First Substitute S.B. 185

Senator Lyle W. Hillyard proposes the following substitute bill:

1 ECONOMIC INCENTIVE REVISIONS
2 2008 GENERAL SESSION
3 STATE OF UTAH
4 Chief Sponsor: Lyle W. Hillyard
5 House Sponsor: Ron Bigelow
6
7 LONG TITLE
8 General Description:
9 This bill modifies procedures, requirements, and economic incentives relating to certain
10 new economic development projects in Utah.
11 Highlighted Provisions:
12 This bill:
13 . reenacts and modifies statutes governing the Governor's Office of Economic
14 Development's process and criteria for granting economic incentives to business
15 entities for new commercial projects in Utah;
16 . replaces economic incentives in the form of cash payments with economic
17 incentives in the form of tax credits to business entities that qualify;
18 . requires certain reports to legislative interim committees and details their contents;
19 . requires a study by the Utah Tax Review Commission and details its requirements;
20 . repeals conflicting sections contained in existing law; and
21 . makes technical corrections.
22 Monies Appropriated in this Bill:
23 None
24 Other Special Clauses:
25 This bill provides an effective date and provides for retrospective operation.

26 Utah Code Sections Affected:
27 ENACTS:
28 59-7-614.2, Utah Code Annotated 1953
29 59-10-1107, Utah Code Annotated 1953
30 63M-1-2401, Utah Code Annotated 1953
31 63M-1-2402, Utah Code Annotated 1953
32 63M-1-2403, Utah Code Annotated 1953
33 63M-1-2404, Utah Code Annotated 1953
34 63M-1-2405, Utah Code Annotated 1953
35 63M-1-2406, Utah Code Annotated 1953
36 REPEALS:
37 63-38f-1301, as renumbered and amended by Laws of Utah 2005, Chapter 148
38 63-38f-1302, as renumbered and amended by Laws of Utah 2005, Chapter 148
39 63-38f-1303, as last amended by Laws of Utah 2005, Chapter 3 and renumbered and
40 amended by Laws of Utah 2005, Chapter 148
41 63-38f-1304, as last amended by Laws of Utah 2006, Chapter 52
42 63-38f-1305, as last amended by Laws of Utah 2006, Chapter 52
43 63-38f-1306, as renumbered and amended by Laws of Utah 2005, Chapter 148
44 63-38f-1307, as last amended by Laws of Utah 2006, Chapter 52
45 63-38f-1308, as renumbered and amended by Laws of Utah 2005, Chapter 148
46 63-38f-1309, as last amended by Laws of Utah 2005, Chapter 272 and renumbered and
47 amended by Laws of Utah 2005, Chapter 148
48 63-38f-1701, as enacted by Laws of Utah 2005, Chapter 272
49 63-38f-1702, as enacted by Laws of Utah 2005, Chapter 272
50 63-38f-1703, as enacted by Laws of Utah 2005, Chapter 272
51 63-38f-1704, as enacted by Laws of Utah 2005, Chapter 272
52 63-38f-1705, as enacted by Laws of Utah 2005, Chapter 272
53 63-38f-1706, as enacted by Laws of Utah 2005, Chapter 272
54
55 Be it enacted by the Legislature of the state of Utah:
56 Section 1. Section 59-7-614.2 is enacted to read:

57 59-7-614.2. Refundable economic development tax credit.
58 (1) As used in this section:
59 (a) "Business entity" means a taxpayer that meets the definition of "business entity" as
60 defined in Section 63M-1-2403 .
61 (b) "Office" means the Governor's Office of Economic Development.
62 (2) For taxable years beginning on or after January 1, 2008, a business entity may claim
63 a refundable tax credit for economic development.
64 (3) The tax credit under this section is the amount listed as the tax credit amount on the
65 tax credit certificate that the office issues to the business entity for the taxable year.
66 (4) (a) In accordance with any rules prescribed by the commission under Subsection
67 (4)(b), the commission shall make a refund to a business entity that claims a tax credit under
68 this section if the amount of the tax credit exceeds the business entity's tax liability for a
69 taxable year.
70 (b) In accordance with Title 63, Chapter 46a, Utah Administrative Rulemaking Act, the
71 commission may make rules providing procedures for making a refund to a business entity as
72 required by Subsection (4)(a).
73 (5) (a) On or before October 1, 2013, and every five years after October 1, 2013, the
74 Utah Tax Review Commission shall study the tax credit allowed by this section and make
75 recommendations to the Revenue and Taxation Interim Committee and the Workforce Services
76 and Community and Economic Development Interim Committee concerning whether the tax
77 credit should be continued, modified, or repealed.
78 (b) For purposes of the study required by this Subsection (5), the office shall provide
79 the following information to the Utah Tax Review Commission:
80 (i) the amount of tax credit that the office grants to each business entity for each
81 calendar year:
82 (ii) the criteria that the office uses in granting a tax credit;
83 (iii) the new state revenues generated by each business entity for each calendar year;
84 (iv) the information contained in the office's latest report to the Legislature under
85 Section 63M-1-2406 ; and
86 (v) any other information that the Utah Tax Review Commission requests.
87 (c) The Utah Tax Review Commission shall ensure that its recommendations under

88 Subsection (5)(a) include an evaluation of:
89 (i) the cost of the tax credit to the state;
90 (ii) the purpose and effectiveness of the tax credit; and
91 (iii) the extent to which the state benefits from the tax credit.
92 Section 2. Section 59-10-1107 is enacted to read:
93 59-10-1107. Refundable economic development tax credit.
94 (1) As used in this section:
95 (a) "Business entity" means a claimant, estate, or trust that meets the definition of
96 "business entity" as defined in Section 63M-1-2403 .
97 (b) "Office" means the Governor's Office of Economic Development.
98 (2) For taxable years beginning on or after January 1, 2008, a business entity may claim
99 a refundable tax credit for economic development.
100 (3) The tax credit under this section is the amount listed as the tax credit amount on the
101 tax credit certificate that the office issues to the business entity for the taxable year.
102 (4) (a) In accordance with any rules prescribed by the commission under Subsection
103 (4)(b), the commission shall make a refund to a business entity that claims a tax credit under
104 this section if the amount of the tax credit exceeds the business entity's tax liability for a
105 taxable year.
106 (b) In accordance with Title 63, Chapter 46a, Utah Administrative Rulemaking Act, the
107 commission may make rules providing procedures for making a refund to a business entity as
108 required by Subsection (4)(a).
109 (5) (a) On or before October 1, 2013, and every five years after October 1, 2013, the
110 Utah Tax Review Commission shall study the tax credit allowed by this section and make
111 recommendations to the Revenue and Taxation Interim Committee and the Workforce Services
112 and Community and Economic Development Interim Committee concerning whether the tax
113 credit should be continued, modified, or repealed.
114 (b) For purposes of the study required by this Subsection (5), the office shall provide
115 the following information to the Utah Tax Review Commission:
116 (i) the amount of tax credit the office grants to each taxpayer for each calendar year;
117 (ii) the criteria the office uses in granting a tax credit;
118 (iii) the new state revenues generated by each taxpayer for each calendar year;

119 (iv) the information contained in the office's latest report to the Legislature under
120 Section 63M-1-2406 ; and
121 (v) any other information that the Utah Tax Review Commission requests.
122 (c) The Utah Tax Review Commission shall ensure that its recommendations under
123 Subsection (5)(a) include an evaluation of:
124 (i) the cost of the tax credit to the state;
125 (ii) the purpose and effectiveness of the tax credit; and
126 (iii) the extent to which the state benefits from the tax credit.
127 Section 3. Section 63M-1-2401 is enacted to read:
128 Part 24. Economic Development Incentives Act
129 63M-1-2401. Title.
130 This part is known as the "Economic Development Incentives Act."
131 Section 4. Section 63M-1-2402 is enacted to read:
132 63M-1-2402. Findings.
133 (1) The Legislature finds that:
134 (a) to foster and develop industry in Utah is a public purpose necessary to assure
135 adequate employment for, and the welfare of, Utah's citizens and the growth of the state's
136 economy;
137 (b) Utah loses prospective high paying jobs, new economic growth, and corresponding
138 incremental new state and local revenues to competing states because of a wide variety of
139 competing economic incentives offered by those states; and
140 (c) economic development initiatives and interests of state and local economic
141 development officials should be aligned and united in the creation of higher paying jobs that
142 will lift the wage levels of the communities in which those jobs will be created.
143 (2) This part is enacted to:
144 (a) address the loss of prospective high paying jobs, the loss of new economic growth,
145 and the corresponding loss of incremental new state and local revenues by providing tax credits
146 to attract new commercial projects in economic development zones in the state; and
147 (b) provide a cooperative and unified working relationship between state and local
148 economic development efforts.
149 Section 5. Section 63M-1-2403 is enacted to read:

150 63M-1-2403. Definitions.
151 As used in this part:
152 (1) "Business entity" means a person that enters into an agreement with the office to
153 initiate a new commercial project in Utah that will qualify the person to receive a tax credit
154 under Section 59-7-614.2 or 59-10-1107 .
155 (2) "Development zone" means an economic development zone created under Section
156 63M-1-2404 .
157 (3) "High paying jobs" means the annual wages of employment positions in a business
158 entity that compare favorably against the average wage of a community in which the
159 employment positions will exist.
160 (4) (a) "New commercial project" means an economic development opportunity that
161 involves new or expanded industrial, manufacturing, distribution, or business services in Utah.
162 (b) "New commercial project" does not include retail business.
163 (5) "New incremental jobs" means employment positions that are:
164 (a) not shifted from one jurisdiction in the state to another jurisdiction in the state; and
165 (b) created in addition to the baseline count of employment positions that existed
166 within the business entity before the new commercial project.
167 (6) "New state revenues" means:
168 (a) incremental new state sales and use tax revenues that a business entity pays under
169 Title 59, Chapter 12, Sales and Use Tax Act, as a result of a new commercial project in a
170 development zone;
171 (b) incremental new state tax revenues, if any, that a business entity pays as a result of
172 a new commercial project in a development zone under:
173 (i) Title 59, Chapter 10, Part 1, Determination and Reporting of Tax Liability and
174 Information;
175 (ii) Title 59, Chapter 10, Part 2, Trusts and Estates;
176 (iii) Title 59, Chapter 10, Part 4, Withholding of Tax;
177 (iv) Title 59, Chapter 7, Corporate Franchise and Income Taxes; or
178 (v) a combination of Subsections (6)(b)(i) through (iv);
179 (c) incremental new state tax revenues paid as individual income taxes under Title 59,
180 Chapter 10, Part 1, Determination and Reporting of Tax Liability and Information, by

181 employees of the new commercial project as evidenced by payroll records from the business
182 entity; or
183 (d) a combination of Subsections (6)(a) through (c).
184 (7) "Office" means the Governor's Office of Economic Development.
185 (8) "Tax credit" means an economic development tax credit created by Section
186 59-7-614.2 or 59-10-1107 .
187 (9) "Tax credit amount" means the amount the office lists as a tax credit on a tax credit
188 certificate for a taxable year.
189 (10) "Tax credit certificate" means a certificate issued by the office that:
190 (a) lists the name of the applicant;
191 (b) lists the applicant's taxpayer identification number;
192 (c) lists the amount of tax credit that the office awards the applicant for the taxable
193 year; and
194 (d) may include other information as determined by the office.
195 Section 6. Section 63M-1-2404 is enacted to read:
196 63M-1-2404. Creation of economic development zones -- Tax credits.
197 (1) The office, with advice from the board, may create an economic development zone
198 in the state that satisfies all of the following requirements:
199 (a) the area is zoned commercial, industrial, manufacturing, business park, research
200 park, or other appropriate use in a community-approved master plan; and
201 (b) the request to create a development zone has been forwarded to the office after first
202 being approved by an appropriate local government entity that has committed or will commit to
203 provide local incentives.
204 (2) (a) By following the procedures and requirements of Title 63, Chapter 46b,
205 Administrative Procedures Act, the office shall set standards that a business entity must meet to
206 qualify for a tax credit under this part.
207 (b) The office shall ensure that those standards include the following requirements:
208 (i) the new commercial project must be within the development zone;
209 (ii) the new commercial project includes direct investment within the geographic
210 boundaries of the development zone;
211 (iii) the new commercial project brings new incremental jobs to Utah;

212 (iv) the new commercial project includes significant capital investment, the creation of
213 high paying jobs, or significant purchases from Utah vendors and providers, or any
214 combination of these three economic factors;
215 (v) the new commercial project generates new state revenues; and
216 (vi) the business entity qualifying for the tax credit meets the requirements of Section
217 63M-1-2405 .
218 (3) (a) The office, with advice from the board, may enter into an agreement with a
219 business entity authorizing a tax credit to a business entity that meets the standards established
220 under Subsection (2).
221 (b) The office may not promise or authorize a tax credit to a business entity if that tax
222 credit exceeds:
223 (i) 50% of the new state revenues from the business entity's new commercial project in
224 any given year; or
225 (ii) 30% of the new state revenues from the business entity's new commercial project
226 over the life of a new commercial project or twenty years, whichever is less.
227 (4) The office shall ensure that the agreement with the business entity that is described
228 in Subsection (3):
229 (a) details the requirements that the business entity must meet to qualify for a tax credit
230 under this part;
231 (b) specifies the maximum amount of tax credit that the business entity may earn for a
232 taxable year and over the life of the new commercial project;
233 (c) establishes the length of time the business entity may claim a tax credit;
234 (d) requires the business entity to retain records supporting its claim for a tax credit for
235 at least four years after the business entity claims a tax credit under this part; and
236 (e) requires the business entity to submit to audits for verification of the tax credit
237 claimed.
238 Section 7. Section 63M-1-2405 is enacted to read:
239 63M-1-2405. Qualifications for tax credit -- Procedure.
240 (1) The office shall certify a business entity's eligibility for a tax credit as provided in
241 this section.
242 (2) A business entity seeking to receive a tax credit shall provide the office with:

243 (a) an application for a tax credit certificate;
244 (b) documentation of the new state revenues from the business entity's new commercial
245 project that were paid during the preceding calendar year; and
246 (c) a document that expressly directs and authorizes the State Tax Commission to
247 disclose the business entity's returns and other information concerning the business entity that
248 would otherwise be subject to confidentiality under Section 59-1-403 or Section 6103, Internal
249 Revenue Code, to the office.
250 (3) (a) The office shall submit the document described in Subsection (2)(c) to the State
251 Tax Commission.
252 (b) Upon receipt of the document described in Subsection (2)(c), the State Tax
253 Commission shall provide the office with the information requested by the office that the
254 business entity directed or authorized the State Tax Commission to provide to the office in the
255 document described in Subsection (2)(c).
256 (4) If, after review of the information provided by the State Tax Commission, the
257 office determines that the documentation provided by the business entity is inadequate to
258 provide a reasonable justification for authorizing a tax credit, the office shall either:
259 (a) deny the tax credit; or
260 (b) inform the business entity that the documentation was inadequate and ask the
261 business entity to submit new documentation.
262 (5) If after review of the information provided by the State Tax Commission, the office
263 determines that the documentation provided by the business entity provides reasonable
264 justification for authorizing a tax credit, the office shall, based upon the documentation:
265 (a) determine the amount of the tax credit to be granted to the business entity;
266 (b) issue a tax credit certificate to the business entity no later than the last day of the
267 business entity's taxable year; and
268 (c) provide a duplicate copy of the tax credit certificate to the State Tax Commission.
269 (6) A business entity may not claim a tax credit unless the business entity has a tax
270 credit certificate issued by the office.
271 (7) (a) A business entity may claim a tax credit in the amount listed on the tax credit
272 certificate on its tax return.
273 (b) A business entity that claims a tax credit under this section shall retain the tax

274 credit certificate in accordance with Section 59-7-614.2 or 59-10-1107 .
275 Section 8. Section 63M-1-2406 is enacted to read:
276 63M-1-2406. Report to the Legislature.
277 The office shall report annually to the Legislature's Workforce Services and Community
278 and Economic Development Interim Committee and the Utah Tax Review Commission
279 describing:
280 (1) its success in attracting new commercial projects to development zones under this
281 part and the corresponding increase in new incremental jobs;
282 (2) the amount of tax credits promised and the period of time over which tax credits
283 will be paid; and
284 (3) the economic impact on the state related to generating new state revenues and
285 providing tax credits under this part.
286 Section 9. Repealer.
287 This bill repeals:
288 Section 63-38f-1301, Purpose.
289 Section 63-38f-1302, Definitions.
290 Section 63-38f-1303, Creation of development zones.
291 Section 63-38f-1304, Development incentives.
292 Section 63-38f-1305, Qualifications for credits and rebates.
293 Section 63-38f-1306, Payment procedure.
294 Section 63-38f-1307, Office's authority.
295 Section 63-38f-1308, Coordination with Industrial Assistance Fund.
296 Section 63-38f-1309, Establishment of the Economic Incentive Restricted Account.
297 Section 63-38f-1701, Title.
298 Section 63-38f-1702, Findings.
299 Section 63-38f-1703, Definitions.
300 Section 63-38f-1704, Creation of economic development zones -- Incentives.
301 Section 63-38f-1705, Qualifications for rebates -- Payment procedure.
302 Section 63-38f-1706, Office's authority -- Report to Legislature.
303 Section 10. Effective date -- Retrospective operation.
304 (1) Subject to Subsection (2), this bill takes effect on May 5, 2008.

305 (2) The amendments to Sections 59-7-614.2 and 59-10-1107 have retrospective
306 operation for taxable years beginning on or after January 1, 2008.