Incentives Archives - Page 3 of 5

Incentives

New “Job Creation Project” EDIP Credits to Boost Tech Jobs in Massachusetts

by Scott M. Susko | Sep 22, 2014 | Incentives, Massachusetts

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 [...]

Continue Reading

New York Corporate Tax Reform: Benefits (and Burdens?) for Qualified New York Manufacturers

by Emily Townsend | Aug 7, 2014 | Incentives, Income Tax, New York

Earlier this year, New York enacted sweeping corporate tax reform that included a number of special benefits for qualified New York manufacturers. (For a discussion of this corporate tax reform, see our Special Report.) Unlike most of the corporate tax reform amendments (which are generally effective for tax years beginning on or after January 1, 2015), some of the benefits for qualified New York manufacturers are effective immediately for tax years beginning on or after January 1, 2014.

The new benefits available to qualified New York manufacturers are:

A 0 percent tax rate for purposes of computing tax on the entire net income base (for 2014) or the business income base (for 2015 and later);
New reduced tax rates for purposes of computing tax on the capital base (with the capital base tax to be fully phased out for all taxpayers by 2021)
- Retention of the $350,000 cap on the capital base tax (while the cap was increased to $5 million for other taxpayers);
Lower fixed dollar minimum tax rates; and
A refundable real property tax credit equal to 20 percent of the real property tax paid during the taxable year on property owned (and in some cases leased) by the taxpayer and principally used in manufacturing.

A corporation or a combined group is a “qualified New York manufacturer” if (1) more than 50 percent of the taxpayer’s or combined group’s gross receipts are from qualifying activities (e.g., manufacturing, processing or assembling) and (2) it has property meeting the Investment Tax Credit (ITC) requirements located in New York State with a basis of at least $1 million. A taxpayer, or combined group, that fails the receipts test may still be a qualified New York manufacturer if it has at least 2,500 New York manufacturing employees and at least $100 million of manufacturing property in New York.

Notwithstanding these tax benefits, the Department’s recently released FAQs highlight a potential negative financial statement consequence for taxpayers with significant deferred tax assets, including New York net operating loss carryforwards. In the FAQs, the Department confirms that the value of the prior net operation loss conversion subtraction for a qualified New York manufacturer “is $0 due to the 0 % ENI rate.” In other words, a qualified New York manufacturer cannot carry forward or use its existing net operating loss carryforwards in future years, which may result in negative financial statement consequences.

Qualified New York manufacturers with significant New York credit carryforwards may also suffer a financial statement impact, but the forecast is not as bleak. They may still have the ability to apply most unused credits against the capital base tax (until it is fully phased out).

Stay tuned for additional guidance regarding qualified New York manufacturers. The Department is preparing a technical memorandum regarding qualified New York manufacturers that is expected to be released by the end of this year.

New York Releases Corporate Tax Reform FAQs

by McDermott Will & Emery | Jul 25, 2014 | Incentives, Income Tax, New York, Nexus, Tax Base

Earlier this year, New York enacted sweeping corporate tax reform, generally effective for tax years beginning on or after January 1, 2015, including a new economic nexus standard, changes to New York’s combined reporting regime, changes to the tax base and traditional New York income classifications, changes to the receipts factor computation, and changes to the net operating loss calculation and certain tax credits and incentives. (For a more detailed discussion of these changes, see our Special Report.

While this corporate reform is quite comprehensive, a number of open issues remain so taxpayers and practitioners have been eagerly awaiting additional guidance from the Department of Taxation and Finance. As a first step in providing that much-needed guidance, the Department has released its first set of responses to frequently asked questions on a new “Corporate Tax Reform FAQs” section of its website. Most notably, the responses clarify that the non-unitary presumption based on less than 20 percent stock ownership for purposes of determining exempt investment income is a rebuttable presumption. The responses also clarify that the business capital base includes items of capital that generate exempt income. Other topics addressed include economic nexus, credits, the Metropolitan Transportation Business Tax (MTA surcharge) and net operating losses.

The Department plans to update the Corporate Tax Reform FAQs on an ongoing basis as it continues to receive questions from taxpayers and practitioners, which can be submitted on the Department’s website. We will be submitting questions and comments and can do so on behalf of companies that do not want to be identified. The Department is also in the process of revising its current regulations (which are expected to be released before the end of 2015) and plans to issue two technical memoranda in the interim, one discussing qualified New York manufacturers and one discussing the new expense attribution rules. Stay tuned for updates regarding this additional guidance.

Illinois Legislative Tax Policy Subcommittees Issue Joint Report on Findings

by Mary Kay McCalla Martire | May 29, 2014 | Illinois, Incentives, Income Tax, Sales Tax, Transaction Taxes

On May 28, 2014, the Tax Policy Subcommittees of the Illinois General Assembly’s Joint Revenue and Finance and State Government Administration Committees (Subcommittees) issued their long-awaited Report on Findings regarding the State of Illinois (Report). The Report was generated after months of hearings and solicitation of written comments from interested parties with respect to Illinois tax rates, tax incentives and tax policy issues.

The Report is chock full of facts and figures. Unfortunately, it fails to offer much clear direction for the state, as the members of the Subcommittees were unable to agree on the majority of the issues considered. For example, the Report provides that the state should “continue to explore” the question of whether Illinois should apply the sales tax to services, as do many surrounding states. Similarly, the Report concludes that while most members of the Subcommittees believe that the corporate income tax rate should be reduced, they could not agree on the amount of the reduction, what corresponding cuts in state spending would offset such a reduction, or even whether the Illinois personal property replacement tax should be considered as part of the corporate income tax rate when comparing Illinois’ income tax rates to those of other states. The Report also concludes that the Subcommittees are “strongly interested” in providing sales tax exemptions to customers who provide data centers in Illinois, but has not come to a consensus about how to move forward with that process. The Subcommittees also failed to reach a consensus regarding any changes needed to the Economic Development for a Growing Economy credit, instead offering only the platitude that “it is imperative to ensure that Illinois remains competitive in today’s economy.”

The Report does, however, contain the following findings:

In its most definitive finding, the Report recommends the elimination of the Illinois franchise tax. No specific plan or timetable is put forward for the elimination of this tax.
The Report concludes that Illinois’ eligibility criteria for the research and development (R&D) tax credit should be changed to match the federal requirements. For instance, the federal alternative simplified R&D credit would require that R&D spending exceed 50 percent (instead of 100 percent) of the previous three year average.
The Report concludes that initial filing fees for LLCs should be reduced. No consensus was reached regarding the amount of the reduction.
The Report recommends that the state streamline current processes by designating a point person to help businesses seeking the state’s help with respect to job creation, retention and relocation in Illinois.

In what appears to be an effort to boost the state’s image in the business community, the Report also references a number of favorable statements about Illinois’ business climate that the Report attributes to various business publications. The Report touts that Illinois ranks third in corporate expansions, according to Site Selection Magazine, that Illinois was identified as among the top five states for “technology and innovation” and “infrastructure” according to CNBC Top States for Business 2013 [...]

Continue Reading

Oklahoma Supreme Court KOs the Constitution

by McDermott Will & Emery, Diann Smith and Stephen P. Kranz | May 5, 2014 | Constitutional Issues, Incentives, Income Tax, Nationwide Importance, Oklahoma, Tax Base

On April 22, the Supreme Court of Oklahoma released its opinion in CDR Systems Corp. v. Oklahoma Tax Commission. Case No. 109,886; 2014 OK 31. The Oklahoma Supreme Court, overturning the decision of the Court of Civil Appeals, held that an Oklahoma statute, which grants a deduction for income from gains that result from the sale of all or substantially all of the assets of an “Oklahoma company,” is constitutional under the Commerce Clause. “Oklahoma company” is defined as an entity that has had its primary headquarters in Oklahoma for at least three uninterrupted years prior to the date of the taxable transaction.

In a 5-4 decision, the Oklahoma Supreme Court determined that there was no discrimination against out-of-state commerce. Even if there was discrimination, the Oklahoma Supreme Court held that the statute does not facially discriminate against interstate commerce, does not have a discriminatory purpose and has no discriminatory effect on interstate commerce. The Oklahoma Supreme Court’s reasoning was based in part on the conclusion that the statute treated all taxpayers the same.

In his dissent, Justice Combs reached the opposite conclusion and wrote that the deduction is unconstitutional because the primary headquarters requirement is based upon the level of business a company conducts in Oklahoma, and therefore it discriminates against out-of-state taxpayers. The dissent concluded that the statute effectively creates a tax on taxpayers with an out-of-state headquarters.

Although the majority ably walked through the existing case precedent on these issues, it misunderstood the practical effect of the statute. First, the majority concluded that the statute did not discriminate against any particular market because all markets are treated the same. This conclusion ignores the fact that under the statute, in-state markets are treated differently than out-of-state markets. The majority stated that “[w]ithout any actual or prospective competition in a single market, there is no negative impact on interstate commerce that results from the application of this deduction and no discrimination against interstate commerce . . . .” (Majority Opinion, p. 14). However, there is competition between in-state companies and out-of-state companies, not just in a single market but in all markets.

In reaching this conclusion, the majority relied upon Gen. Motors Corp. v. Tracy, 519 U.S. 278 (1997), which upheld the constitutionality of a tax that discriminated across markets (in other words, the statute benefited an in-state entity not because the entity was in-state but because it was in a different market and sold different products than an out-of-state entity). The dissent specifically took exception to the majority’s reliance on Gen. Motors, for good reason. The Tracy case does not appear to be applicable here, because the in-state and out-of-state entities are competing in the same markets under the Oklahoma statute.

Second, the majority concluded that the statute did not facially discriminate against interstate commerce because “[t]he degree to which the entity generating the gains participated in out-of-state activity, i.e. interstate commerce, is not relevant to whether the entity qualifies for the deduction” (Majority Opinion, p. 17). The [...]

Continue Reading

Maryland Madness: An Incentives Plot for House of Cards

by McDermott Will & Emery | Apr 28, 2014 | Incentives, Maryland

Somewhere in Hollywood:

House of Cards Screenwriter 1: Let’s have an episode where a business getting tax breaks puts on the lobbying pressure to get even more, only to cross the wrong legislator and nearly lose everything.

House of Cards Screenwriter 2: That’s too unrealistic – it could never happen.

Apparently the Maryland legislature disagrees. Media Rights Capital, the studio producing House of Cards, threatened to move filming to another state if the Maryland legislature would not increase the amount of film tax credits available to support filming the series’ third season. In response Bill Frick of the Maryland House of Delegates submitted an amendment to Senate Bill 172, the Budget Reconciliation and Financing Act of 2014, allowing the state to use the power of eminent domain to acquire a film production company’s real, tangible and intangible private property for just compensation if such production company claimed over $10 million in credits (i.e., Media Rights Capital) and ceased film production is the state. The bill as amended passed the House of Delegates but died in conference with the Senate, as the final minutes to the end of the General Assembly session ticked by. With the film credit budget now set at $15 million – not the $18.5 million desired but more than the $7.5 million originally budgeted – it remains to be seen whether Media Rights Capital will walk.

This is the type of legislative risk that we touched on in our recent article published in State Tax Notes, “Locking In Economic Development Incentives To Minimize Risks.” At the end of the day, a state is a sovereign body that, depending on how an incentives package is structured, may have substantial leeway to change the deal if the relationship with the business sours. And even if a state is constrained in adjusting the package in some respects – Delegate Frick’s amendment may have raised a takings clause issue – there often is nothing stopping a state from exacting separate punitive measures in retribution.

But Media Rights Capital was not the only one facing risk. The Old Line State is putting its reputation at stake. The sheer fact that such punitive legislation was proposed and passed the House of Delegates may chill future filming or other incentive agreements in Maryland.