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S.B. 185 Enrolled

             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 incentives
             17      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          63M-1-2407, Utah Code Annotated 1953
             37          63M-1-2408, Utah Code Annotated 1953
             38      REPEALS:
             39          63-38f-1301, as renumbered and amended by Laws of Utah 2005, Chapter 148
             40          63-38f-1302, as renumbered and amended by Laws of Utah 2005, Chapter 148
             41          63-38f-1303, as last amended by Laws of Utah 2005, Chapter 3 and renumbered and
             42      amended by Laws of Utah 2005, Chapter 148
             43          63-38f-1304, as last amended by Laws of Utah 2006, Chapter 52
             44          63-38f-1305, as last amended by Laws of Utah 2006, Chapter 52
             45          63-38f-1306, as renumbered and amended by Laws of Utah 2005, Chapter 148
             46          63-38f-1307, as last amended by Laws of Utah 2006, Chapter 52
             47          63-38f-1308, as renumbered and amended by Laws of Utah 2005, Chapter 148
             48          63-38f-1309, as last amended by Laws of Utah 2005, Chapter 272 and renumbered and
             49      amended by Laws of Utah 2005, Chapter 148
             50          63-38f-1701, as enacted by Laws of Utah 2005, Chapter 272
             51          63-38f-1702, as enacted by Laws of Utah 2005, Chapter 272
             52          63-38f-1703, as enacted by Laws of Utah 2005, Chapter 272
             53          63-38f-1704, as enacted by Laws of Utah 2005, Chapter 272
             54          63-38f-1705, as enacted by Laws of Utah 2005, Chapter 272
             55          63-38f-1706, as enacted by Laws of Utah 2005, Chapter 272
             56     
             57      Be it enacted by the Legislature of the state of Utah:


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


             86          (iv) the information contained in the office's latest report to the Legislature under
             87      Section 63M-1-2406 ; and
             88          (v) any other information that the Utah Tax Review Commission requests.
             89          (c) The Utah Tax Review Commission shall ensure that its recommendations under
             90      Subsection (5)(a) include an evaluation of:
             91          (i) the cost of the tax credit to the state;
             92          (ii) the purpose and effectiveness of the tax credit; and
             93          (iii) the extent to which the state benefits from the tax credit.
             94          Section 2. Section 59-10-1107 is enacted to read:
             95          59-10-1107. Refundable economic development tax credit.
             96          (1) As used in this section:
             97          (a) "Business entity" means a claimant, estate, or trust that meets the definition of
             98      "business entity" as defined in Section 63M-1-2403 .
             99          (b) "Office" means the Governor's Office of Economic Development.
             100          (2) For taxable years beginning on or after January 1, 2008, a business entity may claim
             101      a refundable tax credit for economic development.
             102          (3) The tax credit under this section is the amount listed as the tax credit amount on the
             103      tax credit certificate that the office issues to the business entity for the taxable year.
             104          (4) (a) In accordance with any rules prescribed by the commission under Subsection
             105      (4)(b), the commission shall make a refund to a business entity that claims a tax credit under this
             106      section if the amount of the tax credit exceeds the business entity's tax liability for a taxable
             107      year.
             108          (b) In accordance with Title 63, Chapter 46a, Utah Administrative Rulemaking Act, the
             109      commission may make rules providing procedures for making a refund to a business entity as
             110      required by Subsection (4)(a).
             111          (5) (a) On or before October 1, 2013, and every five years after October 1, 2013, the
             112      Utah Tax Review Commission shall study the tax credit allowed by this section and make
             113      recommendations to the Revenue and Taxation Interim Committee and the Workforce Services


             114      and Community and Economic Development Interim Committee concerning whether the tax
             115      credit should be continued, modified, or repealed.
             116          (b) For purposes of the study required by this Subsection (5), the office shall provide
             117      the following information to the Utah Tax Review Commission:
             118          (i) the amount of tax credit the office grants to each taxpayer for each calendar year;
             119          (ii) the criteria the office uses in granting a tax credit;
             120          (iii) the new state revenues generated by each taxpayer for each calendar year;
             121          (iv) the information contained in the office's latest report to the Legislature under
             122      Section 63M-1-2406 ; and
             123          (v) any other information that the Utah Tax Review Commission requests.
             124          (c) The Utah Tax Review Commission shall ensure that its recommendations under
             125      Subsection (5)(a) include an evaluation of:
             126          (i) the cost of the tax credit to the state;
             127          (ii) the purpose and effectiveness of the tax credit; and
             128          (iii) the extent to which the state benefits from the tax credit.
             129          Section 3. Section 63M-1-2401 is enacted to read:
             130     
Part 24. Economic Development Incentives Act

             131          63M-1-2401. Title.
             132          This part is known as the "Economic Development Incentives Act."
             133          Section 4. Section 63M-1-2402 is enacted to read:
             134          63M-1-2402. Findings.
             135          (1) The Legislature finds that:
             136          (a) to foster and develop industry in Utah is a public purpose necessary to assure
             137      adequate employment for, and the welfare of, Utah's citizens and the growth of the state's
             138      economy;
             139          (b) Utah loses prospective high paying jobs, new economic growth, and corresponding
             140      incremental new state and local revenues to competing states because of a wide variety of
             141      competing economic incentives offered by those states; and


             142          (c) economic development initiatives and interests of state and local economic
             143      development officials should be aligned and united in the creation of higher paying jobs that will
             144      lift the wage levels of the communities in which those jobs will be created.
             145          (2) This part is enacted to:
             146          (a) address the loss of prospective high paying jobs, the loss of new economic growth,
             147      and the corresponding loss of incremental new state and local revenues by providing tax credits
             148      to attract new commercial projects in economic development zones in the state; and
             149          (b) provide a cooperative and unified working relationship between state and local
             150      economic development efforts.
             151          Section 5. Section 63M-1-2403 is enacted to read:
             152          63M-1-2403. Definitions.
             153          As used in this part:
             154          (1) "Business entity" means a person that enters into an agreement with the office to
             155      initiate a new commercial project in Utah that will qualify the person to receive a tax credit
             156      under Section 59-7-614.2 or 59-10-1107 .
             157          (2) "Development zone" means an economic development zone created under Section
             158      63M-1-2404 .
             159          (3) "High paying jobs" means the annual wages of employment positions in a business
             160      entity that compare favorably against the average wage of a community in which the
             161      employment positions will exist.
             162          (4) (a) "New commercial project" means an economic development opportunity that
             163      involves new or expanded industrial, manufacturing, distribution, or business services in Utah.
             164          (b) "New commercial project" does not include retail business.
             165          (5) "New incremental jobs" means employment positions that are:
             166          (a) not shifted from one jurisdiction in the state to another jurisdiction in the state; and
             167          (b) created in addition to the baseline count of employment positions that existed within
             168      the business entity before the new commercial project.
             169          (6) "New state revenues" means:


             170          (a) incremental new state sales and use tax revenues that a business entity pays under
             171      Title 59, Chapter 12, Sales and Use Tax Act, as a result of a new commercial project in a
             172      development zone;
             173          (b) incremental new state tax revenues, if any, that a business entity pays as a result of a
             174      new commercial project in a development zone under:
             175          (i) Title 59, Chapter 10, Part 1, Determination and Reporting of Tax Liability and
             176      Information;
             177          (ii) Title 59, Chapter 10, Part 2, Trusts and Estates;
             178          (iii) Title 59, Chapter 10, Part 4, Withholding of Tax;
             179          (iv) Title 59, Chapter 7, Corporate Franchise and Income Taxes; or
             180          (v) a combination of Subsections (6)(b)(i) through (iv);
             181          (c) incremental new state tax revenues paid as individual income taxes under Title 59,
             182      Chapter 10, Part 1, Determination and Reporting of Tax Liability and Information, by
             183      employees of the new commercial project as evidenced by payroll records that indicate the
             184      amount of employee income taxes withheld and transmitted to the State Tax Commission by the
             185      business entity; or
             186          (d) a combination of Subsections (6)(a) through (c).
             187          (7) "Office" means the Governor's Office of Economic Development.
             188          (8) "Tax credit" means an economic development tax credit created by Section
             189      59-7-614.2 or 59-10-1107 .
             190          (9) "Tax credit amount" means the amount the office lists as a tax credit on a tax credit
             191      certificate for a taxable year.
             192          (10) "Tax credit certificate" means a certificate issued by the office that:
             193          (a) lists the name of the applicant;
             194          (b) lists the applicant's taxpayer identification number;
             195          (c) lists the amount of tax credit that the office awards the applicant for the taxable
             196      year; and
             197          (d) may include other information as determined by the office.


             198          Section 6. Section 63M-1-2404 is enacted to read:
             199          63M-1-2404. Creation of economic development zones -- Tax credits.
             200          (1) The office, with advice from the board, may create an economic development zone
             201      in the state that satisfies all of the following requirements:
             202          (a) the area is zoned commercial, industrial, manufacturing, business park, research
             203      park, or other appropriate use in a community-approved master plan; and
             204          (b) the request to create a development zone has been forwarded to the office after first
             205      being approved by an appropriate local government entity that has committed or will commit to
             206      provide local incentives.
             207          (2) (a) By following the procedures and requirements of Title 63, Chapter 46a, Utah
             208      Administrative Rulemaking Act, the office shall make rules establishing the conditions that a
             209      business entity must meet to qualify for a tax credit under this part.
             210          (b) The office shall ensure that those conditions include the following requirements:
             211          (i) the new commercial project must be within the development zone;
             212          (ii) the new commercial project includes direct investment within the geographic
             213      boundaries of the development zone;
             214          (iii) the new commercial project brings new incremental jobs to Utah;
             215          (iv) the new commercial project includes significant capital investment, the creation of
             216      high paying jobs, or significant purchases from Utah vendors and providers, or any combination
             217      of these three economic factors;
             218          (v) the new commercial project generates new state revenues; and
             219          (vi) the business entity qualifying for the tax credit meets the requirements of Section
             220      63M-1-2405 .
             221          (3) (a) The office, with advice from the board, may enter into an agreement with a
             222      business entity authorizing a tax credit to a business entity that meets the standards established
             223      under Subsection (2).
             224          (b) The office may not authorize or commit to authorize a tax credit to a business entity
             225      if that tax credit exceeds:


             226          (i) 50% of the new state revenues from the business entity's new commercial project in
             227      any given year; or
             228          (ii) 30% of the new state revenues from the business entity's new commercial project
             229      over the life of a new commercial project or 20 years, whichever is less.
             230          (4) The office shall ensure that the agreement with the business entity that is described
             231      in Subsection (3):
             232          (a) details the requirements that the business entity must meet to qualify for a tax credit
             233      under this part;
             234          (b) specifies the maximum amount of tax credit that the business entity may earn for a
             235      taxable year and over the life of the new commercial project;
             236          (c) establishes the length of time the business entity may claim a tax credit;
             237          (d) requires the business entity to retain records supporting its claim for a tax credit for
             238      at least four years after the business entity claims a tax credit under this part; and
             239          (e) requires the business entity to submit to audits for verification of the tax credit
             240      claimed.
             241          Section 7. Section 63M-1-2405 is enacted to read:
             242          63M-1-2405. Qualifications for tax credit -- Procedure.
             243          (1) The office shall certify a business entity's eligibility for a tax credit as provided in
             244      this section.
             245          (2) A business entity seeking to receive a tax credit shall provide the office with:
             246          (a) an application for a tax credit certificate;
             247          (b) documentation of the new state revenues from the business entity's new commercial
             248      project that were paid during the preceding calendar year; and
             249          (c) a document that expressly directs and authorizes the State Tax Commission to
             250      disclose the business entity's returns and other information concerning the business entity that
             251      would otherwise be subject to confidentiality under Section 59-1-403 or Section 6103, Internal
             252      Revenue Code, to the office.
             253          (3) (a) The office shall submit the document described in Subsection (2)(c) to the State


             254      Tax Commission.
             255          (b) Upon receipt of the document described in Subsection (2)(c), the State Tax
             256      Commission shall provide the office with the information requested by the office that the
             257      business entity directed or authorized the State Tax Commission to provide to the office in the
             258      document described in Subsection (2)(c).
             259          (4) If, after review of the information provided by the State Tax Commission, the office
             260      determines that the documentation provided by the business entity is inadequate to provide a
             261      reasonable justification for authorizing a tax credit, the office shall either:
             262          (a) deny the tax credit; or
             263          (b) inform the business entity that the documentation was inadequate and ask the
             264      business entity to submit new documentation.
             265          (5) If after review of the information provided by the State Tax Commission, the office
             266      determines that the documentation provided by the business entity provides reasonable
             267      justification for authorizing a tax credit, the office shall, based upon the documentation:
             268          (a) determine the amount of the tax credit to be granted to the business entity;
             269          (b) issue a tax credit certificate to the business entity; and
             270          (c) provide a duplicate copy of the tax credit certificate to the State Tax Commission.
             271          (6) A business entity may not claim a tax credit unless the business entity has a tax
             272      credit certificate issued by the office.
             273          (7) (a) A business entity may claim a tax credit in the amount listed on the tax credit
             274      certificate on its tax return.
             275          (b) A business entity that claims a tax credit under this section shall retain the tax credit
             276      certificate in accordance with Section 59-7-614.2 or 59-10-1107 .
             277          Section 8. Section 63M-1-2406 is enacted to read:
             278          63M-1-2406. Report to the Legislature.
             279          The office shall report annually to the Legislature's Workforce Services and Community
             280      and Economic Development Interim Committee and the Utah Tax Review Commission
             281      describing:


             282          (1) its success in attracting new commercial projects to development zones under this
             283      part and the corresponding increase in new incremental jobs;
             284          (2) the estimated amount of tax credit commitments made by the office and the period
             285      of time over which tax credits will be paid; and
             286          (3) the economic impact on the state related to generating new state revenues and
             287      providing tax credits under this part.
             288          Section 9. Section 63M-1-2407 is enacted to read:
             289          63M-1-2407. Reports of new state revenues, partial rebates, and tax credits.
             290          (1) Before December 1 of each year, the office shall submit a report to the Governor's
             291      Office of Planning and Budget, the Office of Legislative Fiscal Analyst, and the Division of
             292      Finance identifying:
             293          (a) (i) the total estimated amount of new state revenues created from new commercial
             294      projects in the development zones; and
             295          (ii) the estimated amount of new state revenues from new commercial projects in the
             296      development zones that will be generated from:
             297          (A) sales tax;
             298          (B) income tax; and
             299          (C) corporate franchise and income tax;
             300          (b) (i) the total estimated amount of partial rebates as defined in Section 63M-1-2408
             301      that the office projects will be required to be paid in the next fiscal year; and
             302          (ii) the estimated amount of partial rebates as defined in Section 63M-1-2408 that are
             303      attributable to:
             304          (A) sales tax;
             305          (B) income tax; and
             306          (C) corporate franchise and income tax; and
             307          (c) the total estimated amount of tax credits that the office projects that business
             308      entities will qualify to claim under this part.
             309          (2) By the first business day of each month, the office shall submit a report to the


             310      Governor's Office of Planning and Budget, the Office of Legislative Fiscal Analyst, and the
             311      Division of Finance identifying:
             312          (a) each new agreement entered into by the office since the last report;
             313          (b) the estimated amount of new state revenues that will be generated under each
             314      agreement; and
             315          (c) the estimated amount of tax credits that a business entity could qualify for under
             316      each agreement.
             317          Section 10. Section 63M-1-2408 is enacted to read:
             318          63M-1-2408. Transition clause -- Renegotiation of agreements -- Payment of
             319      partial rebates.
             320          (1) As used in this section, "partial rebate" means an agreement between the office and
             321      a business entity under which the state agrees to pay back to the business entity a portion of
             322      new state revenues generated by a business entity's new commercial project.
             323          (2) (a) Unless modified or renegotiated as provided in Subsection (2)(b), the Division of
             324      Finance shall make partial rebate payments due under agreements entered into by the office
             325      before May 5, 2008 as provided in this section.
             326          (b) By January 1, 2009, the office shall:
             327          (i) contact each business entity with whom the office entered into an agreement under
             328      former Section 63-38f-1304 or 63-38f-1704 ; and
             329          (ii) subject to the limits established in Subsection 63M-1-2404 (3)(b), seek to modify
             330      those agreements for the sole purpose of providing the incentives in the form of tax credits
             331      under this part rather than partial rebates.
             332          (c) The office shall:
             333          (i) for each modified agreement granting tax credits, follow the procedures and
             334      requirements of Section 63M-1- 2405;
             335          (ii) for each agreement that still requires the state to pay partial rebates to the business
             336      entity, follow the procedures and requirements of this section; and
             337          (iii) provide a report to the Executive Appropriations Committee and the Legislative


             338      Fiscal Analyst by December 1, 2008, about the progress of its efforts to modify agreements
             339      reached before May 5, 2008.
             340          (3) (a) There is created a restricted account in the General Fund known as the
             341      Economic Incentive Restricted Account.
             342          (b) The account shall consist of monies transferred into the account by the Division of
             343      Finance from the General Fund as provided in this section.
             344          (c) The Division of Finance shall make payments from the account as required by this
             345      section.
             346          (4) (a) Each business entity seeking a partial rebate shall follow the procedures and
             347      requirements of this Subsection (4) to obtain a partial rebate.
             348          (b) Within 90 days of the end of each calendar year, a business entity seeking a partial
             349      rebate shall:
             350          (i) provide the office with documentation of the new state revenues that the business
             351      entity generated during the preceding calendar year; and
             352          (ii) ensure that the documentation includes:
             353          (A) the types of taxes and corresponding amounts of taxes paid directly to the State
             354      Tax Commission; and
             355          (B) the sales taxes paid to Utah vendors and suppliers that were indirectly paid to the
             356      State Tax Commission.
             357          (c) The office shall:
             358          (i) audit or review the documentation for accuracy;
             359          (ii) based upon its analysis of the documentation, determine the amount of partial
             360      rebates that the business entity earned under the agreement; and
             361          (iii) submit to the Division of Finance:
             362          (A) a request for payment of partial rebates to the business entity;
             363          (B) the name and address of the payee; and
             364          (C) any other information requested by the Division of Finance.
             365          (5) Upon receipt of a request for payment of partial rebates from the office, the Division


             366      of Finance shall:
             367          (a) transfer from the General Fund to the restricted account the amount contained in the
             368      request for payment of partial rebates after reducing the amount transferred by any
             369      unencumbered balances in the restricted account; and
             370          (b) notwithstanding Subsections 51-5-3 (23)(b) and 63-38-9 (4)(c), after receiving a
             371      request for payment of partial rebates and making the transfer required by Subsection (5)(a), the
             372      Division of Finance shall pay the partial rebates from the account.
             373          Section 11. Repealer.
             374          This bill repeals:
             375          Section 63-38f-1301, Purpose.
             376          Section 63-38f-1302, Definitions.
             377          Section 63-38f-1303, Creation of development zones.
             378          Section 63-38f-1304, Development incentives.
             379          Section 63-38f-1305, Qualifications for credits and rebates.
             380          Section 63-38f-1306, Payment procedure.
             381          Section 63-38f-1307, Office's authority.
             382          Section 63-38f-1308, Coordination with Industrial Assistance Fund.
             383          Section 63-38f-1309, Establishment of the Economic Incentive Restricted Account.
             384          Section 63-38f-1701, Title.
             385          Section 63-38f-1702, Findings.
             386          Section 63-38f-1703, Definitions.
             387          Section 63-38f-1704, Creation of economic development zones -- Incentives.
             388          Section 63-38f-1705, Qualifications for rebates -- Payment procedure.
             389          Section 63-38f-1706, Office's authority -- Report to Legislature.
             390          Section 12. Effective date -- Retrospective operation.
             391          (1) Subject to Subsection (2), this bill takes effect on May 5, 2008.
             392          (2) The amendments to Sections 59-7-614.2 and 59-10-1107 have retrospective
             393      operation for taxable years beginning on or after January 1, 2008.


             394     


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