.
New Hampshire: SB 30, signed into law on May 21, 2015, provides millions of dollars in state-backed tax increment financing (TIF) to help revive a historic resort. SB 30 makes a number of changes to existing law, including making unincorporated territory eligible for the state's municipal TIF program, raising the cap for loan guarantees by the Business Finance Authority from $95 million to $115 million, and increasing from $25 million to $30 million the cap for any single project. The bill provides $28 million in state guarantees for the first phase of a 10-year redevelopment project at The Balsams, a resort in Coos County. The project, which is estimated to cost $320 million and could provide an estimated 1,700 jobs, includes the renovation of existing buildings; the addition of a new 400-room hotel, conference center, and spa; and a ski area expansion.
New Jersey: The New Jersey Senate Environmental Committee on May 11, 2015, passed a resolution, SCR159, urging the federal government to reinstate and extend the production tax credit for wind energy as part of an effort to encourage the development of the technology in the state, which has been resisted by the governor's administration. SCR159 now heads to the Senate floor, where the bill sponsor hopes to gain enough support from fellow state lawmakers to urge President Barack Obama and Congress to reinstate the federal program which expired in 2013. The tax credit is a federal incentive that provides financial support for the development of renewable energy facilities, including wind energy, by providing a per kilowatt-hour incentive for the first 10 years of a renewable energy facility's operation. Originally enacted in 1992, the production tax credit for wind energy and other renewable energy technologies had been renewed and expanded numerous times before expiring two years ago.
Two New Jersey legislators introduced A 4478, the Digital Currency Jobs Creation Act, that would expand one of the state's corporate tax incentive programs to include bitcoins. Under the measure, a separate category for digital currency servicers or registrants would be created under the Grow New Jersey Assistance Program. Companies that create at least 10 new jobs would qualify for up to $5,000 for each additional new job created and would also be exempt from all energy and utility sales taxes.
The bill's introduction comes as the New Jersey Economic Development Authority (EDA) partnered with Rutgers to evaluate the effectiveness of two of the state's business tax incentive programs. Earlier in May, legislation was proposed to reform the state's business tax incentive programs -- which have provided $5.2 billion in tax breaks since 2010 -- by imposing a moratorium on all future corporate tax incentives until an assessment is completed to measure each program's effectiveness. As a result of this new partnership, the senator who proposed the legislation stated that a moratorium is no longer necessary.
North Carolina: On April 30, 2015, North Carolina Governor McCrory approved legislation (SB 372) delaying the sunset of the state's renewable energy tax credit until January 2017 for projects that are already under development. To qualify for the delayed sunset provision, a taxpayer must file with the state by October 1, 2015, an application containing the location of the project, an estimate of the project's total cost, the total anticipated credit to be claimed, and the total size in megawatt capacity of each project proposed or under construction. The fee that taxpayers must remit along with their application will vary from a minimum of $5,000 upward, determined at a rate of $1,000 per megawatt of the project's capacity.
Rhode Island: H 5116 -- the Rhode Island Qualified Jobs Incentive Act of 2015 -- would offer eligible businesses that create new jobs in the state in the next five years a reduction in their income tax rates. The legislation would provide tax credits ranging from $2,500 to $7,500 to eligible businesses that create new high-quality jobs through 2020. Higher tax credits may be awarded based on being located in a high poverty location or if the business is a targeted industry such as technology. To offset the costs of the bill, the tax credits would not exceed the amount of state income taxes generated by each individual new job created. The same representative has introduced the same corporate tax bill three years in a row to help spur job growth in the state, but this time he is collaborating with the governor and as a result he is more confident of its passage.
Tennessee: Governor Haslam, on May 20 2015, signed into law a bill (H.B. 291) that eliminated a number of existing Tennessee tax credits while expanding the scope of other credit provisions. That legislation, assigned Public Act 2015-504, was aimed at reducing underutilized or narrow tax credits to focus on more competitive efforts.
Under P.A. 2015-504, certain tax credits for call centers owned by partnerships, mercury elimination efforts by manufacturers, green energy suppliers, airline headquarters, medical trade center relocation and advertising expenses, cultural attractions, and regional headquarters relocation expenses will be eliminated July 1. Taxpayers that have filed a business plan with the state Department of Economic and Community Development seeking to qualify for those credits prior to their expiration will continue to be eligible.
Eligibility for a job creation tax credit, in the amount of $4,500 per qualifying job, will be expanded to cover the creation or expansion of back office jobs, and a sales and use tax exemption for industrial machinery will be broadened to include machinery and associated materials used for the purposes of research and development. The new law also requires the regular review of state tax credit provisions.
Also on May 20, Governor Haslam signed into law a bill (H.B. 1026) that creates a new "community resurgence job tax credit." That law (P.A. 2015-521) will provide a job tax credit of $2,500 against franchise and excise tax liability for each qualifying job created by businesses in a high-poverty area. At least 10 qualifying jobs must be created and the total credit is capped at $12.5 million a year.
Washington: Backers of HB 2147 in the Washington Legislature that would tie aerospace companies' tax incentives to the number of employees they have in the state are fighting for support as budget talks draw out the session. HB 2147 comes after state lawmakers in 2013 extended several tax breaks for the state's aerospace industry from 2024 to 2040, which were designed to persuade Boeing Co. to expand its operations in Washington. Altogether the extension is worth approximately $8.7 billion over the lifetime of the program. Boeing has since moved roughly 3,000 jobs out of state, with more moves planned. According to documents filed by Boeing with the National Labor Relations Board, the company has moved jobs out of state at least 16 times over the past 2 years, even during its push for the extension of tax breaks. The company's moves have been defended by Governor Inslee, a sign HB 2147 may face difficulty passing the governor's desk if it survives the Legislature.
Virginia: Virginia Governor McAuliffe vetoed HB 1879 and identical SB 1161, which would have extended the coal employment and production incentives and the coalfield employment enhancement tax credits for two years, saying that the credits would not slow the decline of coal production and employment without meaningful reform.
States' Evaluation and Review of Credit and Incentive Programs
Montana: Governor Bullock vetoed HB 154, a bill that would have established review periods and sunsets for a variety of tax incentives. HB 154 would have required 24 tax credits to be reapproved every eight years, but only after a legislative committee evaluated the credits and made recommendations for their continuation. The committee would have been charged with considering various factors in making its recommendations, including whether the credits reward behavior that would happen regardless of the availability of the credit, how the credits create winners and losers, whether the credit is helping out-of-state interests, and a cost-benefit analysis of each credit.
Nebraska: Nebraska LB 538 signed into law on May 27, 2015, requires the Office of Legislative Audit to develop a schedule for performing tax incentive performance audits on the eight existing tax credit programs and any new programs that may be created for the purpose of business recruitment or retention; each program should be reviewed at least once every three years. The bill also includes a two-year eligibility extension for new project applications under the Nebraska Advantage Act.
New Jersey: On May 13, 2015, Governor Christie conditionally vetoed Assembly Bill 939, a measure aimed at enhancing reporting and disclosure requirements for state tax breaks, calling for "a more holistic view" of projects and investments rather than a handful of performance indicators. Christie said in a veto statement that he agreed with the idea to more closely monitor state tax incentives, but not with Assembly Bill 939's call for annual evaluations, sending the bill back to the legislature with a handful of changes he argued were needed to ensure the state could effectively review the benefits of each tax expenditure.
Tennessee: On May 20, 2015, Governor Haslan signed HB 291 into law, which makes Tennessee the next state to adopt a law mandating the evaluation of tax incentives. The Tennessee Commissioner of Economic and Community Development along with the Commissioner of Revenue is required to review the 4 prior years and evaluate the purpose of the credit, foregone revenue to the state as result of the credit, any benefits provided to the state as a result of the benefit, and the estimated indirect economic impact of the credit. A report with a recommendation for modifications or no change is required to be submitted by January 15, 2017.
Illinois: Litigation challenging the state's ability to grant EDGE credits for retained jobs was dismissed by an Illinois Circuit Court. Jenner v. Illinois Department of Commerce and Economic Opportunity, 15-MR-16 (Circuit Court of Sangamon County, Illinois, May 12, 2015). Illinois EDGE credits are discretionary income tax credits awarded by the Illinois Department of Commerce and Economic Opportunity (DCEO). The credits are generated as a percentage of employee wage withholding. Sometimes DCEO has awarded credits for retained jobs as well as new jobs. In January 2015, the Liberty Justice Center, acting on behalf of several taxpayers, filed a complaint alleging that it was illegal for Illinois to give credits for retained jobs because (1) the EDGE credit statute authorized awards only for new jobs, and (2) as a result, DCEO's regulation allowing credits for retained jobs exceeded statutory authorization. The state moved to dismiss for lack of standing, and the plaintiffs countered that they had standing as taxpayers challenging illegal use of state funds. The Circuit Court agreed with the state and granted its motion to dismiss. The plaintiffs plan to appeal the decision.
New York: The New York Supreme Court, Appellate Division, reviewed a trial court's dismissal of 11 combined appeals of the Empire Zone Designation Board's retroactive revocation of empire zone business certifications, evaluating whether the businesses failed the cost to benefit test or were "shirt changers" (i.e. entities that transferred employees to another entity with similar ownership). The appellate division found that the Supreme Court of Albany County should have granted the taxpayers' petitions to the extent that they sought declarations that retroactively decertifying empire zone business status was improper, but that the taxpayers' other declaratory judgment actions were properly dismissed. Lyell Mt. Read Business Center LLC v. Empire Zone Designation Bd.; 519389; 591390; 519391; 519392; 519393; 519394; 519396; 519398; 519399; 519400; 519402 (May 7, 2015).
Pennsylvania: Pennsylvania Lt. Gov. Stack didn't run the Pittsburgh marathon on May 3 to raise money for charity or in honor of someone; he ran it to raise awareness about the state's film tax credit program. Stack, who finished the 26.2-mile race in 3 hours and 48 minutes, worked with independent filmmakers to record his race and will produce a video about the benefits of film tax credits to the economy.
The state's film tax credit program is capped at $60 million annually, according to the Department of Community and Economic Development, which oversees the program. Film production companies are awarded 25% tax credits only if they guarantee that they will spend at least 60% of their budgets on qualified expenses in Pennsylvania.
For fiscal 2015, which ends June 30, there is $211,518 still available in film tax credits. Last year, the state had exhausted all of its tax credit allocation well before the fiscal year ended. Stack favors increasing the cap "as much as is practical when the state budget is formulated, although he has not identified a specific figure." Stack, a member of the Screen Actors Guild, has performed with several local theater productions and has played roles in the television series Finders Keepers. He said creating movies in Pennsylvania is good for jobs and local business.
Several lawmakers this session introduced legislation aimed at uncapping the film tax credit to allow the Department of Community and Economic Development more flexibility to commit to multiyear productions. SB 565 was introduced on February 25 to uncap the tax credit and clarify definitions of some terms used in the program. SB 505 was introduced on February 19 to expand the use of the film tax credit so that it is consistent with the other tax credits available in the state. Both bills have not moved from the Senate Finance Committee.