Multistate Tax Update - February 26, 2015

February 26, 2015

Alert

States award tax credits for business expansion

Ohio

In late January, the Ohio Tax Credit Authority (OTCA), the agency charged with reviewing and approving applications for tax credit assistance, granted tax incentives to 14 business projects throughout the state. The Plain Dealer reported that these projects are expected to create or retain more than 2,400 jobs, result in more than $32.5 million per year in new payroll, and spark millions in business investments. Six of the recipients are in Central Ohio, and six are in the Cincinnati area. The remaining two are near Dayton and Toledo.

The projects cover a variety of industries, including adhesives, transportation, biopharmaceuticals, construction products, literacy materials, and software development.

The Cincinnati area firms are:

Company	Description	New Full Time Jobs	New Payroll	Retained Payroll	Tax Credit Amount and Duration
Gorilla Glue Co.	Manufacturer of adhesive solutions	110	$5 million	$11.5 million	55% seven-year tax credit
FirstGroup America Inc. & Affiliates	International transport operator	75	$3.9 million	$28 million	45% six-year tax credit
Alkermes Inc.	Global biopharmaceutical company	51	$3.2 million	$17.5 million	50% seven-year tax credit
Frutarom USA Inc.	Manufacture and market of flavors and ingredients in the food, beverage, and other industries	45	$2.5 million	$3.7 million	50% six-year tax credit
NPW-USA Inc.	Design of gift ideas with decorative packaging for the home-furnishing, personal-care, and toy industries	17	$1.5 million	n/a	40% six-year tax credit
Metcut Research Associates and subsidiary Cincinnati Testing Laboratories	Independent materials engineering and testing	15	$875,000	$10 million	35% five-year tax credit

The Central Ohio recipients are:

Company	Description	New Full Time Jobs	New Payroll	Retained Payroll	Tax Credit Amount and Duration
Benchmark Education Co.	Literacy materials for supplementary and intervention use with K-12 students	49	$1.8 million	n/a	45% seven-year tax credit
Aspen Energy Corp.	Energy consulting	45	$2.7 million	$2.9 million	45% six-year tax credit
J&R Schugel Trucking	Temperature-controlled cargo delivery services	20	$1 million	$588,641	40% five-year tax credit
Precision Tower Products	Custom metal fabrication and precision fiber-optic metal cutting	30	$1.2 million	$3.3 million	40% five-year tax credit
The Laserflex Corp.	Custom metal fabrication and precision fiber-optic metal cutting	30	$1.2 million	$3.3 million	40% five-year tax credit
Vantage Point Logistics	Software developer	20	$1.2 million	$812,172	40% five-year tax credit

The remaining two, in the Dayton and Toledo areas, respectively, are the following:

Company	Description	New Full Time Jobs	New Payroll	Retained Payroll	Tax Credit Amount and Duration
Saia-Burgess	Supplier of stepper motors, switches, actuators, and electronic controllers to automotive, industrial, and infrastructure automation industry	100	$3 million	$10.5 million	50% eight-year tax credit
Oldcastle Building Envelope	Manufactures architectural and construction building products	50	$2.2 million	$11.5 million	45% six-year tax credit

According to Cincinnati.com, Gov. Kasich expects these incentives to spur $81.8 million in investment across Ohio.

California

Through a program similar to Ohio’s, the California Competes Tax Credit builds upon the state’s efforts to bolster the economy with income tax credits for “businesses that want to come to California or stay and grow in California.”

Last month, the California Competes Tax Credit Committee announced that it approved $31 million in tax credits for 56 companies that are expanding and creating jobs in California. The awards are projected to result in approximately 4,900 jobs and generate over $900 million in investments in nearly every region of California.

Through two rounds of awards, 85 firms receiving allocations of about $60 million are expected to create over 10,000 jobs and make close to $3 billion in investments.

The recipient firms cover a wide range of industries, including biopharmaceutical research and development, agriculture, cheese processing and packing, computer system designing, bottled water manufacturing, and transit bus manufacturing, among others.

Oregon: Tangled thicket of tax rules could hinder ultra high-speed Internet development

Background

In February of 2010, Google announced its plan to build and test several ultra high-speed broadband networks in a few trial locations in the United States. Known as Google Fiber, it promised “Internet speeds more than 100 times faster than what most Americans have access to.” The goal at the time was to “help make Internet access better and faster for everyone,” utilizing next generation apps, new ways to build fiber networks, and open access networks to give users a choice of multiple service providers.

A little more than a year later, and after hearing from more than 1,110 cities, Google Fiber revealed that Kansas City was to be its first test location. It went live in the summer of 2012.

In 2013, Inc. magazine assessed how things were going a year into it, noting that “it is still not quite clear exactly how most Kansas City entrepreneurs can take advantage of it.” Notwithstanding speeds that are unimaginably fast, one problem was that the rest of the country is still years away from having access to it. As a result, at least one start-up founder opined that it did not make sense to build a product that would require that kind of speed.

Beyond Kansas City, Google Fiber is now deployed in Austin, Texas and Provo, Utah. Last month, PCMag reported intentions to expand into 18 additional cities across four metropolitan areas: Atlanta, Charlotte, Nashville, and Raleigh-Durham. And later this year, it hopes to have news about Phoenix, Portland, Salt Lake City, San Antonio, and San Jose.

Just last week in a follow up article, PCMag declared that AT&T had followed suit with GigaPower, which it also launched in Kansas City. GigaPower is currently available in Austin, Dallas, Fort Worth, Kansas City, Raleigh-Durham, and Winston-Salem and it plans to expand into Atlanta, Charlotte, Greensboro, Chicago, Cupertino, Houston, Jacksonville, Miami, Nashville, St. Louis, and San Antonio.

Problems in Oregon

The State of Oregon has what OregonLive characterized as a “tangled thicket” of tax rules that could ensnare Google Fiber and others. As far back as 2009, the state moved from a local assessment of cable company networks to a central assessment model which triggered a new tax formula based upon the value of the company’s intangible assets, including the value of the brand.

The cable giant Comcast sued Oregon over that move in the case Comcast Corporation v. Department of Revenue. The lawsuit went all the way to the Oregon Supreme Court, which ultimately held that the property Comcast uses to provide its cable television and Internet access services is subject to central assessment by the Oregon Department of Revenue (ODOR) by virtue of the fact that Comcast’s data transmission services constitute “communication” under Oregon’s statutory definition.

OregonLive described a recent legislative hearing in which business interests and state officials “warned [that] the current formula could scare off Oregon's $1 billion in prospective investment—and could deter competitive Internet and cable TV services from coming to the state.” That said, two years ago, Facebook lobbied for and received an exemption after being surprised with a large tax bill for its data storage center in Prineville.

New legislation

In light of the tax implications for companies considering expanding to, or continuing to operate in, Oregon, including companies such as Apple and Amazon, the legislature has taken up the assessment problem. OregonLive quoted state Sen. Mark Hass (D-Beaverton) the incoming chairman of the Senate Finance and Revenue Committee, as saying that “dealing with central assessment is now a top priority for the upcoming legislative session.”

Oregon’s Committee on Finance and Revenue (Committee) has sponsored two bills, both of which were introduced on Feb. 3, 2015. Senate Bill 570 provides that for purposes of central assessment, the value of a company's intangible property will be capped at a to-be-determined percent of historical or original cost of the company's real and tangible personal property. The provision would be applicable to property tax years beginning on or after July 1, 2016.

Also for purposes of exclusion from central assessment, Senate Bill 571 removes a requirement for data centers that they have tax abatement agreement with sponsors of enterprise zones. Clarifying that the statute only affects companies in the business of communication, the amendments apply to property tax years beginning on or after July 1, 2015.

In a letter to the Committee, the Oregon Economic Development Association (OEDA) confirmed its support for SB 571. More generally, the OEDA wants a “tax environment that is both reasonable and ascertainable,” after uncertainty created by Comcast Corporation v. Department of Revenue.

Wisconsin offers tax incentives for qualified tech research

At the end of 2014, the Wisconsin Legislature enacted laws that provide tax incentives for conducting certain types of research in the state. According to the Department of Revenue’s Publication 131 interpreting the laws, a sales and use tax exemption is available for machinery, equipment, and certain other items, property, and goods “that are used exclusively and directly in qualified research by eligible purchasers.”

In addition, income and franchise tax credits are available for increasing qualified research. The research expense credit is equal to five percent of the difference between the claimant’s qualified research expenses incurred for research conducted in Wisconsin and its Wisconsin base amount, but this amount increases to 10 percent for certain qualified research activities.

Publication 131 defines “qualified research” as that which is undertaken for the purpose of discovering information that is, among other things:

Technological in nature;
The application of which is intended to be useful in the development of a new or improved business component of the taxpayer; and
Substantially all of the activities of which constitutes elements of a process of experimentation relating to a new or improved function, performance, reliability, or quality.

Eligibility has been expanded to allow not only corporations, but individuals, partnerships, S corporations, and LLC's to compute the credit.

Publication 131 notes that the amount of credit must be reported as income on the claimant’s Wisconsin franchise or income tax return in the year in which the credit is computed, regardless of the extent to which the credit computed is used in that tax year to offset tax liability or is carried forward to future years.

In addition, the amount of the unused credit may be carried forward and credited against state income or franchise taxes for up to 15 years.

For additional information regarding these subjects, or any other multistate tax issues, please contact:

David M. Kall
216.348.5812
dkall@mcdonaldhopkins.com

David H. Godenswager, II
216.348.5444
dgodenswager@mcdonaldhopkins.com

Susan Millradt McGlone
216.430.2022
smcglone@mcdonaldhopkins.com

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