No. 42185 (New Rule): Rule R357-21. Rural Jobs Tax Credit

(New Rule)

DAR File No.: 42185
Filed: 10/02/2017 08:08:44 PM

RULE ANALYSIS

Purpose of the rule or reason for the change:

The purpose of this rule is to define and clarify the standards required to apply for and receive a non-refundable tax credit under the Rural Jobs Act.

Summary of the rule or change:

The rule defines and clarifies the standards required to apply for and receive a non-refundable tax credit under the Rural Jobs Act created by S.B. 267 from the 2017 General Session. The rule sets out the requirements for applying to participate in the program including application requirements, deadlines, reporting requirements, and exiting the program.

Statutory or constitutional authorization for this rule:

• Subsection 63N-4-304(4)

Anticipated cost or savings to:

the state budget:

This rule does not affect the state budget because the rule outlines standards for participating in the program that is being partially funded by a participant fee. It does not require any additional funds or resources outside of what was allocated by S.B. 267 (2017).

local governments:

This rule does not affect local governments because they cannot participate in the program.

small businesses:

This rule does not affect small businesses because they cannot participate in the program.

persons other than small businesses, businesses, or local governmental entities:

This rule may impact larger venture capital firms in terms of cost spent in time by employees working toward fulfilling the requirements for the program application and compliance. However, such costs should be negligible and would be difficult to estimate because it would depend on the pay, skill, and expertise of employees at each application firm to determine the amount of time and employee wages spent.

Compliance costs for affected persons:

The cost would only be associated with time and resources spent toward applying and adhering to the program requirements. The program is not compulsory and therefore any potentially affected person who cannot afford the potential cost of time and resources to apply and adhere to the rule can opt to not apply.

Comments by the department head on the fiscal impact the rule may have on businesses:

All costs to potential applicants will likely be negligible and are not deemed to be prohibitive because they are standard costs associated with spending time applying for a grant and adhering to the grant requirements.

Val Hale, Executive Director

The full text of this rule may be inspected, during regular business hours, at the Office of Administrative Rules, or at:

Governor
Economic Development
60 E SOUTH TEMPLE 3RD FLR
SALT LAKE CITY, UT 84111

Direct questions regarding this rule to:

• Jeffrey Van Hulten at the above address, by phone at 801-538-8694, by FAX at 801-538-8888, or by Internet E-mail at [e-mail]

Interested persons may present their views on this rule by submitting written comments to the address above no later than 5:00 p.m. on:

11/14/2017

This rule may become effective on:

11/21/2017

Authorized by:

Val Hale, Executive Director

RULE TEXT

R357. Governor, Economic Development.

R357-21. Rural Jobs Act.

R357-21-1. Purpose.

(1) The purpose of this Rule is to define and clarify the standards required to apply for and receive a non-refundable tax credit under the Rural Jobs Act.

 

R357-21-2. Authority.

(1) Rulemaking authority is provided in Utah Code Subsection 63N-4-304(4).

 

R357-21-3. Definitions.

(1) All terms used in this rule shall be defined as provided for in Utah Code Section 63N-4-302.

(2) Any term defined differently in this rule or not provided for in Utah Code Section 63N-4-302 shall be defined throughout this rule.

 

R357-21-4. Calculation of Time.

(1) For the purposes of the Utah Rural Jobs Act and this Rule, time will be calculated beginning the business day after the initial or triggering event.

(2) If the time within which an act is to be performed is sixty (60) days or less, the calculation of time will include business days and will not include weekends and holidays, unless otherwise indicated.

(3) If the time which an act is to be performed is sixty-one (61) days or more, weekends or holidays are included.

(a) If the ending day or due date occurs on a weekend day or a Utah state or federal holiday, the due date shall be 11:59 pm on the next business day following the weekend day or holiday.

 

R357-21-5. Applications.

(1) Receipt of Applications: All applications received on or before 11:59 pm on November 1, 2017 shall be considered received on November 1, 2017.

(a) For the purposes of the evidence required to qualify applicant is encouraged to show at least 5 individual rural investments, of $5,000,000 or less, as part of $50,000,000 total investments in nonpublic companies located in counties with fewer than 50,000 inhabitants.

(2) Priority of Applications for Certification: For all applications received on the same day,

(b) If there is additional investment authority to allocate after considering the applications received on the first day of submissions, then those applications will be considered on a first come first served basis until the total investment authority of $42,000,000 has been allocated, except as outlined in 63N-4-303(8).

(c) If there is no additional investment authority to allocate after considering the applications received on the first day of applications, then the applicants who were not considered will be notified of eligibility approval and these applicants will stand in a first come first served basis for any recaptured allocation that may occur during the course of the program, except as outlined in 63N-4-303(8) and 63N-4-305(4).

(3) Notice of Allocation Approval shall be delivered through electronic mail and be considered received at the time stamp within the electronic mail notice, not at the time it is read.

(4) Additional Allocation: If, after an allocation is made, an applicant withdraws its request for investment authority, the amount that was allocated to the withdrawing applicant will be redistributed to any approved applicant that has not received the full amount of its requested investment authority on a pro rata basis with all approved applicants that have not received the full amount of their requested investment authority. If there are no approved applicants that have not received the full amount of their requested investment authority then other approved applicants may receive allocations, using the same priority and method as set forth in within this rule and the Utah Rural Jobs Act.

(a) Approved applicants will be notified of an additional investment authority amount in writing. The applicant will have ten (10) days to either accept the additional investment authority or decline the additional investment authority. Failure to accept in writing will be deemed declination of additional investment authority.

(b) If the additional investment authority is declined, the amount will be redistributed to the remaining approved applicants that have not received the full amount of their requested investment authority and if none then to other approved applicants.

(c) Timing of issuance of additional investment authority: Any additional amounts received by approved applicants who have already received an allocation of investment authority shall have a new independent timeline from the original allocation amount unless the approved applicant requests to aggregate the timelines as set forth below:

(i) An applicant receiving additional investment authority may request to have the additional amount aggregated with the initial allocation by making such a request on official letter head to the office and by agreeing to waive the independent timeline of the additional investment authority amount;

(ii) If aggregation of an original allocation amount with an additional investment authority allocation amount may occur without violating the Utah Rural Jobs Act or this Rule, the Office will approve the request to aggregate the allocations; and

(iii) If the allocations are aggregated, all allocation shall be subject to the deadline for the original investment authority allocation.

(5) Notification of Maximum Funding Allocation: Once the maximum amount of funding has been allocated, applicants will be notified that there is no other allocation amount available for the fiscal year unless or until: an applicant's certification lapses, an applicant withdraws its request, or if funding is recaptured.

(6) A partnership, limited liability company or S-corporation will be considered a claimant for purposes of the Act and may file the affidavit set forth in Subsection 63N-4-303(2), provided it includes a list of its partners, members or shareholders and one of its partners, members or shareholders has Utah state tax liability. No penalty or fine will be assessed on a claimant that fails to make the investment set forth in an affidavit.

 

R357-21-6. Annual Fees.

(1) Recalculations: Each applicant will be notified of any recalculation of any annual fee at least ten (10) days before each annual reporting date. If no notice of recalculation is received, then the annual fee will be the same amount as it was the previous year and will be due along with the annual report.

 

R357-21-7. Full Funded Applicant.

(1) A notice of full funding pursuant to Utah Code Subsection 63N-4-303(7) shall be provided on official letterhead of the applicant and follow the format, documentation, and other requirements below:

(a) Bank statements, credit instruments, and all other supporting documentation to show full funding was achieved pursuant to all the requirements outlined in 63N-4-303(7); and

(b) any other documentation the office may request.

(2) If the approved applicant does not meet the requirements found in 63N-4-303(7) and/or is found to have lacking documentation as described in subsection 1 of this part, the office shall notify the applicant that its investment authority allocation has lapsed by issuing a Notice of Agency Action for Lapsed Allocation.

(a) The applicant will have ten (10) business days to submit to the Executive Director a challenge to a Notice of Agency Action for Lapsed Allocation.

(i) Any challenge to a Notice of Agency Action for Lapsed Allocation shall provide documentation that the requirements of Utah Code Subsection 63N-4-303(7) were met within sixty-five (65) days of notice of approval for investment authority allocation.

(ii) The executive director shall issue a final determination within 5 business days of receipt of such challenge.

 

R357-21-8. Form and Notice for Tax Credits.

(1) An approved applicant that has fully funded its investment authority allocation and has provided the evidence required in Utah Code Subsection 63N-4-303(7) shall notify the office annually of the entities that are eligible to use tax credits as follows:

(a) By submitting the a "Notification of Investment Authority Allocation for Rural Jobs Act Tax Credits" to the office on official letterhead;

(b) Each notice shall be accompanied by documentation of the investment made in the fund raised by the approved applicant with respect to the entity claiming a tax credit including investment amount, entity name, and entity FEIN.

(c) Each notice shall be accompanied by any documents requested by the office.

(d) For tax credits allowed to a partnership, limited liability company or S-corporation, the notice shall be accompanied by any and all necessary documentation or agreements to demonstrate how the credits will be used by the partners, members or shareholders.

(2) Each tax credit certificate shall contain the following contingencies:

(a) A certification provision requiring the entity receiving the tax credit to certify:

(i) it is subject to the recapture provisions set forth in Section 63N-4-305;

(ii) it will not sell the tax credit on the open market;

(b) Be available for use annually in accordance with the Applicable Percentages to the entity receiving the tax credit after receipt and acceptance of the approved applicant's annual report to the Office.

(i) Any event of recapture outlined by the Utah Small Business Jobs Act or this Rule shall prevent the use of an annual tax credit certificate to the entity receiving the tax credit.

 

R357-21-9. Reports.

(1) The annual reports required by Utah Code Section 63N-4-307 shall include all information required in statute and must also include, with respect to the first report for any eligible small business:

(a) a baseline of the number employees at each eligible small business that receives an investment based on a payroll report of the eligible small business;

(b) new state revenue generated by the eligible small business for the previous taxable year of the annual report;

(c) all NAICS Code designations the eligible small business is officially subscribed to; and

(d) a brief description of the eligible small business including general business activities; how investment funds are being utilized by the eligible small business, and any other information the approved applicant feels relevant.

(2) New annual jobs shall be calculated on an annual basis by subtracting the baseline number of employees reported in paragraph (1) of this section from annual employment level of the eligible small business calculated by averaging the monthly payroll reports of the eligible small business for the applicable year, provided that such average with respect to the initial annual report for an eligible small business shall only include payroll reports for the months following the initial growth investment and shall be multiplied by fifty percent if such initial growth investment occurs after June 30 of the applicable year. New annual jobs reported may not be less than zero.

(2) Within 5 days of its investment of 100% of its rural investment authority in growth investments in this state with at least 70% invested rural counties, the approved applicant must notify the office of the achievement of such milestone on a report that includes:

(a) the name and location of each eligible small business;

(b) the amount invested in each eligible small business; and

(c) whether the eligible small business is located in a rural county.

(3) For the initial and all subsequent annual reports

(2) An approved applicant may submit the reports hereunder on its own forms, but all reports must be presented in plain language and simple to navigate.

 

R357-21-10. Recapture (Revocation).

(1) If the office determines recapture is necessary pursuant to Utah Code Section 63N-4-305, the office shall issue a Provisional Notice of Agency Action for Recapture to both the approved applicant and the taxpayer that claimed the tax credit. Such notice shall be delivered to the approved applicant by (i) electronic mail and (ii) certified mail, and shall state under which provision of Utah Code Section 63N-4-305the recapture is sought.

(2) The 90 day cure period provided for in Utah Code Section 63N-4-305 begins on the day following receipt of the Provisional Notice of Agency Action for Recapture. If the action or omission upon which the recapture is based is cured during the 90 day cure period, the office shall issue a notice of cure to the approved applicant. If the action or omission upon which the recapture is based is not cured within the 90 cure period, the office shall issue a final Notice of Agency Action for Recapture to the approved applicant, the taxpayer that claimed the tax credit, and the Utah Tax Commission.

(3) If after the 90 day cure period, the action or omission upon which the recapture is based is not cured, the Office shall issue a final notice of Agency Action for Recapture.

(a) The Final Notice of Agency Action for Recapture shall also be sent to the Utah Tax Commission.

(4) For purposes of remaining 100% invested during the compliance period, in the event that fund losses occur due to an eligible small business' inability to meet their investment obligation, the rural investment company shall satisfy the 100% investment requirements of 63N-4-305(1) by reinvesting any capital that is recovered. Investment amounts not recovered will not have to be reinvested to satisfy the 100% investment requirements of 63N-4-305(1).

 

R357-21-11. Exit.

(1) An approved applicant may exit the program pursuant to all requirements outlined in 63N-4-309.

(2) The request for exit must be made on official letterhead of the approved applicant and contain the following:

(a) The calculation used to determine the state reimbursement amount;

(b) The aggregate new annual jobs reported in all prior annual reports;

(c) The calculation used to determine the excess return amount including:

(i) all relevant documentation used to show the present value of all growth investments made by the approved applicant on the day the approved applicant applies for exit from program.

(A) relevant documentation must show from verifiable sources how the present value of each growth investment is determined and additional documentation may be requested by the office to verify all values provided.

(ii) all relevant documentation that shows how any projected increase in an equity holder's federal or state tax liability including penalties and interest, related to the equity holder's ownership, management, or operation of the rural investment company, was determined.

(A) This may include actual tax filings of the equity holder whose increase is utilized in the excess return calculation.

 

KEY: rural development, rural jobs, tax credit

Date of Enactment or Last Substantive Amendment: 2017

Authorizing, and Implemented or Interpreted Law: 63N­4­304(4)

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