Incentives Watch: Taxpayers Need to Be Aware of Tax Credit Decertification and Clawback Provisions

Many state tax credit programs include procedures for revoking a taxpayer’s certification for a tax credit when the taxpayer does not meet the program’s requirements, such as hiring a certain number of employees, etc. Once a certification is revoked, the state usually seeks to recapture the tax credits. This recapture process, otherwise known as “clawback,” allows the states to reach back and recoup the tax benefit received by the taxpayer.

One example of this decertification and subsequent recapture process can be seen in the Massachusetts Life Sciences Tax Incentive Program. The Massachusetts Department of Revenue recently issued a technical information release that explains the procedure, according to a Bloomberg BNA Weekly State Tax Reportarticle.

The technical information release provides that a life sciences company’s certification may be revoked if an independent investigation reveals that the company's representations in its project proposal are materially at variance with its conduct after receiving certification. In addition, the Massachusetts Life Sciences Center, which administers the program, must revoke a company's certification when, after two consecutive years, investigations reveal that the company's representations are materially at variance with its conduct.

Upon revocation, the company must recapture any tax credits and incentives allowed by the certification. Taxpayers must calculate the amount to be recaptured beginning with the first day of the taxable year in which a material variance started.

Although the Life Sciences Tax Incentive Program offers many benefits, Ron Xavier, Director at PricewaterhouseCoopers, notes that “the risk of decertification and claw-backs requires companies to use the utmost care and planning when participating in the program.”

For more information about the Massachusetts Life Sciences Tax Incentive Program, check out Bloomberg BNA’s Credits and Incentives State Tax Portfolios.

In other developments . . .

Utah amended its clean fuel vehicle tax credit to include electric and hybrid vehicles. The credit was also extended to taxable years starting prior to Jan. 1, 2015, according to a Bloomberg BNA Weekly State Tax Reportarticle.

By: Kathleen Caggiano

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