No. 43350 (Amendment): Rule R357-15. Enterprise Zone Tax Credit

(Amendment)

DAR File No.: 43350
Filed: 10/31/2018 03:22:35 PM

RULE ANALYSIS

Purpose of the rule or reason for the change:

Based on analysis of 2016 tax year credit filings and changes to federal tax code found in the Tax Cuts and Jobs Act, these amendments provide additional guidance needed for the administrator to collect and accurately calculate an enterprise zone tax credit for a business entity.

Summary of the rule or change:

Section R357-15-2: clarifies definitions to the investment of qualifying tangible property is the amount of acquisition cost less trade-in allowance, and adds definitions to software, qualified business use vehicle, payment documentation, and purchase documentation. Section R357-15-4: clarifies the application process and required documentation. Section R357-15-5: clarifies that the administrator may deny a tax credit for the trade-in allowance of a vehicle, certain software purchases, applications older than three years, and fixed assets purchased from another entity with the same ownership.

Statutory or constitutional authorization for this rule:

• Section 63N-2-213

Anticipated cost or savings to:

the state budget:

These rule changes will result in a benefit to the state budget by reducing the amount of a tax credit that can be claimed by a business or individual in cases where a purchase of a fixed asset accompanies a trade-in of another asset or when a sale and purchase of an asset is from the same owner of a business entity. The amount of savings cannot be quantified because the office does not have access to the actual tax credits claimed and deduction to state tax liability that is a result of the tax credits claimed.

local governments:

These rule changes will not result in a direct cost or benefit to local governments because of tax credit impacting only the state portion of revenue.

small businesses:

These rule changes will cause a direct cost to business owners in comparison with previous years through increased tax liability by not receiving a reduced tax credit in cases where a purchase of a fixed asset accompanies a trade-in of another asset or when a sale and/or purchase of an asset is from the same owner of a business entity. Estimates are $200,000 in direct cost to the 75 to 100 small businesses that have a trade-in as part of a purchase and apply for the enterprise zone tax credit.

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

These rule changes will not result in a direct cost or benefit to any one specific person.

Compliance costs for affected persons:

Business owners or professional accounting services preparing the approximate 700 annual applications will need to review and reduce the amount of a tax credit requested in these cases. It is anticipated this will impact approximately 75 to 100 of the 700 applications per year and estimates are $200,000 in direct cost.

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

While there are direct costs to businesses, it is not known what the fiscal impact will be to the state budget or small businesses due to the unknown amount of tax credits that will expire. Estimates are $200,000 benefit to the state budget and $200,000 in direct cost to the 75 to 100 Small Businesses that have a trade-in as part of a purchase and apply for the tax credit. Clarifying what a qualifying investment is, establishing what circumstances require a reduction or a denial of a tax credit, and adjusting what materials needed to submit an application are important reasons for this rule filing.

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:

• Dane Ishihara at the above address, by phone at 801-538-8865, by FAX at , 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:

12/17/2018

This rule may become effective on:

12/24/2018

Authorized by:

Val Hale, Executive Director

RULE TEXT

Appendix 1: Regulatory Impact Summary Table*

Fiscal Costs

FY 2019

FY 2020

FY 2021

State Government

$200,000

$200,000

$200,000

Local Government

$0

$0

$0

Small Businesses

($200,000)

($200,000)

($200,000)

Non-Small Businesses

$0

$0

$0

Other Person

$0

$0

$0

Total Fiscal Costs:

$0

$0

$0

Fiscal Benefits

State Government

$0

$0

$0

Local Government

$0

$0

$0

Small Businesses

$0

$0

$0

Non-Small Businesses

$0

$0

$0

Other Persons

$0

$0

$0

Total Fiscal Benefits:

$0

$0

$0

Net Fiscal Benefits:

$0

$0

$0

 

*This table only includes fiscal impacts that could be measured. If there are inestimable fiscal impacts, they will not be included in this table. Inestimable impacts for State Government, Local Government, Small Businesses and Other Persons are described in the narrative. Inestimable impacts for Non-Small Businesses are described in Appendix 2.

 

Appendix 2: Regulatory Impact to Non-Small Businesses

There is no regulatory impact creating financial cost to small businesses or non-small businesses and other persons. This rule filing is to clarify the standards for participation in the program. There are no general regulations being promulgated by this rule or these proposed amendments because the program is voluntary and does not require non-participants to do anything. There is no impact to businesses or persons general because this rule only applies to those who chose to participate in this program in order to receive a grant.

 

 

R357. Governor, Economic Development.

R357-15. Enterprise Zone Tax Credit.

R357-15-1. Authority.

(1) Subsection 63N-2-213(6) requires the office to make rules establishing the form and content of an application for an Enterprise Zone tax credit, the documentation required to receive an Enterprise Zone tax credit, and the administration of the program, including relevant timelines and deadlines.

 

R357-15-2. Definitions.

(1) The definitions below are in addition to or serve to clarify the definitions found in Utah Code Section 63N-2-201 Utah Code Section 59-7-614.10, Section 59-10-1036, and Section 63N-2-202.

(2) "Baseline" means: The highest total number of employees employed by the applicant for the previous three years. This number will be the baseline to determine all new incremental full-time employee positions

(3) "Qualifying investment in plant, equipment, or other depreciable property" means an investment in most types of tangible property (except land), such as buildings, machinery, vehicles, furniture, and equipment that qualifies for depreciation under the Internal Revenue Service's Form 4562 in the amount of acquisition cost less trade-in allowance.

(4) "Software purchases" means tangible physical property, cloud services, or software as a service.

(5) "Qualified business use vehicle" means vehicles registered in the name of the business entity and used more than 50% of the time for the business entity.

(6) "Payment documentation" means a bank statement, cleared check, loan, or financing agreement which identifies the business entity, date and amount paid.

(7) "Purchase documentation" means bill of sale, contract of sale, receipt, invoice, or property tax notice which identifies the business entity and date issued.

([4]8) "Value-added business entity" means a company that creates a change in the physical state or form of a product in a manner that enhances its value, thus expanding the customer base of the product. Examples include milling wheat into flour or making strawberries into jam.

 

R357-15-3. Application Form and Content.

(1) An application form will be provided by the Office and will contain the following content:

(a) General submission instructions;

(b) Types of tax credits available to be claimed;

(c) Criteria for qualification for each tax credit;

(d) Any required deadlines and relevant timelines; and

(e) All required documents and information necessary for verification and approval of the application.

(2) The application shall be created in an electronic format available to the public at business.utah.gov

(3) The application shall also be available in paper format for any person or entity that requests a paper copy via mail or telephone.

 

R357-15-4. Required Documentation and Verification Information.

(1) To claim any of the tax credits available under 63N-2-201 et. seq. the following basic information must be provided to the Office.

(a) Business or Individual's name that is claiming a tax credit on a Utah Tax filing submission;

(b) A contact name, email, phone number, mailing address and relevant title(s);

(c) The physical address where the business or individual is located including a screenshot of the address pinpoint within the Enterprise Zone as found on locate.utah.gov.

i. A tax credit shall not be issued if the only connection to an enterprise zone is a P.O. Box;

(d) The business or individual's tax identification number whether a federally provided Employer Identification Number (EIN) or a Social Security Number (SSN); and

(e) Additional information as required in the Application.

(2) To qualify for any of the Employment tax credits pursuant to Subsections 63N-2-213(7)(a)-(d) the following documentation and information is required:

(a) A current total of all full time employees including the total of employees as reported to the Department of Workforce Services for the last three years.

(b) The number of New Incremental Employee Positions created above the baseline.

i. For each New Incremental Employee Position above the baseline the applicant must provide:

1. Employee Name;

2. Employee Hourly Wage and/or Annual Salary;

3. Employee Average Hours worked per week;

4. Employee Hire date;

5. If applicable, proof of employer-sponsored health insurance program if the employer pays at least 50% of the premium cost;

6. If applicable, evidence that the business entity adds value to agricultural commodities through manufacturing or processing.

a. List of sample products or processes.

7. Other documentation requested by the Office on the tax credit application.

(3) To qualify for the private capital investment tax credit under Subsections 63N-2-213(7)(e) and (f) the following documentation and information is required:

(a) If the private capital investment is for the rehabilitation of a building in an Enterprise Zone the applicant must provide:

i. The rehabilitated building's physical address

ii. Documents showing the current owner such as the deed or mortgage documents;

iii. The date the building was last occupied;

iv. A current occupancy permit or certificate;

v. Receipts and paid invoices of all rehabilitation expenses totaling the amount the tax credit is calculated from; and

1. The Office may request further documentation to verify receipts and paid invoices including accompanying bank statements.

vi. Any other documentation requested by the Office including a sworn affidavit confirming the rehabilitation costs from the owner of the building if applicant is not the owner of the building.

(b) If the private capital investment is a qualifying investment in plant, equipment, or other depreciable property in an Enterprise Zone the applicant must provide:

i. [R]receipts and/or loan documentation showing the entire purchase price and amount paid by the applicant[.];

ii. an itemized list of qualified investments being claimed for the credit on a template provided by the office;

iii. purchase documentation and one or more forms of payment documentation validating item is paid in entirety for each item equal or greater than an amount established by the office;

iv. property and real estate transactions also require the contract of sale, settlement statement, property tax notice, and financing agreement; and

v. qualified business use vehicle purchases shall also include Utah Bill of Sale TC-843, business percentage use and financing agreement or payment documentation.

 

R357-15-5. Application Review and Authorization Process for an Enterprise Zone Tax Credit.

(1) The Office shall review all submitted applications within a reasonable amount of time and approve or deny the application

(a) The Office shall review all tax credits claimed and documentation provided.

(b) The Office may request additional documentation or information if the Office determines that further verification is required.

i. Failure to comply with a request for additional documentation may result in a denial of the application.

(2) The Office will issue tax credit certificates for all tax credits for which an applicant has applied, qualified and been approved by the Office.

(a) This Office may issue a partial approval if only parts of the application are determined to qualify.

(3) The Office must provide written notice that includes its reasoning when denying any or a portion of a tax credit application.

(4) If approved in whole or in part, the Office shall provide any necessary documents and instructions, approved by the Utah Tax Commission, for claiming the tax credit.

(5) When a business entity is seeking to receive a tax credit for the purchase of a vehicle, in conformity with Subsection 63N-2-213(7)(f), the office shall not grant a tax credit for the trade-in value of a vehicle that the business entity traded into the purchase of the vehicle for which the tax credit is being sought.

(6) The Office may deny Qualified Investments being claimed as software purchases that are cloud services or software as a service.

(7) The Office may deny claims for applications with Qualified Investments purchased more than three calendar years ago.

(8) The Office may deny claims for Qualified Investments purchased from another entity with the same ownership.

 

R357-15-6. Appeal of Application Denial.

(1) A hearing contesting the denial of an application in whole or in part of an Enterprise Zone Tax Credit is designated as informal hearings.

 

KEY: enterprise zones, tax credits

Date of Enactment or Last Substantive Amendment: [July 22, 2016]2018

Authorizing, and Implemented or Interpreted Law: 63N-2-213(6)

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