No. 40932 (Amendment): Rule R357-3. Economic Development Tax Increment Financing Tax Credit

(Amendment)

DAR File No.: 40932
Filed: 11/01/2016 10:10:23 PM

RULE ANALYSIS

Purpose of the rule or reason for the change:

The purpose of this amendment is to clarify in rule the meaning of "retail business" in order to better clarify the term when used in administering the Economic Development Tax Increment Financing Program.

Summary of the rule or change:

The rule change defines a retail business to mean "the physical location from which the general public may directly purchase merchandise or services associated with the sale of merchandise for personal, business, or household consumption." "Retail Business" includes a showroom, wholesaler, or other type of operation from which a customer would place an order for a consumer good or the merchandise or services associated with it. "Retail Business" does not include distribution centers, the corporate functions associated with retailing, or other activities associated with retailing that may be accomplished from any physical location or that are not dependent on proximity to end consumers for retail sales.

Statutory or constitutional authorization for this rule:

• Section 63N-2-104

Anticipated cost or savings to:

the state budget:

There is no cost to the state budget because this does not change current practices regarding retail businesses. It simply clarifies what is already in place.

local governments:

No local government is affected because they cannot participate in the program.

small businesses:

No small business are affected because they cannot participate in the program. The program is for businesses with more than 50 employees.

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

Those who can participate in this program are not affected, and there are no others who are affected because this clarifies the already existing practices for the program.

Compliance costs for affected persons:

There are no compliance costs for affected persons because these practices are already in place.

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

There are no compliance costs for affected persons because these practices are already in place. This added definition simply formalizes what is already in place.

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:

12/15/2016

This rule may become effective on:

12/22/2016

Authorized by:

Val Hale, Executive Director

RULE TEXT

R357. Governor, Economic Development.

R357-3. Economic Development Tax Increment Financing Tax Credit.

R357-3-1. Authority.

(1) Subsection 63N-2-104 requires the office to make rules establishing the conditions that a business entity must meet to qualify for a tax credit under 63N-2-101 et. seq. of the Utah Code Annotated.

 

R357-3-2. Definitions.

(1) Terms in these rules are used as defined in UCA 63N-2-103.

(2) "Administrator" means the internal staff position(s) created by the Executive Director of GOED.

(3) "Direct investment within the geographic boundaries" means that the applicant for the tax credit will invest in a new commercial project in the economic development zones.

(4) "Employee," "Employee Position" or "Full Time Equivalent (FTE)" means an employee, or leased employee, who is a Utah resident working at and dedicated to the new commercial project. Each Employee Position shall be entitled to the same basic health insurance, , if any, given by the new commercial project to its other FTEs in order for the Employee Position to count toward the hiring projection headcount. This is exclusive of those benefits given to any of the new commercial project's executive and other highly compensated employees. Pursuant to 63N-2-103(4) benefits shall not be calculated into wage amounts for the purpose of determining high paying jobs.

(a) When counting FTEs, if an FTE has his or her employment with the new commercial project terminated for any reason before completion of the applicable year, another FTE otherwise meeting the requirements described above may be hired full-time to fill the terminated FTE's position and complete the year of qualifying full-time employment, so long as such position is filled within 60 days for a non-exempt FTE and 90 days for an exempt employee.

(5) "GOED" means The Governor's Office of Economic Development.

(6) "Leased Employees" means Employees, Employee Positions, or FTEs contracted through a third party professional employee service, and such leased employees are entitled to comparable benefits as the other Employees, Employee Positions or FTEs, and that meet the definition of an Employee, Employee Position or FTE. For the sake of clarity, a "temporary" worker assigned short-term to a new commercial project shall not be considered a Leased Employee, Employee Position, or FTE.

(7) "Retail Business" means the physical location from which the general public may directly purchase merchandise or services associated with the sale of merchandise for personal, business, or household consumption. "Retail business" includes a showroom, wholesaler, or other type of operation from which a customer would place an order for a consumer good or the merchandise or services associated with it.

"Retail Business" does not include distribution centers, the corporate functions associated with retailing, or other activities associated with retailing that may be accomplished from any physical location or that are not dependent on proximity to end consumers for retail sales.

([7]8) "Rural" means the following counties:

(i) Beaver;

(ii) Box Elder;

(iii) Cache;

(iv) Carbon;

(v) Daggett;

(vi) Duchesne;

(vii) Emery;

(viii) Garfield;

(ix) Grand;

(x) Iron;

(xi) Juab;

(xii) Kane;

(xiii) Millard;

(xiv) Morgan;

(xv) Piute;

(xvi) Rich;

(xvii) San Juan;

(xviii) Sanpete;

(xix) Sevier;

(xx) Summit;

(xxi) Tooele;

(xxii) Uintah;

(xxiii) Wasatch;

(xxiv) Washington; and

(xxv) Wayne.

([8]9) "Target industry" means the industries designated as such by the GOED Board of Economic Development pursuant to 63N-3-110.

 

R357-3-3. Application Process.

(1) In order to apply for an Economic Development Tax Incentive, a business entity must submit an application in a form prescribed by GOED.

(2) In order to verify the information submitted in the application, the company may be required to supply additional information, which may include:

(a) Balance Sheets;

(b) Income Statements;

(c) Cash Flow Statements;

(d) Tax filings;

(e) Market analyses;

(f) Competing states' incentive offers;

(g) Corporate structure;

(h) Workforce data;

(i) Forecasted new state revenue associated with the new commercial project;

(j) Forecasted incremental job creation associated with the new commercial project;

(k) Forecasted wages associated with the new commercial project; or

(l) Other information as determined by GOED within its reasonable discretion.

(3) Information provided by the business entity is subject to the Government Records Access and Management Act. The business entity has the option, at its sole discretion and responsibility, to designate what information provided is private or protected subject to UCA 63G-2-302 and/or UCA 63G-2-305.

(4) GOED will review the applications to consider at least the following factors:

(a) Whether the new commercial project meets the criteria set forth in UCA 63N-2-104 and UCA 63N-2-105;

(b) Whether the company is projecting positive long term growth;

(c) The overall benefit to the State of the new commercial project;

(d) The uniqueness of the economic opportunity;

(e) Other factors that, in conjunction with (a) through (d), would mitigate the loss or potential loss of new state and local revenues in the state, high paying jobs, new economic growth, or that address the factors set forth in UCA 63N-2-102 and 104.

(5) Pursuant to UCA 63N-3-110, the GOED Board of Economic Development shall determine which industries shall be targeted for economic development.

 

R357-3-4. Factors to Be Considered in Authorizing an Economic Development Tax Credit Award.

(1) The amount and duration of the tax credit award shall be determined on a case-by-case basis. Factors to be considered include but are not limited to:

(a) Whether the industry has been determined by the GOED Board as a Target Industry;

(b) The competitive nature of the project, including whether the Company has secured real estate for its new commercial project at the time of application;

(c) To what extent other states have available incentives for the new commercial project, and the competitiveness of the other incentives, if known;

(d) Comparison to previously incented projects in size and scope, and in conjunction with other factors listed;

(e) The economic environment, including the unemployment rate and the underemployment rate, at the time the new commercial project or business entity applies;

(f) The location of the new commercial project;

(g) The average wage level of the forecasted jobs created;

(h) What terms would result in the most effective incentive for the new commercial project;

(i) The overall benefit to the State of the new commercial project;

(j) The demonstrated support of the local community for the project; and

(k) Other factors as reasonably determined by the Administrator.

(3) All annual tax credits shall be based on actual incremental taxes paid by the business entity or withheld on behalf of employees of a new commercial project.

(4) GOED shall propose a tax credit structure based on the factors set forth in this rule in a combination GOED deems the most effective and beneficial in weighing the benefits of the State, local community, and company.

(a) GOED shall propose the tax credit terms and structure to the GOED Economic Development Board prior to making a final offer to the business entity.

(5) The GOED Economic Development Board may advise GOED Executive Director regarding the Tax Credit Offer.

(6) If the Executive Director of GOED approves an Economic Development Tax Credit, GOED shall provide a tax credit offer letter to a business entity that includes:

(a) The proposed terms of the Economic Development Tax Credit, including the maximum amount of aggregate annual tax credits and the time period over which the Tax Credits may be claimed;

(b) the documentation that will be required each year in order to claim a tax credit for the following tax year as outlined in the Agreement.

(7) If the applicant intends to accept the incentive offer, it shall counter-execute the tax credit offer letter.

(8) If the Executive Director of GOED denies an application for an Economic Development Tax Credit, GOED shall provide a letter to the business entity that includes:

(a) Notice of the application denial;

(b) Reason for denial; and

(c) Notice that the business entity can reapply for a tax credit if changes to the proposed new commercial project are made.

 

R357-3-5. Application for and Verification of Information Supporting an Annual Economic Development Tax Credit.

(1) In order to receive a tax credit certificate during the term of an EDTIF agreement, a business entity must demonstrate to GOED's satisfaction, that the business entity has satisfied all of the criteria set forth in UCA 63N-2-103 and 63N-2-104, that the new commercial project resulted in new incremental tax revenue, that the contractual incremental job creation at the required wage criteria was achieved, and that the business entity is otherwise in compliance with the contractual requirements.

(a) If the jobs, wage, and other contractual criteria are met then a tax credit award is calculated annually based on the new commercial project's new state revenue performance for the disbursement period.

(2) In general, tax revenue shall be verified in the following ways with additional verification to be determined by GOED as needed:

(a) Employee Withholding Taxes: Report the employee withholding taxes remitted to the Utah State Tax Commission and dates paid.

(b) Vendor Paid Sales Tax: Report the Utah sales tax paid to vendors, total invoice amounts, and taxable total purchase amount.

(c) Corporate Income Taxes: Report the corporate tax in a format prescribed by GOED including Use Taxes from the annual tax filing.

(d) Annual, Quarterly or monthly Utah Sales and Use Tax Return TC-62 form report the Line 4 "Goods purchased tax free and used by you" amounts and date the taxes where remitted to the Utah tax commission.

(e) If the new commercial project is not inclusive of the Company's total Utah operation, documentation supporting the apportionment of corporate tax liability to the project is required. The apportionment methodology must be approved by the GOED Administrator and documented.

(3) In order to verify direct investment in an Economic Development Zone, when requested by GOED the applicant shall provide:

(a) a lease agreement or occupancy permit that shows that the new commercial project is located in the economic development zone, during the first applicable year.

(4) In order to verify new incremental jobs, GOED may review:

(a) Aggregate Employee data from the Department of Workforce Services; or

(b) Company or a Payroll vendor for the new commercial project provided a list that included the following information but is not limited to: the number of employees, the gross wages paid including overtime pay, bonuses and other compensation, and the taxes withheld for each employee of the new commercial project.

(5) In order to verify creation of new incremental jobs and to determine whether such jobs comply with the wage requirement, GOED shall consider and/or the applicant shall provide:

(a) The employee data provided by the Department of Workforce Services, the business entity, or the private professional employment or payroll organization.

(b) If a business entity fails to produce sufficient documentation to demonstrate increased state revenue and compliance with the terms of their contract, GOED shall either request additional information or deny the tax credit pursuant to UCA 63N-2-105(4).

 

R357-3-6. Requests for Modification of the Tax Credit Offer or Contract.

(1) GOED may modify, or a business entity may apply to modify, the terms of a tax credit agreement as set forth below.

(2) Nonsubstantive Modifications: GOED and the business entity may, by written amendment, make nonsubstantive modifications to the tax credit contract if:

(a) Necessary to correct clerical errors made in the initial application, the offer, the contract, or the tax credit;

(b) Necessary to make technical changes, including but not limited to: changing the business entity's legal name, timeline change subject to subsection (c) below, any other condition that does not alter the tax incentive amount or violate any state or federal law;

(c) For the purposes of this section, a timeline change of no more than 24 months is generally considered "nonsubstantive".

(d) all nonsubstantive modifications shall be documented and maintained by the GOED staff.

(3) Substantive Modifications: Under extraordinary circumstances, a business entity may apply to GOED to modify the terms of the tax credit agreement if:

(a) There is a substantial change to new commercial project plan; and

(b) Modifying the terms of the tax credit would benefit the State.

(4) Substantive Modifications be will brought to the GOED Executive Director for final approval after open consultation and comment with the GOED Board of Economic Development.

 

KEY: economic development, tax credit, jobs

Date of Enactment or Last Substantive Amendment: [December 28, 2015]2016

Notice of Continuation: May 30, 2013

Authorizing, and Implemented or Interpreted Law: 63N-2-104

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