The incentive arena is changing fast and furious this year with a number of state tax credits expiring and their renewal unlikely in the face of state budget shortfalls. Some states have delayed implementation of new incentives that were scheduled to begin for tax year 2003 and 2004, and at least one state is holding back on approvals of incentive applications i
In order to delay the issuance of tax credits.Watch out for California and Illinois. The investment credits in these two states are set to expire on Dec. 31 and both states have indicated they will not be renewed.
In California, the Income Tax Credit for Manufacturers and the enterprise zone program were affected by recent legislation. Although the enterprise zone statute still exists and allows for a hiring credit, the agency that must certify new hires as qualified employees has been eliminated as of Dec. 31. Unless, and until those responsibilities are moved to an existing agency, no new credit vouchers will be issued.
Even worse, for Illinois, not only does the credit expire, but also no carry forwards will be allowed after Dec. 31.
West Virginia, Arkansas and Nebraska have all revamped their major incentive programs, changing credit values, utilization terms, carry forwards, definitions of qualified property and application processes. How these changes affect individual taxpayers will depend on the expansion plans and their ability to utilize credits.
Another state has not issued approvals for their research and development credits or other incentive programs that, although previously authorized and statutorily allowed, require issuance of a certificate from the Department of Economic Development. Those certificates have been on hold for many months.
The news on the incentive front is not all negative, however. Florida recently expanded its enterprise zone program, New Jersey re-enacted the Tax Benefit Transfer Program, and most states have incentives that will continue through the next year or two. Mississippi and Washington both passed laws allowing a tax credit for investments in the deployment of broadband technologies. Montana has enacted a tax credit for employers that increase the number of net employees in empowerment zones.
North Dakota passed a credit equal to 10 percent per year for five years of the taxpayer’s direct costs incurred to adapt or add equipment to retrofit an existing facility, or adapt a new facility for the purpose of producing or blending diesel fuel containing at least 2 percent biodiesel fuel by volume.
Colorado allows a tax credit for the purchase of hybrid vehicles, or those with a hybrid propulsion system that uses both alternative (electricity, for example) and traditional fuel.
New Mexico recently enhanced its investment tax credit, which is claimed against the state’s gross receipts tax, allowing for more investment per qualified net new employees. This will increase the available credit for companies making large investments but adding a limited number of new employees.
The bottom line is don’t assume the credits claimed in the past will be available against future liabilities. Incentives are available but they may not be the same credits you’ve known for years. A complete review of state tax credits and incentives may be needed for tax year 2003 and into the future.
Patricia Herrera is vice president of state incentive programs for Mintax Inc., an East Brunswick, N.J.,-based company that specializes in site selection and government incentives for new and expanding businesses. She can be reached at (732) 723-9000.
Means the article is accessible only to our magazine subscribers.
