Economic Development Law Alert: Idaho Targets Job Creation With New Refundable State Income Tax Credit for Business

by Stoel Rives LLP

Job creation efforts in Idaho received a boost earlier this month, when a new refundable state income tax credit for new or existing businesses went into effect. The Idaho Reimbursement Incentive Act creates a tax credit that is potentially available to any business in any industry with a project that adds at least 20 full-time, average-wage jobs in a rural area or 50 jobs in an urban area. We consider details of this new tax incentive program, including benefits and eligibility criteria, below.

Tax Benefits are Performance-Based

A successful applicant may receive a refundable tax credit for up to 15 years in an amount up to 30% of the new revenue Idaho receives from corporate income tax, personal income tax, and sales and use tax attributable to a new project. The tax credit is designed to reimburse certain taxes actually paid by the applicant. The tax credit is performance-based, so the applicant must satisfy agreed-upon criteria each year before receiving the credit. The amount of the tax credit is applied to the applicant’s income or franchise tax liability for that year and can result in a refund if the amount of the tax credit exceeds the amount of state income tax liability. The department issues a tax credit authorization for a certain amount each year according to its determination of the lowest approved percentage that will still incentivize job creation and generate new state revenue.

Agreement Negotiated Up Front

Key to the incentive program is an agreement between the business and the Idaho Department of Commerce (the “DOC”). The agreement will specify the duration of the incentive (up to 15 years), the method for determining the amount of new tax revenue the business will generate for the state, other terms and conditions the DOC will apply, and the percentage of tax revenue (up to 30%) that will be reimbursed to the business through the new tax credit.

Must Have Local Community Support

The local community must be willing to commit to the project. Not only must local elected officials express their support in writing, the community must promise support, which can take the form of fee waivers, money, in-kind services or infrastructure.

Eligibility Requirements

Any new or existing business entity in Idaho, whether a single business, a division of a business or a group of businesses under common ownership is eligible to apply for the credit. The tax credit program is not limited to any particular industry or sector of the economy.

Application Process

A new or existing business in Idaho must submit an application to the DOC that describes, among other things:

  1. a proposed project that will create at least 50 average-wage, full-time and non-seasonal jobs in a city of 25,000 people or more, or any city adjoining such a city, or 20 such jobs in any other area;
  2. a letter from a local government committing to support the project (a “community match”) through a contribution of money, fee waivers, in-kind services, provision of infrastructure, or another form of support;
  3. whether the project will go forward if the tax credit application is denied; and
  4. a detailed estimate of the new state tax revenues that will be generated.

Annual Reporting Requirement

A successful applicant must submit an annual report to the DOC that documents, among other things, the new state tax revenue generated, the new jobs created, and how any other requirements in the agreement with the department have been met. If the applicant fails to provide adequate information, the DOC may request additional information, deny the tax credit for that year, or terminate the agreement.

Regulations Are Forthcoming

The law became effective July 1, 2014. The DOC has adopted temporary rules and is proceeding with permanent rulemaking. Companies interested in the benefit can apply through the DOC.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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