The Recent Surge in State Tax Credits and Incentives Offerings

Transcription

1 Madison Barnett Olga Goldberg Houston SALT Roundtable Houston, TX September 10, 2015 The Recent Surge in State Tax Credits and Incentives Offerings 1

2 Agenda Overview of State and Local Tax Credits and Incentives Developments Texas Credits and Incentives 2

3 Overview of State and Local Tax Credits and Incentives 3

4 Types of Credits and Incentives Tax Credits Statutory ( as of right ) tax credits (most common) Negotiated credits (e.g., CA Competes) Quasi-negotiated credits (e.g., NY Excelsior) Negotiated Incentives State or local programs that provide discretionary benefits Must generally apply before committing to site Many forms (e.g., cash grants, property tax abatements, sales tax exemptions, many others) 4

5 Types of Tax Credits Jobs Tax Credits Investment Tax Credits Hybrid Jobs and Investment Tax Credits R&D Tax Credits Port Tax Credits Targeted Credits Green Credits (e.g., high-efficiency buildings, hybrid vehicles, recycling, telecommuting) Film Tax Credits Digital Entertainment Tax Credits Credits for specific industries (e.g., manufacturing, hightech, life sciences) 5

6 Tax Credits: Jobs Tax Credits Jobs Tax Credits Credit for creating and maintaining new, full-time jobs Amount is per job, often over a several-year period May be tied to other factors: High wages Location (benefits can vary by county or tier) Type of job (full-time, permanent, state residents) May be allowed against withholding or sales/use tax Definition of qualifying job important 6

7 Tax Credits: Investment Tax Credits Investment Tax Credits Credit measured by percentage of qualifying investment Credit percentage may vary by location (e.g., GA) Increased percentages for certain types of property (e.g., pollution control) Definition of qualifying investment important 7

8 Securing State Tax Credits Understand the parameters of available credits and whether you qualify Statutes, regulations, rulings, case law How are key terms defined? Read the small print Tax credits are audited as part of the corporate income tax audit DOR will hold you to statutory/regulatory rules, regardless of what the Department of Commerce promised Letter rulings? Clawback requirements Involvement of multiple project legal entities 8

9 Negotiated Incentives Most jurisdictions have authority to negotiate incentive packages Negotiated incentives may include: Property tax reductions Real and/or personal property taxes May take the form of direct abatement, tax increment financing, or bond sale/leasebacks Cash grants Sales and use tax exemptions Utility rate and fee waivers or reductions Infrastructure grants (roads, utilities, etc.) Job training or recruitment programs and reimbursements Local permit fee waivers and expedited permitting 9

10 Negotiated Incentives Contact state and local authorities State and/or local economic development, chamber of commerce, department of community affairs, state tax commissioner, governor s office Initial contact can be anonymous Know role of each authority Consider how best to present the project Timing is critical 10

11 Negotiated Incentives Careful consideration must be given to incentives accepted Pay attention to the agreements remember, it s negotiable! Be conservative with jobs and investment commitments Clawback provisions Negotiate upfront. Westlake v. VWS, Inc., 2014-Ohio-1833 (Ohio App. 2014) (100% clawback upheld where agreement failed to specify) Beware of 100% clawback provisions. Owens-Brockway Glass Containers Inc. v. State Tax Comm n, 2014 WL (Mich. App. 2014) (100% clawback upheld for closure in year 10 of 12) Other strings? Prevailing wage, M/WBE requirements Exclusivity claiming some incentives may rule out others 11

12 Developments 12

13 Developments Tesla s battery GigaFactory in Nevada: $1.3B in tax incentives and credits $3.5B investment 100% abatements of sales taxes (20 years) and property and employer excise taxes (10 years) Nearly $200M in transferable job and investment tax credits NY GigaFactory for SolarCity $750M direct state investment 13

14 Developments Boeing s new 777X aircraft manufacturing in Washington: $8.7B in tax incentives $4B investment Reduced B&O tax rates Sales tax exemption for factory construction materials and hardware/software for development and design Tax preferences until July 1,

15 Developments Nike s sportswear company expansion in Oregon: $2B in incentives $150M investment and 500 new jobs 30-year single sales factor tax commitment 15

16 Developments Facebook data center in Fort Worth, Texas $1B investment Large data center sales tax exemption City and county incentives Fort Worth 20-year property tax rebate, potentially $146.7M Tarrant County 10-year abatement of 60% of all new property taxes Tarrant County Hospital District 10-year abatement of 40% of all new property taxes 16

17 Texas Credits and Incentives 17

18 Texas Incentives Discretionary Cash Grants and Loans Texas Enterprise Fund Skills Development Fund Self-Sufficiency Fund Texas Product/Business Funds Texas Leverage Fund Moving Image Industry Incentive Program Texas Capital Fund Infrastructure Program Texas Capital Fund Real Estate Development Program Defense Economic Adjustment Assistance Grant Program Texas Military Value Revolving Loan Fund Economic Development and Diversification In-State Tuition 18 State Statutory Credits and Incentives Large Data Center Incentive State Sales and Use Tax Exemptions Franchise Tax Deduction for Business Relocation Severance/Production Tax Incentives Research and Development Tax Credit Ad Valorem/Property Tax Exemption Renewable Energy Incentives Freeport Exemption Local Negotiated Incentives Texas Enterprise Zone Program Chapter 380/381 Local Type A and B Grants Property Tax Abatement Tax Increment Financing Reinvestment Zones Texas Economic Development Act

19 Texas Incentive Spending? Source: NYT 19

20 Texas Enterprise Fund Deal closing fund Cash grant to businesses considering locating in Texas More than $577M awarded in FY2014 and 2015 to 17 companies Requirements Significant projected job creation, rate of return, capital investment At or above average county wages Community involvement Approval of Governor, Lieutenant Governor, and Speaker of the House of Representatives 20

21 Texas Enterprise Fund State Auditor s Office Audit (September 2014) Critical of control weaknesses that made it difficult to determine whether award decisions were supported or to determine the number of jobs created 2015 budget is $120M; 2016 reduced to $90M Economic Incentive Oversight Board As of September 1, 2015 Governor, Lieutenant Governor, and Speaker must each appoint two board members Tasked with evaluating a program s economic performance 21

22 Texas Local Gov t Code Chapters 380/381 Chapter 380 Cities Municipalities may establish a program that offers incentives loans and grants of city funds to promote economic development, such as commercial and retail projects Chapter 381 Counties Counties may administer and develop a program that offers incentives loans and grants of county funds to encourage business location and commercial activity in the county 22

23 Texas Local Gov t Code Chapters 380/381 Program specifics vary by jurisdiction Types of incentives may include: Sales tax and/or property tax rebate Property tax abatement Freeport-style property tax exemption Financing for construction, purchase of real estate, etc. Use of city personnel, equipment, or facilities 23

24 Texas Local Gov t Code Chapters 380/381 Common requirements Job creation Capital investment Continued operations Reporting Community input Requires agreement with local government 24

25 Property Tax Abatement Chapter 312: Agreement between taxing unit (e.g., county, city) to exempt all or part of the increased value of real or tangible personal property from property tax for up to 10 years Requirements Governing body adopts guidelines/criteria and resolution to participate under Chapter 312 Property located in a Reinvestment Zone (or Enterprise Zone). Property not located in an improvement project financed by tax increment bonds Property owner/lessee must make significant improvements or repairs Possible additional requirements, such as job creation 25

26 Property Tax Abatement Can include real and/or personal property School districts cannot participate Requires agreement with taxing authority 26

27 Economic Development Sales Tax Local sales and use tax rebates Type A Economic Development Corporation (EDC) Funded by local sales and use tax used to promote economic development, specifically new and expanded industrial and manufacturing activities Generally city must be located in county with population of 500,000 or fewer Type B EDC Funded by local sales and use tax used to fund all projects eligible for Type A, as well as quality of life improvements All Texas cities may participate A city can establish both Type A and Type B ECDs 27

28 Economic Development Sales Tax Type A Projects Must create and retain primary jobs Land, buildings, equipment, improvements, facilities for: Manufacturing and industrial facilities, distribution centers R&D facilities Regional or national corporate headquarters Voters can approve using Type A tax for a Type B project Type B Projects Sports and athletic facilities, tourism and entertainment facilities, public parks, museums Water supply facilities Affordable housing 28

29 Sales Tax Exemption for Data Centers Exempts tangible personal property including equipment, software, and electricity New large data center exemption Exemption from both state and local sales tax Requirements: At least 250,000 square feet Create at least 40 permanent jobs, paying at least 120% of the average weekly wage in the county Invest at least $500 million over five years Contract for at least 20 MW of electric transmission capacity 29

30 Tax Increment Financing Tex. Tax Code Chapter 311: Authorizes municipalities and counties to create a Tax Increment Reinvestment Zone (TIRZ) AG Opinion No. KP-004 (2/26/2015): Creation of TIRZ by county likely violates the equal and uniform constitutional requirement, but counties can participate in TIRZs created by cities 30

31 Questions? Madison J. Barnett Sutherland Asbill & Brennan LLP Olga Jane Goldberg Sutherland Asbill & Brennan LLP

32 Connect with us! The Sutherland SALT Shaker mobile app is now available. Download today from the: Windows Phone Store itunes App Store Google Play Amazon Appstore for Android Visit us at Sutherland SALT Group 32