1     
ECONOMIC DEVELOPMENT TAX CREDITS AMENDMENTS

2     
2016 GENERAL SESSION

3     
STATE OF UTAH

4     
Chief Sponsor: Curtis S. Bramble

5     
House Sponsor: Robert M. Spendlove

6     

7     LONG TITLE
8     General Description:
9          This bill addresses economic development tax credits.
10     Highlighted Provisions:
11          This bill:
12          ▸     repeals refundable corporate and individual income tax credits for certain business
13     entities generating state tax revenue increases;
14          ▸     provides that the Governor's Office of Economic Development may issue additional
15     income tax credit certificates for investment in certain life science establishments;
16     and
17          ▸     makes technical and conforming changes.
18     Money Appropriated in this Bill:
19          None
20     Other Special Clauses:
21          This bill provides retrospective operation.
22     Utah Code Sections Affected:
23     AMENDS:
24          59-10-1025, as last amended by Laws of Utah 2015, Chapter 283
25          63N-2-802, as renumbered and amended by Laws of Utah 2015, Chapter 283
26          63N-2-803, as renumbered and amended by Laws of Utah 2015, Chapter 283
27          63N-2-808, as renumbered and amended by Laws of Utah 2015, Chapter 283
28          63N-2-810, as renumbered and amended by Laws of Utah 2015, Chapter 283
29     REPEALS:
30          59-7-614.6, as last amended by Laws of Utah 2015, Chapter 283
31          59-10-1109, as last amended by Laws of Utah 2015, Chapter 283
32     

33     Be it enacted by the Legislature of the state of Utah:
34          Section 1. Section 59-10-1025 is amended to read:
35          59-10-1025. Nonrefundable tax credit for investment in certain life science
36     establishments.
37          (1) As used in this section:
38          (a) "Commercial domicile" means the principal place from which the trade or business
39     of a Utah small business corporation is directed or managed.
40          (b) "Eligible claimant, estate, or trust" [is as] means the same as that term is defined in
41     Section 63N-2-802.
42          [(c) "Life science establishment" means an establishment described in one of the
43     following NAICS codes of the 2007 North American Industry Classification System of the
44     federal Executive Office of the President, Office of Management and Budget:]
45          [(i) NAICS Code 33911, Medical Equipment and Supplies Manufacturing;]
46          [(ii) NAICS Code 334510, Electromedical and Electrotherapeutic Apparatus
47     Manufacturing; or]
48          [(iii) NAICS Code 334517, Irradiation Apparatus Manufacturing.]
49          (c) "Life science establishment" means an establishment primarily engaged in the
50     development or manufacture of products in one or more of the following categories:
51          (i) biotechnologies;
52          (ii) medical devices;
53          (iii) medical diagnostics; and
54          (iv) pharmaceuticals.
55          (d) "Office" means the Governor's Office of Economic Development.
56          (e) "Pass-through entity" [is as] means the same as that term is defined in Section
57     59-10-1402.
58          (f) "Pass-through entity taxpayer" [is as] means the same as that term is defined in
59     Section 59-10-1402.
60          (g) "Qualifying ownership interest" means an ownership interest that is:
61          (i) (A) common stock;
62          (B) preferred stock; or
63          (C) an ownership interest in a pass-through entity;
64          (ii) originally issued to:
65          (A) an eligible claimant, estate, or trust; or
66          (B) a pass-through entity if the eligible claimant, estate, or trust that claims a tax credit
67     under this section was a pass-through entity taxpayer of the pass-through entity on the day on
68     which the qualifying ownership interest was issued and remains a pass-through entity taxpayer
69     of the pass-through entity until the last day of the taxable year for which the eligible claimant,
70     estate, or trust claims a tax credit under this section; and
71          (iii) issued:
72          (A) by a Utah small business corporation;
73          (B) on or after January 1, 2011; and
74          (C) for money or other property, except for stock or securities.
75          (h) (i) Except as provided in Subsection (1)(h)(ii), "Utah small business corporation"
76     [is as] means the same as that term is defined in Section 59-10-1022.
77          (ii) For purposes of this section, a corporation under Section 1244(c)(3)(A), Internal
78     Revenue Code, is considered to include a pass-through entity.
79          (2) Subject to the other provisions of this section, for a taxable year beginning on or
80     after January 1, 2011, an eligible claimant, estate, or trust that holds a tax credit certificate
81     issued to the eligible claimant, estate, or trust in accordance with Section 63N-2-808 for that
82     taxable year may claim a nonrefundable tax credit in an amount up to 35% of the purchase
83     price of a qualifying ownership interest in a Utah small business corporation by the claimant,
84     estate, or trust if:
85          (a) the qualifying ownership interest is issued by a Utah small business corporation that
86     is a life science establishment;
87          (b) the qualifying ownership interest in the Utah small business corporation is
88     purchased for at least $25,000;
89          (c) the eligible claimant, estate, or trust owned less than 30% of the qualifying
90     ownership interest of the Utah small business corporation at the time of the purchase of the
91     qualifying ownership interest; and
92          (d) on each day of the taxable year [of] in which the purchase of the qualifying
93     ownership interest was made, the Utah small business corporation described in Subsection
94     (2)(a) has at least 50% of its employees in the state.
95          (3) Subject to Subsection (4), the tax credit under Subsection (2):
96          (a) may only be claimed by [the] an eligible claimant, estate, or trust:
97          (i) for a taxable year for which the eligible claimant, estate, or trust holds a tax credit
98     certificate issued in accordance with Section 63N-2-808; and
99          (ii) subject to obtaining a tax credit certificate for each taxable year as required by
100     Subsection (3)(a)(i), for a period of three taxable years as follows:
101          (A) the tax credit in the taxable year [of] in which the purchase of the qualifying
102     ownership interest was made may not exceed 10% of the purchase price of the qualifying
103     ownership interest;
104          (B) the tax credit in the taxable year after the taxable year described in Subsection
105     (3)(a)(ii)(A) may not exceed 10% of the purchase price of the qualifying ownership interest;
106     and
107          (C) the tax credit in the taxable year two years after the taxable year described in
108     Subsection (3)(a)(ii)(A) may not exceed 15% of the purchase price of the qualifying ownership
109     interest; and
110          (b) may not exceed the lesser of:
111          (i) the amount listed on the tax credit certificate issued in accordance with Section
112     63N-2-808; or
113          (ii) $350,000 in a taxable year.
114          (4) An eligible claimant, estate, or trust may not claim a tax credit under this section
115     for a taxable year if the eligible claimant, estate, or trust:
116          (a) has sold any of the qualifying ownership interest during the taxable year; or
117          (b) does not hold a tax credit certificate for that taxable year that is issued to the
118     eligible claimant, estate, or trust by the office in accordance with Section 63N-2-808.
119          (5) If a Utah small business corporation in which an eligible claimant, estate, or trust
120     purchases a qualifying ownership interest fails, dissolves, or otherwise goes out of business, the
121     eligible claimant, estate, or trust may not claim both the tax credit provided in this section and
122     a capital loss on the qualifying ownership interest.
123          (6) If an eligible claimant is a pass-through entity taxpayer that files a return under
124     Chapter 7, Corporate Franchise and Income Taxes, the eligible claimant may claim the tax
125     credit under this section on the return filed under Chapter 7, Corporate Franchise and Income
126     Taxes.
127          (7) A claimant, estate, or trust may not carry forward or carry back a tax credit under
128     this section.
129          Section 2. Section 63N-2-802 is amended to read:
130          63N-2-802. Definitions.
131          As used in this part:
132          (1) "Claimant" [has the same meaning as] means the same as that term is defined in
133     Section 59-10-1002.
134          [(2) "Eligible business entity" means a person that:]
135          [(a) enters into an agreement with the office in accordance with this part to receive a
136     tax credit certificate for a tax credit under Section 59-7-614.6 or 59-10-1109;]
137          [(b) is:]
138          [(i) a life science establishment; or]
139          [(ii) described in NAICS Code 334413, Semiconductor and Related Device
140     Manufacturing, of the 2007 North American Industry Classification System of the federal
141     Executive Office of the President, Office of Management and Budget;]
142          [(c) has at least 50% of its employees in the state for each day of a taxable year the
143     eligible business entity claims a tax credit under Section 59-7-614.6 or 59-10-1109; and]
144          [(d) receives a tax credit certificate from the office in accordance with this part.]
145          [(3)] (2) "Eligible claimant, estate, or trust" means a claimant, estate, or trust that:
146          (a) enters into an agreement with the office in accordance with this part to receive a tax
147     credit certificate for a tax credit under Section 59-10-1025; and
148          (b) receives a tax credit certificate from the office in accordance with this part.
149          [(4) "Eligible new state tax revenues" means an increased amount of tax revenues
150     generated as a result of an eligible product or project by an eligible business entity or a new
151     incremental job within the state under the following:]
152          [(a) Title 59, Chapter 7, Corporate Franchise and Income Taxes;]
153          [(b) Title 59, Chapter 10, Individual Income Tax Act; and]
154          [(c) Title 59, Chapter 12, Sales and Use Tax Act.]
155          [(5) "Eligible product or project" means any product or project produced by an eligible
156     business entity that was not produced prior to the date of an agreement with the office under
157     Section 63N-2-808:]
158          [(a) by the eligible business entity; and]
159          [(b) within the state.]
160          [(6) "Life science establishment" has the same meaning as defined in Section
161     59-10-1025.]
162          [(7) "New incremental job within the state" means, with respect to an eligible business
163     entity, an employment position that:]
164          [(a) did not exist within the state before:]
165          [(i) the eligible business entity entered into an agreement with the office in accordance
166     with this part; and]
167          [(ii) the eligible product was produced or the eligible project began;]
168          [(b) is not shifted from one location in the state to another location in the state; and]
169          [(c) is established to the satisfaction of the office, including by amounts paid or
170     withheld by the eligible business entity under Title 59, Chapter 10, Individual Income Tax
171     Act.]
172          [(8)] (3) "Tax credit" means a tax credit under[:] Section 59-10-1025.
173          [(a) Section 59-7-614.6;]
174          [(b) Section 59-10-1025; or]
175          [(c) Section 59-10-1109.]
176          [(9)] (4) "Tax credit applicant" means a person that applies to the office to receive a tax
177     credit certificate under this part.
178          [(10)] (5) "Tax credit certificate" means a certificate issued by the office that:
179          (a) lists the name of the tax credit certificate recipient;
180          (b) lists the tax credit certificate recipient's taxpayer identification number;
181          (c) lists the amount of the tax credit certificate recipient's tax credits authorized under
182     this part for a taxable year; and
183          (d) includes other information as determined by the office.
184          [(11)] (6) "Tax credit certificate recipient" means[: (a) an eligible business entity that
185     receives a tax credit certificate in accordance with this part for a tax credit under Section
186     59-7-614.6 or 59-10-1109; or (b)] an eligible claimant, estate, or trust that receives a tax credit
187     certificate in accordance with this part for a tax credit under Section 59-10-1025.
188          Section 3. Section 63N-2-803 is amended to read:
189          63N-2-803. Tax credits issued by office.
190          (1) [(a)] The office may issue tax credit certificates under this part only to the extent
191     that the Legislature, by statute, expressly authorizes the office to issue the tax credit certificates
192     under this part for a fiscal year.
193          [(b) The Legislature intends that a statutory authorization under Subsection (1)(a)
194     specify:]
195          [(i) the total allocation to the tax credits under Sections 59-7-614.6 and 59-10-1109;
196     and]
197          [(ii) the allocation to the tax credit under Section 59-10-1025.]
198          (2) (a) For fiscal year 2011-12 only, the office may issue a total of $1,300,000 in tax
199     credit certificates in accordance with this part.
200          (b) For fiscal year 2016-17 only, the office may issue a total of $1,000,000 in tax credit
201     certificates in accordance with this part.
202          (c) For fiscal year 2017-18 only, the office may issue a total of $1,000,000 in tax credit
203     certificates in accordance with this part.
204          (3) [(a)] If the total amount of tax credit certificates the office issues in a fiscal year is
205     less than the amount of tax credit certificates the office may issue under this part in a fiscal
206     year, the office may issue the remaining amount of tax credit certificates in a fiscal year after
207     the fiscal year for which there is a remaining amount of tax credit certificates.
208          [(b) Except as provided in Subsection (3)(c), if the total amount of tax credit
209     certificates the office issues in a quarter of a fiscal year is less than the amount of tax credit
210     certificates the office may issue under this part in that quarter, the office may issue the
211     remaining amount of tax credit certificates in a quarter after the quarter for which there is a
212     remaining amount of tax credit certificates.]
213          [(c) For fiscal year 2011-12 only, if the total amount of tax credit certificates the office
214     issues in fiscal year 2011-12 is less than the amount of tax credit certificates the office may
215     issue in tax credit certificates under Subsection (2), the office:]
216          [(i) may issue the remaining amount of tax credit certificates in a fiscal year after fiscal
217     year 2011-12; and]
218          [(ii) is not required to allocate the tax credit certificates to any particular quarter.]
219          Section 4. Section 63N-2-808 is amended to read:
220          63N-2-808. Agreement between tax credit applicant and office -- Tax credit
221     certificate.
222          [(1) (a) Except as provided in Subsection 63N-2-803(3)(b), for each quarter of a fiscal
223     year after fiscal year 2011-12, the office shall allocate:]
224          [(i) 25% of the total amounts made available for allocation in accordance with Section
225     63N-2-803 for the tax credits under Sections 59-7-614.6 and 59-10-1109; and]
226          [(ii) 25% of the amounts made available for allocation in accordance with Section
227     63N-2-803 for the tax credit under Section 59-10-1025.]
228          [(b) Subject to the other provisions of this part, the office, with advice from the board,
229     shall determine quarterly:]
230          [(i) the tax credit applicant or applicants to which a tax credit certificate may be
231     provided; and]
232          [(ii) the amount of tax credit a tax credit applicant may receive.]
233          [(2)] (1) The office, with advice from the board, may enter into an agreement to grant a
234     tax credit certificate to a tax credit applicant selected in accordance with this part, if the tax
235     credit applicant meets the conditions established in the agreement and under this part.
236          [(3)] (2) The agreement described in Subsection [(2)] (1) shall:
237          (a) detail the requirements that the tax credit applicant shall meet prior to receiving a
238     tax credit certificate;
239          (b) require the tax credit certificate recipient to retain records supporting a claim for a
240     tax credit for at least four years after the tax credit certificate recipient claims a tax credit under
241     this part; and
242          (c) require the tax credit certificate recipient to submit to audits for verification of the
243     tax credit claimed, including audits by the office and by the State Tax Commission.
244          Section 5. Section 63N-2-810 is amended to read:
245          63N-2-810. Reports on tax credit certificates -- Study by legislative committees.
246          (1) The office shall include the following information in the annual written report
247     described in Section 63N-1-301:
248          (a) the total amount listed on tax credit certificates the office issues under this part;
249          (b) the criteria that the office uses in prioritizing the issuance of tax credits amongst tax
250     credit applicants under this part; and
251          (c) the economic impact on the state related to providing tax credits under this part.
252          (2) (a) On or before November 1, 2016, and every five years after November 1, 2016,
253     the Revenue and Taxation Interim Committee shall:
254          (i) study the tax [credits] credit allowed under [Sections 59-7-614.6,] Section
255     59-10-1025[, and 59-10-1109]; and
256          (ii) make recommendations concerning whether the tax [credits] credit should be
257     continued, modified, or repealed.
258          (b) The study under Subsection (2)(a) shall include an evaluation of:
259          (i) the cost of the tax [credits] credit under [Sections 59-7-614.6,] Section 59-10-1025[,
260     and 59-10-1109];
261          (ii) the purposes and effectiveness of the tax [credits] credit; and
262          (iii) the extent to which the state benefits from the tax [credits] credit.
263          Section 6. Repealer.
264          This bill repeals:
265          Section 59-7-614.6, Refundable tax credit for certain business entities generating
266     state tax revenue increases.
267          Section 59-10-1109, Refundable tax credit for certain business entities generating
268     state tax revenue increases.
269          Section 7. Retrospective operation.
270          This bill has retrospective operation for a taxable year beginning on or after January 1,
271     2016.




Legislative Review Note
Office of Legislative Research and General Counsel