In the battle for tech jobs, Massachusetts has added a significant new element to its arsenal of incentives in the form of “job creation project” Economic Development Incentive Program (EDIP) credits. EDIP is a tax incentive program designed to foster job creation and foster business growth in Massachusetts. The new initiative has been enacted as part of H. 4377, an economic development bill that is now Chapter 287 of the Acts of 2014. Job creation project EDIP credits address a gap in the existing EDIP credit program. Previously the State required a significant capital investment to qualify for credits — a requirement that some technology companies found hard to satisfy. Although the amount of the credits – either $1,000 or $5,000 per new job (offset against the Massachusetts corporate excise tax) – is not as generous as some states’ tax credits for new jobs, this is a promising move to attract up-and-coming technology companies to the state.
EDIP credits are discretionary deal-closing incentives. Businesses apply for credit allocations through the Massachusetts Office of Business Development (MOBD), and credit allocations are awarded by the Economic Assistance Coordinating Council (EACC), which has an annual credit cap “budget” of $25 million. Under the existing EDIP credits, after a credit allocation has been awarded, a business still has to earn the credit by demonstrating the required capital investment, based on a percentage of the value of property placed in service. While this approach works well for industrial projects, it is not as good a fit for technology businesses. Such businesses may struggle to place enough property in service to qualify for credits. Even if they meet the capital investment requirement, tech businesses may be unable to demonstrate a sufficient increase in the value of the real property to allow the local tax increment financing (TIF) incentive match that is typically awarded to EDIP projects.
The new “job creation project” track fills the gap by allowing credit generation and awards for expanding businesses that do not involve large capital investments. In order to be eligible for an award, a business must (1) be in the Massachusetts, (2) generate “substantial sales” from outside of Massachusetts, (3) not involve a significant investment in constructing or expanding a facility and (4) generate at least 100 new jobs within two years and maintain those jobs over the following five years. See 2014 Mass. Acts ch. 287, § 13 (providing a new definition of “job creation project” in M.G.L. ch. 23A, § 3A).
The application process for an award is basically the same as that for other EDIP credits. No single project can receive more than a $1 million award. Additionally, no local TIF is required for job creation project EDIP credits.
Once an allocation is awarded, job creation project EDIP credits still have to be generated, based on a demonstration of new job growth. Credits are generated in the year after the job is created, and ordinarily will be awarded at $1,000 per job. Credits can grow to $5,000 in “gateway municipalities,” which are generally small historic manufacturing cities (list here), or in municipalities with unemployment above the state average. See 2014 Mass. Acts ch. 287, § 55 (amending the EDIP credit provisions of M.G.L. ch. 63, § 38N(a))(collectively, “Gateway City”).
Better yet, unlike most EDIP credits, the credits for job creation projects are refundable at the taxpayer’s election. See 2014 Mass. Acts ch. 287, § 58 (amending M.G.L. ch. 63, § 38N(b)). As a result, even companies with minimal corporate excise tax can benefit from job creation project EDIP credits.
To implement this program, MOBD has issued guidance explaining its planned fall pilot program focusing on technology companies. To qualify, a business must be in the tech sector and must plan to create at least 100 jobs before December 31, 2015. Additionally, businesses should bear in mind that MOBD and the EACC are allocating only $2.5 million of their $25 million annual cap for job creation project EDIP awards. It is anticipated that awards will not exceed $250,000 generally or $500,000 in the case of a project in a Gateway City. Deadlines for this fall application pilot program are coming quickly, with preliminary applications due October 24, 2014.