No. 40433 (New Rule): Rule R362-4. High Cost Infrastructure Development Tax Credit Act

(New Rule)

DAR File No.: 40433
Filed: 05/16/2016 05:28:28 PM

RULE ANALYSIS

Purpose of the rule or reason for the change:

Pursuant to the "High Cost Infrastructure Development Tax Credit Act" at Section 63M-4-601 et seq. (the Act), and in accordance with Title 63G, Chapter 3, Utah Administrative Rulemaking Act, this rule clarifies requirements and establishes procedures for implementation by the Utah Governor's Office of Energy Development (OED) of the Act.

Summary of the rule or change:

This rule clarifies eligibility requirements for high cost infrastructure tax credits; establishes procedures for eligible taxpayers to follow when applying for high cost infrastructure tax credits; clarifies approval, certification and reporting requirements; and provides clarification on how high cost infrastructure tax credits will be calculated.

State statutory or constitutional authorization for this rule:

• Section 63M-4-601

Anticipated cost or savings to:

the state budget:

It is expected that the majority of incentives provided under this rule will have a positive impact on the state budget. The tax credit incentive will generally target infrastructure investments that create new state revenues, or retain state revenues that would otherwise be lost. As a new incentive program, it is uncertain how many projects will apply for and receive these incentives, and therefore, the office cannot forecast the amount of new state revenues that may be generated. Projects that expand or create new industrial, mining, manufacturing, or agricultural activity where the infrastructure investment will be 10% or more of the cost of the project or $10,000,000 or more of infrastructure investment will be considered for the non-refundable tax credit. Infrastructure investment that is certified by OED and approved by the Board will generally receive a non-refundable tax credit of 30% of qualifying infrastructure-related state revenue generated during a qualifying tax period. The total tax credit available will be capped at 50% of the cost of the infrastructure construction unless it is a fuel standard compliance project, which will be capped at 30%. The tax credit will generally only apply to new state revenues that are directly attributable to new infrastructure investment. For non-refinery projects, tax credits will be calculated from state revenues generated after the completion of a fuel standard compliance project.

local governments:

This incentive recognizes the crucial role new infrastructure investment plays in advancing economic development, especially in rural Utah. In particular, new infrastructure investment provides greater access to Utah's abundant natural resources that in turn promotes affordable and abundant energy and resources to advance Utah's economy. It is expected that this incentive will encourage greater investment in infrastructure that will grow local economies and grow local tax base.

small businesses:

This incentive will be available to qualifying small businesses. Generally, projects that expand or create new industrial, mining, manufacturing, or agricultural activity where the infrastructure investment will be 10% or more of the cost of the project will qualify. The tax credit incentive will support investment in infrastructure projects needed by some small businesses to expand.

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

Projects that expand or create new industrial, mining, manufacturing, or agricultural activity where the infrastructure investment will be 10% or more of the cost of the project or $10,000,000 or more of infrastructure investment will be considered for the non-refundable tax credit. Infrastructure investment that is certified by OED and approved by the Board will generally receive a non-refundable tax credit of 30% of qualifying infrastructure-related state revenue generated during a qualifying tax period. The total tax credit available will be capped at 50% of the cost of the infrastructure construction unless it is a fuel standard compliance project, which will be capped at 30%. The tax credit will generally only apply to new state revenues that are directly attributable to new infrastructure investment. For non-refinery projects, tax credits will be calculated from state revenues generated after the completion of a fuel standard compliance project.

Compliance costs for affected persons:

As an incentive, any compliance costs for qualifying entities will be minimal compared to the tax benefit received. Nevertheless, annual reporting requirements which must be completed by a independent certified public accounts, will cost an estimated $500 to $5,000, depending on the size of the reporting entity.

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

The High Cost Infrastructure Tax Credit will support qualifying businesses' ability to make strategic infrastructure investments that will promote business expansion. In particular, one of the main focuses of the incentive will be encouraging infrastructure investments in rural Utah that provide greater access to Utah's abundant natural resources, which in turn provides the affordable and abundant energy and resources needed to advance Utah's economy. This incentive also protects Utah taxpayers since it only provides non-refundable tax credits for infrastructure investments.

Laura Nelson, Executive Director

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

Governor
Energy Development (Office of)
60 E SOUTH TEMPLE 3RD FLR
Salt Lake City, UT 84111

Direct questions regarding this rule to:

• Robert Simmons at the above address, by phone at 801-657-2867, 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:

07/01/2016

This rule may become effective on:

07/15/2016

Authorized by:

Jeffrey Barrett, Infrastructure and Incentives Manager

RULE TEXT

R362. Governor, Energy Development (Office of).

R362-4. High Cost Infrastructure Development Tax Credit Act.

R362-4-1. Purpose.

(1) Pursuant to the High Cost Infrastructure Development Tax Credit Act at Utah Code Section 63M-4-601 et seq. ("the Act"), and in accordance with Utah Code Title 63G, Chapter 3, Utah Administrative Rulemaking Act, this Rule clarifies requirements and establishes procedures for implementation by the Utah Governor's Office of Energy Development ("OED") of the Act.

(2) This Rule clarifies eligibility requirements for high cost infrastructure tax credits; establishes procedures for eligible taxpayers to follow when applying for high cost infrastructure tax credits; clarifies approval, certification and reporting requirements, and provides clarification on how high cost infrastructure tax credits will be calculated.

 

R362-4-2. Authority.

Pursuant to Utah Code Section 63M-4-6 et seq., OED has authority to establish requirements and procedures for awarding tax credits to qualifying entities.

 

R362-4-3. Definitions.

(1) Terms in this Rule are defined in Utah Code Section 63M-4-602. The definitions below are in addition to or serve to clarify those found in Utah Code Section 63M-4-602, 63M-4-603, and 63M-4-604.

(a) "Infrastructure" includes an energy delivery project designed to transmit, deliver or otherwise increase the capacity for the delivery of energy to a user.

(b) "Infrastructure-related revenue" means an amount of tax revenue for an entity creating a high cost infrastructure project in a taxable year that is directly attributable to the high cost infrastructure project, under:

(i) Utah Code Title 59, Chapter 7, Corporate Franchise and Income Taxes;

(ii) Utah Code Title 59, Chapter 10, Individual Income Tax Act; and,

(aa) Utah Code Title 59, Chapter 10, Individual Income Tax Act revenue shall be calculated by taking 75% of the employer state tax wage withholdings for the qualifying entity claiming a tax credit in the same taxable year for which the tax credit is being claimed.

(iii) Utah Code Title 59, Chapter 12, Sales and Use Tax Act.

(iv) For a fuel standard compliance project, as defined under Utah Code Section 63M-4-602(2), infrastructure-related revenue means state revenues generated by an applicant after the completion of a fuel standard compliance project under: Title 59, Chapter 7, Corporate Franchise and Income Taxes; Title 59, Chapter 10, Individual Income Tax; and Title 59, Chapter 12, Sales and Use Tax Act.

(c) "Office" means the Governor's Office of Energy Development created under Utah Code Section 63M-4-401.

(d) "Board" means the Utah Energy Infrastructure Authority Board created under Utah Code Section 63H-2-202.

(e) "Tax credit" means a certificate issued by the Office and recognized by the Utah State Tax Commission to an infrastructure cost-burdened entity under Utah Code Section 59-7-619 or Utah Code Section 59-10-1034.

 

R362-4-4. Eligibility for Tax Credit.

(1) Requirements for establishing tax credit eligibility, include:

(a) Meeting the definition of a high cost infrastructure project under Utah Code Section 63M-4-602;

(i) All high cost infrastructure projects, including fuel standard compliance projects, must be physically located in the State of Utah.

(b) Completing an application approved by the Office, including providing sufficient information to determine applicant eligibility;

(c) Office determination that that applicant meets all eligibility requirements and referral to the Board for Board approval;

(d) Receiving a favorable Board recommendation for granting tax credits to the applicant based on the Board's evaluation of the applicant project's benefit to the State of Utah based on factors described in Utah Code Section 63M-4-603(2); and,

(i) The Board may find the applicant's project benefits the State even if the project does not satisfy one or more of the factors described in Utah Code Section 63M-4-603(2).

(e) Entering into an agreement with the Office described in Utah Code Section 63M-4- 603(3) authorizing a post-performance, non-refundable tax credit calculated in accordance with Utah Code 63M-4-603 and Utah Administrative Rules R362-4-5.

 

R362-4-5. Calculation of Tax Credit.

(1) An eligible applicant that has a qualifying high cost infrastructure project shall be granted a tax credit, on an annual basis, equal to 30% of the applicant's infrastructure-related revenues reported to the Utah State Tax Commission for the same tax year for which the tax credit is being claimed.

(a) An eligible applicant may continue to receive tax credits for infrastructure-related revenues on an annual basis, as described above, until it has received tax credits totaling 50% of the cost of the infrastructure construction associated with the high cost infrastructure project, unless or until any other time period described in Utah Code Section 63M-4-603(4) has occurred.

(2) An eligible applicant that has completed a fuel standard compliance project shall be granted a tax credit, on an annual basis, not to exceed 30% of applicant's infrastructure-related revenues reported to the Utah State Tax Commission for the same tax year for which the tax credit is being claimed. The exact percentage of the tax credit will be determined by the Board based on criteria described in Utah Code Section 63M-4-603.

(a) An eligible applicant that has completed a fuel standard compliance project may continue to receive tax credits for infrastructure-related revenues on an annual basis, as described above, until it has received tax credits totaling 30% of the cost of the infrastructure construction associated with the high cost infrastructure project, unless or until any other time period described in Utah Code Section 63M-4-603(4) has occurred.

(3) An independent certified public accountant, paid for by the infrastructure cost-burdened entity, shall certify applicant's infrastructure-related revenues reported to the Utah State Tax Commission for the same tax year for which the tax credit is being claimed

 

R362-4-6. Application Process.

(1) The Office is responsible for certifying the high cost infrastructure project and authorizing any tax credit certificate.

(2) Applications for tax credits are to be made on forms developed by the Office to gather information necessary to certify the high cost infrastructure project and authorize tax credits based on the applicant's infrastructure related revenues.

(3) The Office will evaluate each application according to the definitions and criteria established by statute and by this Rule. If the information contained within an application is inadequate to determine eligibility according to this Rule, the Office reserves the right to request additional information from the applicant. If an applicant is unable or unwilling to provide adequate information needed to determine eligibility, the Office may deny the application until sufficient information is provided.

(4) In order to verify the information submitted in the application and provided to the Board, the applicant may be required to supply additional information at the request of the Office.

(5) All applicants for a tax credit under this Rule shall provide the following information:

(a) The legal name of the person or entity seeking a tax credit.

(b) The tax identification number of the person or entity seeking the tax credit.

(c) The physical address, plat number, or global positioning satellite coordinates of the property where the high cost infrastructure project will be constructed, or such other information necessary to permit the Office staff to locate the site for on-site verification of the information in the application.

(d) A description of the high cost infrastructure project, including timeline. This description is to be accompanied by an itemized summary of all projected and/or actual costs to be incurred during construction of the high cost infrastructure project.

(e) The documentation provided shall be sufficient to allow the Office to identify the cost of the infrastructure construction associated with the high cost infrastructure project, both realized and/or anticipated.

(6) Those applicants seeking a tax credit for the development of a fuel standard compliance project shall also include:

(a) A description of their current operation, including the current fuel standards being met by their existing operation.

(b) A description of the fuel standard compliance project to be undertaken by the company to produce fuel at a Utah refinery that will meet Tier 3 gasoline standards under 40 C.F.R. Section 79.54 and 80.1603.

(7) If, after evaluating an application, the Office determines that it meets all eligibility requirements, then it will be referred to the Board for Board approval.

(a) If, after evaluating an application, the Office determines that applicant is not eligible, the Office shall provide the applicant with a letter including an explanation for the denial.

(8) The Board shall consider the application for approval of tax credits at the next regularly scheduled Board meeting.

(9) An eligible applicant who has received a favorable recommendation from the Board for approval of tax credits shall enter into an agreement described in Utah Code Section 63M-4-603(3) with the Office.

 

R362-4-7. Tax Credit Approval & Certification.

(1) The Office is responsible for certifying high cost infrastructure tax credits.

(2) After receiving a complete application, including all requested documents supporting an applicant's tax credit eligibility, the Office shall determine whether the applicant has met the eligibility requirements described in Utah Code Section 63M-4-603(1) and in this Rule.

(3) If, after evaluating an application, the Office determines that an applicant is eligible for a tax credit, the Office shall refer the applicant to the Board for Board approval of tax credits based on the Board's evaluation of the project's benefit to Utah based on considerations described in Utah Code Section 63M-4-603(1) and in this Rule.

(a) The Board may find the applicant's project benefits the State even if the project does not satisfy all of the factors described in Utah Code Section 63M-4-603.

(4) If an eligible applicant receives a favorable recommendation from the Board as described in Utah Code Section 63M-4-603(3) and this Rule, the Office will enter into an agreement described in Utah Code Section 63M-4-603(3).

(a) The agreement may include a tax credit authorization based upon the projected cost of the high cost infrastructure project as submitted in the completed application. Nevertheless, the Applicant may only claim a tax credit with a tax credit certificate based on the applicant's actual infrastructure-related revenues reported to the Utah State Tax Commission for the same tax year for which the tax credit is being claimed.

(b) The agreement may contain other terms and conditions necessary to administer the tax credit and satisfy the requirements of the Act, including requiring the Applicant to provide the actual cost to complete the high cost infrastructure project when available to allow the Office to correctly adjust the tax credit authorization.

(c) The agreement may also include conditions under which the agreement and/or the tax credit may be modified or withdrawn, including addressing substantive changes to the Applicant's project not included in the application.

(d) As part of the agreement, applicant must provide the Office annual reports prepared by an independent certified public accountant verifying the high cost infrastructure project's infrastructure-related revenue during the taxable year for which a tax credit is being claimed, as well as granting the Office access to relevant tax records.

(5) Subject to the Act, Rule and agreement, the Office will deliver a tax credit certificate for each qualifying tax year to the applicant or the legal entity the applicant has assigned the tax credit to in accordance with Utah Administrative Rules R362-4-7(6), and provide a copy of the certificate to the Utah State Tax Commission.

(6) Applications for tax credits authorized under this chapter must state the legal entity who will claim the tax credit if other than the Applicant. As part of the tax credit application and approval process, the Office and Board must approve the assignment of the tax credit to the stated recipient.

(a) Any additional assignments and/or transfers of the tax credit are prohibited without the express consent of the Office and Board.

(7) Tax credits authorized by the Office can only be used to offset the applicant's Utah State tax liability under Title 59, Chapter 7, Corporate Franchise and Income Taxes; and, Title 59, Chapter 10, Individual Income Tax.

(8) High Cost Infrastructure tax credits are non refundable and cannot be used in conjunction with any refundable state tax credits.

 

R362-4-8. Tax Credit Period and Reporting Requirements.

(1) The first reporting period shall begin on the commencement date of the tax credit period, which will be determined by the Office, and shall continue through December 31 of that calendar year. The remaining tax credit & reporting periods shall each span consecutive calendar years from January 1 until December 31. The final tax credit and reporting period will start on January 1 of the calendar year and end on the tax credit termination date as determined when any time period described in Utah Code Section 63M-4-603(4) has occurred.

(2) Within 300 days of the end of each reporting period, the infrastructure cost-burdened entity shall provide the Office an annual report. Reasonable extensions to the 300 day reporting requirement may be granted by the Office.

(a) The report must be prepared by an independent certified public accountant.

(b) The report shall include the amount of infrastructure-related revenue that has been generated during the taxable year for which the tax credit will be claimed, the total amount of tax credit that the infrastructure cost burdened entity has received, and the projected economic life of the high cost infrastructure project.

 

R362-4-9. Confidentiality.

(1) In accordance with requirements laid out in Utah Code Section 63M-4-604, the Office will treat applicant documents as protected records under Utah Code Section 63G-2-305 and 309. Notwithstanding this policy, applicant will be responsible for providing the Office a business confidentiality form for documents submitted to the Office that it wants protected from public disclosure and clearly marking those documents confidential.

(2) Applicant understands and agrees to provide the Office sufficient information to determine eligibility, and the Board sufficient information to make a recommendation, as well as disclose sufficient information for the Office to meet its statutory reporting requirements.

(3) As part of the duties assigned to the Office in administering the tax credit, the Office is required to report to the Revenue and Taxation Interim Committee of the Utah State Legislature information related to the amount of tax credits granted, and the amount of infrastructure-related revenue generated by the high cost infrastructure projects receiving those tax credits.

(4) In accordance with the Utah Open and Public Meetings Act, Board meetings where voting on the approval of tax credits takes place will be open to the public.

 

R362-4-10. Appeals Procedure.

(1) A denial of an applicant's request for a tax credit may be appealed by written request pursuant to Utah Code Section 63G-4-201, and in accordance with this Rule.

(2) Hearings must be requested within 30 calendar days from the date that the Office sends written notice of its denial of tax credit.

(3) Failure to submit a timely request for a hearing constitutes a waiver of due process rights. The request must explain why the party is seeking agency relief, and the party must submit the request on the "Request for Hearing/Agency Action" form. The party must then mail or fax the form to the address or fax number contained on the denial.

(4) The Board considers a hearing request that a recipient sends via mail to be filed on the date of the postmark. If the postmark date is illegible, erroneous, or omitted, the Board considers the request to be filed on the date that the Board receives it, unless the sender can demonstrate through convincing evidence that it was mailed before the date of receipt.

(5) The Board shall hold informal adjudicative proceedings in accordance with Utah Code Section 63G-4-202 and 203. The Board shall notify the petitioner and Board representative of the date, time and place of the hearing at least ten days in advance of the hearing. Continuances of scheduled hearings are not favored, but may be for good cause shown. Failure by any party to appear at the hearing after notice has been given shall be grounds for default and shall waive both the right to contest the allegations and the right to the hearing.

(6) The Petitioner named in the notice of agency action and the Board shall be permitted to testify, present evidence, and comment on the issues. Formal rules of evidence shall not apply; however,

(a) Testimony may be taken under oath.

(b) All hearings are open to all parties.

(c) Discovery is prohibited; informal disclosures will be ruled on at the pre-hearing conference.

(d) A respondent shall have access to relevant information contained in the Board's files and to material gathered in the investigation of respondent to the extent permitted by law.

(e) The Board may cause an official record of the hearing to be made, at the Board's expense.

(7) Within a reasonable time, not to exceed 60 days after the close of the informal proceeding, the Board shall issue a signed decision in writing that includes a findings of fact and conclusions of law, and time limits for appeals rights, and administrative or judicial review in accordance with Utah Code Section 63G-4-203(i).

 

KEY: incentives

Date of Enactment or Last Substantive Amendment: 2016

Authorizing, Implemented, or Interpreted Law: 63M-4-601

 

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