Incentives Watch: ‘Credits Corner’-Updates and Insights on Developments From Alabama to Wyoming

The state tax credits landscape is continually changing. Credits Corner the first of a semi-regular installment of Credits examines several proposed and newly enacted tax credits, and includes commentary from Mark Nachbar, a principal at Ryan LLC., specializing in providing multijurisdictional income tax and credit and incentive services.

Challenge to Scholarship Tax Credits in Alabama Falls Short As More States Discuss Their Enactment.

In Maggie v. Boyd, the Alabama Supreme Court held that the Alabama Accountability Act (AAA), in creating both the Failing Schools Credit and Scholarship Organization Contribution Credit, did not violate the Alabama Constitution, and remanded the case. In May 2014, the Alabama Department of Revenue suspended the issuance of tax credits under the AAA following a circuit court ruling stating that the law was unconstitutional.

Mark Nachbar: Many states offer scholarship tax credits, and several states are considering them. This isn't the first time litigation has arisen over an education credit. (2014 Weekly State Tax Report 22, 9/19/14). Over 14 states now offer a scholarship credit program. The controversy over these programs is rooted in the fundamental debate as to whether taxpayer dollars should support private schools. Many contend that taxpayer dollars should only support public educational institutions.

Arizona Provides Energy Incentives to Increase Business in the State

The credit for investments in renewable energy facilities that generate energy for the taxpayer's self-consumption was expanded to include energy used by international operations centers. Previously, the credit was only available to certain manufacturers. This legislation is intended to encourage businesses to invest in Arizona, specifically Apple Inc., according to a press release issued by Governor Doug Ducey's (R) office March 3. Businesses that sell power to international operations centers are also eligible for sales and use tax incentives, including incentives at the local level. 2015 H.B. 2670, effective Jan. 1, 2015.

Mark Nachbar: Usually when a credit is targeted towards a specific business, and specifically designed to target one company, from a policy perspective, the credit would be more transparent if it were a specific grant given to that company in a competitive bid situation.  However this credit is more broadly worded to provide benefit to more than the targeted company, which overall provides a more level playing ground for all taxpayers.

Louisiana’s Proposal to Discontinue Refundable Credits Is Not a Trend

Like many states, Louisiana is currently facing a budget deficit. Governor Bobby Jindal (R) has proposed that the state save $526 million by simply making certain refundable tax credits nonrefundable. The credits will not be repealed or suspended in any way, however, taxpayers would no longer be allowed to claim a refund if their credit exceeds their Louisiana tax liability. See Louisiana Office of Planning Budget Proposal Fiscal Year 2015-2016.

Mark Nachbar: Obviously some of the current recipients of the credit do not have taxable income in Louisiana to be offset by the credit. So if the credit is nonrefundable this will make the credits less attractive. However if the state were to make the credits transferable, this may enable those businesses that do not have taxable income to benefit from the credit.

I do not think this is a new trend to move away from refundable credits. The availability of refundable credits is fairly limited. The trend that I see in this area is to make recipients of the credits more accountable for the representations that they make to the state when they receive the credit.

Massachusetts’ Proposed Budget Good for Individual Taxpayers, Bad for Filmmakers?

Governor Charlie Baker (R) released his budget proposal for fiscal year 2016. A major change in the proposed budget is a proposal to eliminate the film production tax credit in Massachusetts by changing to sunset date to July 1, 2017. The revenue generated from credit would be used to fund an expansion of the earned income tax credit (EITC). The Massachusetts credit, which primarily benefits low and moderate income working families, is currently equal to 15 percent of the federal EITC. Baker's proposal would gradually increase the EITC to 30 percent of the federal credit over a period of four years. (43 DTR H-2, 3/5/15).

Mark Nachbar: An increased EITC will directly impact individuals eligible for the credit, but will also indirectly help sustain the overall economy by making Massachusetts an attractive place to live and work. However, eliminating the film credit to pay for the EITC would have a direct detrimental effect on Massachusetts' economy.  Over the calendar period 2006 through 2012 the film incentive program resulted in over $260 million in net new spending in Massachusetts.  Eliminating the film credit would have a direct impact on film related jobs in the state as well as services that support the film industry.

New York’s Budget Proposal Expands Brownfield Credit

Recently the New York state legislature passed their 2015-2016 fiscal year budget bill. The bill is currently waiting to be signed into law by Governor Andrew Cuomo (D). Among the many proposed changes to be passed by the legislature, is the reform of the Brownfield Cleanup Program. (65 DTR H-2, 4/3/15)

The budget bill proposed to extend the brownfield tax credits for 10 years and makes changes to the eligibility requirements and other administrative issues. Another of the proposed new credits is a new Employee Training Incentive Program tax credit, allowing employers to claim up to 50 percent of eligible training costs.

Mark Nachbar: The change to the Brownfield Cleanup Program would basically allow cleanup of contaminated sites to continue until December 31, 2017.  This would be a positive development in that more land to be reclaimed for use in developing the overall economy of the state.

Washington’s Boeing Deal Challenged by EU, Boeing’s Migration of Jobs Questioned by Washington

Recently, the World Trade Organization agreed to establish a panel to investigate Washington's $8.7 billion in tax incentives granted to Boeing in 2013 in response to a European Union complaint filed Dec. 19, 2014. The complaint alleges that the tax incentives are specific subsidies, which are prohibited under the Subsidies and Countervailing Measures Agreement. The World Trade Organization previously ruled in 2012 that the United States had granted illegal subsidies to Boeing. (36 DTR I-5, 2/24/15).

Mark Nachbar: While some people think that the European Union's complaint will make states in the United States more reluctant to grant large incentive packages to corporations, I think the more important pressure that will be placed on these types of incentives will be on the commitments the company makes to the jurisdiction providing the incentives.  Recently, Washington has questioned Boeing's move jobs out of the state.  While it is certainly Boeing's right to move jobs as it sees fit for its business, the state of Washington is considering imposing new conditions for incentives.

Continue the discussion on Bloomberg BNA's State Tax Group on LinkedIn: Are there any new credits and incentives developments that you would like to see discussed in the Credits Corner?

For more information about tax credits, check out Bloomberg BNA’s Credits and Incentives Portfolios by signing up for a free trial of the Bloomberg BNA Premier State Tax Library today.

by Mark Nachbar, Rishi Agrawal, and Jason Plotkin