Incentives Watch: States Use Uncommon Credits to Address State Specific Taxpayer Needs

Common tax credits that states offer include: historic preservation tax credits; film and television tax credits, and adoption tax benefits. However, some state offer credits that are tailored for very specific taxpayers’ needs; some of these uncommon credits are outlined below.

Beginning Farmer Credits

Minnesota and Nebraska offer tax credits to residents who are new farmers.

Minnesota’s tax credit requires the beginning farmer to be a resident who has entered farming within the last 10 years and provides the majority of the labor and management of the farm. The credit is 5 percent of the lesser amount of the sale price and the fair market value of the asset, up to $32,000; 10 percent of the gross rental income for each of the first three years of a rental agreement, up to $7,000 per year; or 15 percent of the cash equivalent of the gross rental income for each of the first three years of a share rent agreement, up to $10,000 per year.

Nebraska offers a tax credit to resident owners of agricultural assets that rent those assets to qualified beginning farmers for a period of up to three years. Share-rent agreements must have provisions for sharing production expenses or the risk of losses to qualify. The credit is equal to either 10 percent of the gross rental income stated in a rental agreement that is a cash rent agreement or 15 percent of the cash equivalent of the gross rental income in a rental agreement that is a share-rent agreement. Qualified beginning farmers or livestock producers are also eligible for a one-time credit to be applied against the state income tax liability for the cost of participating in approved financial management programs.

Distilled Spirits Credit/Kentucky Bourbon Barrel Tax Reinvestment Credit

Kentucky offers a nonrefundable tax credit to taxpayers of the ad valorem tax on distilled spirits. The credit must be used for capital improvements at the distiller's premises, and the improvements have to be finished before the taxpayer claims the credit. For the 2018 tax year, the credit is 80 percent of the property tax assessed and timely paid; it increases to 100 percent for the 2019 tax year and beyond. The credit is nontransferable and cannot be computed using delinquent taxes, interest, fees, or penalties paid to Kentucky.

Laboratory Partnership With Small Business Tax Credit

New Mexico allows a tax credit to national laboratories making qualified expenditures to assist small New Mexico businesses. The credit is equal to the amount of qualified expenditures, up to $10,000 per small business outside a rural area, and up to $20,000 for small businesses in rural areas. The amount of credits that a national laboratory can claim per year is $2.4 million.

National laboratories are eligible for these credits if they meet the following requirements:


  • the small business assisted is located in New Mexico;



  •  the small business assistance is completed at the time the laboratory submits its application;



  •  the small business certifies that the small business assistance provided is not otherwise available at a reasonable cost through private industry;



  • the national laboratory provides written notice to each small business to which it is providing assistance that the small business can obtain ownership of or license to tangible or intangible property developed from the small business assistance;


  • the national laboratory requires small businesses to acknowledge only after the assistance is completed that the small business assistance has been rendered; and


  •  the national laboratory provides forms that are in accordance with the Laboratory Partnership with Small Business Tax Credit Act and other applicable state and federal laws.


Medical Device Tax Credit

In Massachusetts, a credit is available for medical device companies that is equal to 100 percent of the cost of user fees paid during the relevant taxable year. Medical devices are a hot button issue on the national scene, as the excise tax imposed on these devices under the Affordable Care Act has been fiercely opposed by a number of opposition groups.This issue is particularly important for Massachusetts, which has a strong industry in this field of about 480 firms employing 21,000 people. The state credit predates this federal tax, having been available since 2006, and is designed to encourage the development of new technologies, as the user fees that qualify for the credit are paid to the U.S. Food and Drug Administration for pre-market approval to market new technologies developed or manufactured in Massachusetts.

Unlocking Public Lands Program Tax Credit

Montana offers a refundable tax credit for taxpayers who provide public access to state land. The access must be available for most of the year for general recreational uses, including hunting, fishing, trapping, hiking, and bird-watching. Public land includes lands granted to the state by the United States; lands deeded to the state from any person; lands that are the property of the state through the operation of law; or federal land managed by the U.S. forest service or the bureau of land management. The credit is currently $750 for each qualified access, up to a maximum of $3,000 per taxpayer. Taxpayers must enter into cooperative annual agreements with Montana Fish, Wildlife and Parks that outline the terms of access. Landowners can enter into separate annual agreements to provide access for up to 4 non-contiguous public land parcels. The credit is available through Dec. 31, 2027.

Continue the discussion on Bloomberg Tax’s State Tax Group on LinkedIn: Is the use of unique credits a good use of state resources?

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