BUSINESS TAX INCENTIVES Advanced Tax Institute

Transcription

1 BUSINESS TAX INCENTIVES 2013 Advanced Tax Institute November 20 th, 2013

2 Applications are available at: Direct questions to: Mark Vulcan: Stacy Kubofcik: Emiko Kawagoshi:

3 ROLE OF INCENTIVES IN ECONOMIC DEVELOPMENT Maryland has a long tradition of enacting business tax incentives designed to: Encourage job creation Revitalize communities Increase capital investment Promote industry growth 3

4 MAJOR INCENTIVES FOR ECONOMIC DEVELOPMENT Job Creation Tax Credit One Maryland Tax Credit Enterprise Zone Tax Credit Arts & Entertainment Districts Brownfields Revitalization Incentive Program Biotechnology Investment Incentive Tax Credit Research and Development Tax Credit Cellulosic Ethanol Technology R&D Tax Credit Employer Security Clearance Costs Tax Credit Wineries and Vineyards Tax Credit Cybersecurity Investment Incentive Tax Credit 4

5 Job Creation Tax Credit (JCTC)

6 JOB CREATION TAX CREDIT Job Creation Tax Credit (JCTC) provides income tax credits and incentivizes businesses that create new jobs, expand or relocate in Maryland. Businesses locating in revitalization areas receive additional benefits. Businesses certified for the JCTC since 2001 have created approx. 15,400 jobs with an average wage of $46,000 per year. The program sunsets January 1,

7 BENEFITS 2.5 percent of annual wages up to $1,000 per new job created 5 percent of annual wages up to $1,500 per new job in a revitalization area, as defined by the JCTC statute $1 million maximum benefit per credit year Carryover period: 5 years Applies to corporate income tax, personal income tax, insurance premiums and public service company franchise tax 7

8 QUALIFICATIONS Businesses must create: 60 net new, full-time positions min. 35 hrs/week 30 positions with an aggregate annual salary exceeding $3.1 million, or 25 positions located in a JCTC Priority Funding Area Pay 150% of federal minimum wage Create position in 24 months and retain the position for 3 years following the credit year Clawback Provision: If positions fall more than 5 percent, a portion of the credit may be recaptured; If positions fall below the minimum threshold, the entire credit may be recaptured 8

9 One Maryland Tax Credit

10 ONE MARYLAND TAX CREDIT One Maryland Tax Credit was designed to encourage development in qualified distressed counties. This includes, Allegany, Caroline, Dorchester, Somerset, Washington &Worcester Counties, and Baltimore City* Businesses that invest in an economic development project in certain counties may qualify for $5.5 million in income tax credits. Businesses certified for the tax credit since 2001 have created 3,176 jobs with an average wage of $55,742 per year. * Subject to change 10

11 BENEFITS Project Tax Credits Tax credits of up to $5 million based on qualifying costs and expenses including acquisition, construction and equipping of an eligible economic development project Eligible project costs must be at least $500,000 Start-up Tax Credits Tax credits for the expense of moving a business from outside Maryland and for the costs of furnishing and equipping a new location May not exceed the lesser of $500,000 of eligible startup costs or $10,000 times the number of new, qualified positions created 11

12 BENEFITS (CON T) Carryover period: 14 years Applies to corporate income tax, personal income tax and insurance premiums tax 12

13 QUALIFICATIONS Businesses must: Locate in a Priority Funding Area in a qualified distressed county Create at least 25 new, full-time (35 hr/week) qualified positions within 24 months of the date the project is placed in service; positions must be filled for 12 months Be primarily engaged in a qualified activity at the business facility Project must be complete within 3 years of beginning acquisition, construction or installation 13

14 Enterprise Zone Tax Credit

15 ENTERPRISE ZONE TAX CREDIT The Enterprise Zone Tax Credit program encourages job creation and investment in real property in economically distressed areas. Businesses may be eligible for income tax credits and real property tax credits in return for job creation and investments made in the Enterprise Zone. The program has no sunset date, however each individual Enterprise Zone expires 10 years after it is designated. 15

16 ENTERPRISE ZONE TAX CREDIT In FY 2014, 802 businesses received property tax credits totaling $27.41 million. Real property investments made by businesses in FY2014 was $2,377 million an average capital investment of $2.96 million per business. Local zone administrators certified 145 new businesses for the property and/ or income tax credits in

17 ENTERPRISE ZONES 30 Enterprise Zones in 13 Counties and City: 11 Central Maryland 9 Western Maryland 10 Eastern Shore Focus Areas: Prince George s County Baltimore City 17

18 ENTERPRISE ZONE BENEFITS Real Property Tax Credit Ten-year tax credit on improvements to real property Years 1-5, 80 percent credit on increases in assessed value Years 6-10, decreases 10 percent annually to 30 percent in the tenth and last year Tax credit goes to real property owner Income Tax Credit $1,000 credit per new employee $6,000 credit over three years for hiring economically disadvantaged employees $3,000 in year 1 $2,000 in year 2 $1,000 in year 3 Carryover period: 5 years 18

19 FOCUS AREA BENEFITS Real Property Tax Credit Real property tax credit of 80% on increases in assessed value for the full ten years Personal property tax credit of 80% for ten years on new investment in personal property Income Tax Credit $1,500 credit per new employee $9,000 credit over three years for hiring economically disadvantaged employees $4,500 in year 1 $3,000 in year 2 $1,500 in year 3 Carryover period: 5 years 19

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21 QUALIFICATIONS Qualified businesses must: Meet jurisdiction s standards Counties and municipalities administer and certify businesses for the tax credit To qualify for the Real Property Tax Credit, businesses must make improvements to real property that increase its assessed value. To qualify for the Income Tax Credits, businesses must hire full-time (35 hrs/week) qualified employees after the later of either the date the zone is designated or the date the business located in the zone. Pay must be 150% of minimum wage. 21

22 Arts & Entertainment Districts

23 ARTS & ENTERTAINMENT DISTRICTS The Arts & Entertainment Districts program offers property tax credits for renovations that create livework space or arts and entertainment enterprises. Maryland is one of the first states to create statewide tax benefits for arts districts. Income tax subtraction modification for income from artistic works sold by qualified resident artists. Admissions and amusement tax exemption. 23

24 BENEFITS Create and maintain healthy vibrant creative clusters in order to provide significant economic benefits including: Job creation Increased tax base Establish dynamic arts and cultural destinations Leverage state s financial resources and designations (A&E, Sustainable Communities, Main Street) 24

25 QUALIFICATIONS A&E districts must be in a contiguous geographic region within a priority funding area. A&E districts are distinguished by physical and cultural resources. A qualifying residing artist owns or rents residential real property; conducts business and derives income from the sale or performance within the A&E district. A&E districts receive designation for 10 years. 25

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27 Brownfields Revitalization Incentive Program (BRIP)

28 BROWNFIELDS REVITALIZATION INCENTIVE The program is designed to encourage participation in the Voluntary Cleanup Program (VCP) and to provide financial incentives for the redevelopment of properties previously used for commercial or industrial purposes within designated growth areas of participating jurisdictions. Participating Jurisdictions: Counties - Allegany, Anne Arundel, Baltimore, Baltimore City, Cecil, Dorchester, Frederick, Howard, Montgomery, Prince George s, Queen Anne s, Somerset and Worcester Municipalities - Colmar Manor, Cumberland, Frederick, Salisbury and Taneytown 28

29 BENEFITS The administering jurisdiction will: Provide a 50% credit on the property tax attributable to the increase of the site assessment, including improvements added within 5 years after the reassessment Pay 30% of the increased property taxes to the BRIP Fund for use in BRIP projects; an additional 20% credit is optional The tax credit is granted for a 5 year period. If the site is in a designated Enterprise Zone, an additional 5 years of credit may be granted. 29

30 QUALIFICATIONS The property must be either: Located in a densely populated urban center and be substantially underutilized, or In an existing or former industrial or commercial site that poses a threat to public health or the environment A site owned by a responsible person who is eligible to participate in the Maryland Department of Energy s VIP is also eligible for environment assessment assistance. 30

31 BROWNFIELDS UTILIZATION As of June 30, 2012, DBED has approved 123 BRIP projects of which 61 have received tax qualification letters to be eligible to receive real property tax credits. 31

32 Biotechnology Investment Incentive Tax Credit

33 BIOTECHNOLOGY INVESTMENT INCENTIVE TAX CREDIT Biotechnology Investment Incentive Tax Credit (BIITC) provides income tax credits for investors in Qualified Maryland Biotechnology Companies (QMBCs). The program offers incentives for investment in seed and early stage, privately held biotech companies. In 2012, DBED received a total of 195 applications; 183 resulted in the issuance of Initial Tax Credit Certificates. The program was funded FY 2007 through 2010 in the amount of $6 million each year, FY 2011 through 2013 in the amount of $8 million each year, and $ 10 million in FY

34 BENEFITS Tax credit is 50 percent of the eligible investment Tax credit amount may not exceed $250,000 for a qualified investor Credits are refundable if the amount of the credit exceeds the taxpayer s tax liability Credit is awarded on a first come, first serve basis 34

35 QUALIFICATIONS Qualified Investor Entity that invests at least $25,000 in a Qualified Maryland Biotechnology Company (QMBC) and required to file an income tax return in any jurisdiction Qualified Maryland Biotechnology Company (QMBC) A company that has its headquarters and base of operations in Maryland Has fewer than 50 employees Has been in active business no longer than 10 years, 12 years if approved by DBED; beginning of July 2013, once certified, QMBC can participate for up to 10 years in the program Has been certified as a qualified biotechnology company by DBED 35

36 Research and Development Tax Credit

37 RESEARCH AND DEVELOPMENT TAX CREDIT Basic and Growth R&D Tax Credits are available to businesses that incur qualified research and development expenses in Maryland. The R&D tax credit incentivizes over a billion dollars of R&D spending in Maryland each year. In 2012, DBED certified 181 businesses that incurred $1,105 million in research and development expenses for their tax year ending in The program will sunset January 1,

38 BENEFITS Basic R&D Tax Credit 3% of eligible R&D expenses that do not exceed the firm s average R&D expenses over the last four years If, the total amount of credits claimed by all firms exceeds $4 million, the Basic R&D tax credit will be prorated Growth R&D Tax Credit Ten percent of eligible R&D expenses that exceed the firm s average R&D expenses over the last four years If the total amount of credits claimed by all firms exceeds $4 million, then the Growth R&D tax credit will be prorated 38

39 BENEFITS Refund for Small Business R&D tax credits certified after December 15, 2012 are refundable for a small business if the tax credits exceed the income tax liability. A small business a for profit corporation, limited liability company, partnership, or sole proprietorship with net book value assets totaling, at the beginning or the end of the taxable year for which Maryland qualified research and development expenses are incurred, as reported on the balance sheet, less than $5,000,000. Carryover period: 7 years 39

40 QUALIFICATIONS Eligible expenses are restricted to "Maryland qualified research and development" as defined in 41 (d) of the Internal Revenue Code that is conducted in Maryland. A business and it s subcontractor may not qualify for the same R&D expenses. The business must apply to DBED by September 15 th each year, for expenses incurred in the previous tax year. The business must amend its return to claim the credits. 40

41 Cellulosic Ethanol Technology R&D Tax Credit

42 CELLULOSIC ETHANOL TECHNOLOGY R&D TAX CREDIT The R&D tax credit is available to individuals or businesses that invest in Cellulosic Ethanol Technology, which is defined as technology used to develop cellulosic biomass for conversion to ethanol fuel. The program will sunset December 31,

43 BENEFITS Tax credits are calculated as 10 percent of qualified research and development expenses for research and development in cellulosic ethanol technology conducted in the State Program limited to $250,000 per credit year If the amount that all businesses apply for exceeds the limit, each business will receive its pro-rata share Carryover period:15 years Applies to personal or corporate income tax 43

44 Employer Security Clearance Costs Tax Credit

45 EMPLOYER SECURITY CLEARANCE COSTS TAX CREDIT Income tax credit for individuals or businesses: 1) Security clearance administrative expenses with regard to an employee in Maryland; 2) The construction and equipment costs related to constructing or renovating a Sensitive Compartmented Information Facility (SCIF) 3) The first year leasing costs for the qualified small business. Applications for tax year 2013 will be accepted September 15,

46 BENEFITS Total credit depends on the amount of eligible costs incurred. Businesses are limited to $200,000 for costs related to security clearance administration. Businesses are limited to $200,000 for costs related to the construction of a single SCIF or up to $500,000 for multiple SCIFs. Business are limited to $200,000 for costs related the first year leasing spaces. Total amount of credits cannot exceed $2 million for any calendar year. If the tax credit is oversubscribed, the business will receive a prorated credit. 46

47 TO QUALIFY Business must submit an application to DBED no later than September 15 th for expenses incurred in the previous tax year. DBED will certify the business by December 15 th following the application submission date. To claim the credit, the business will file an amended return. The credit may be carried forward until it is fully utilized. 47

48 Cybersecurity Investment Incentive Tax Credit

49 CYBERSECURITY INVESTMENT INCENTIVE TAX CREDIT A refundable income tax credit to Qualified Maryland Cybersecurity Companies (QMCCs) that seek and secure investment from an investor. The purpose is attract cybersecurity companies to start-up in or move to Maryland; and to attract investment to cybersecurity companies in order to help them grow, create jobs and retain intellectual property in Maryland. QMCCs receive a credit of 33% of the investment up to a credit of $250,

50 CYBERSECURITY INVESTMENT INCENTIVE TAX CREDIT Credit is granted on a first-come, first-serve basis. $3,000,000 has been appropriated for FY Each QMCC is limited to the benefit of 15% of the total Program appropriation for each FY. Requires QMCCs and investors to retain the investment for a minimum of 3 years. Limits participation by a QMCC in the program to 2 years. 50

51 QUALIFICATIONS Qualified Investor Entity that invests at least $25,000 in a Qualified Maryland Cybersecurity Company (QMCC). Qualified Maryland Cybersecurity Company (QMcC) Has its headquarters and base of operations in Maryland Organized for profit and engaged primarily in the development of innovative and proprietary cybersecurity technology Has fewer than 50 employees Has been in active business no longer than 5 years and once certified as a QMCC, a QMCC may remain eligible for a qualified investment for up to 2 years No publicly traded securities on any exchange Has been certified as a qualified cybersecurity company by DBED Note: A cybersecurity technology means products or goods intended to detect or prevent activity intended to result in unauthorized access to, exfiltration of, manipulation of, or impairment to the integrity, confidentiality, or availability of an information system or information stored on or transiting and information system. 51

52 WINERIES AND VINEYARDS TAX CREDIT

53 WINERIES AND VINEYARDS TAX CREDIT Income tax credit for qualified capital expenses in a Maryland winery or vineyard. The credit is 25% of qualified capital expenses made in connection with the establishment of new wineries or vineyards, or the capital improvements made to existing wineries or vineyards in Maryland. Total credits applied for may not exceed $500,000 or the credit will be prorated. 53

54 WINERIES AND VINEYARDS TAX CREDIT To claim the tax credit, the winery or vineyard must submit an application to DBED by September 15 th following the tax year in which the costs were incurred. By December 15 th of that year, DBED will certify the approved amount. The applicant will be required to file an amended Maryland income tax return to claim the credit and attach a copy of the DBED certification. The excess credit may be carried forward for 15 years. 54