Economic Advancement Tax Incentives
Tax Incentives:
As designated in Act 71, the Vermont Economic Progress Council, within 45 days of receipt of a completed application, shall approve or deny the following:
1. Tax stabilization agreements and exemptions
2. Economic tax incentives
3. Sales and use tax exemptions that require approval of the council
4. Property tax exemptions that require approval of the council
5. Applications for allocation to municipalities for a portion of education grand list value and municipal liability from new economic development
6. Tax increment financing district use of funds
In all cases, the council shall apply a cost-benefit model designed to assess and measure the fiscal benefit to the state and the region of the state of proposed economic development activities. The council shall also review each application by evaluating its overall consistency with 8
guidelines as established in Act 71.
Businesses may request approval of not more than three of the five economic tax incentives and such approval may be for up to five years. A five year carry-forward is allowed for each economic incentive, carry-backs are not allowed. Recapture provisions exist if a person ceases to employ in Vermont, for a period of 120 consecutive days, at least 75% of the number of employees it employed at the time tax credits were received. Carry-forward of any unused credit shall be disallowed.
Also a recapture penalty shall be imposed equal to a percentage of the total credit used as computed by the following:
1. Two years or less, 100%
2. More than 2, up to 4, 50%
3. More than 4, up to 6, 25%
The effective date for the incentives is January 1, 1998.
A. Payroll Tax Credit: A person may receive a credit against income tax liability equal to a percentage of its increased payroll costs, defined as salaries and wages.
1. If reporting less than $10 million in sales in the tax year the credit is claimed, they may receive equal to ten percent of their increased costs of salaries and wages in the applicable tax year.
2. Sales of $10 million through $12,500,000, a nine percent credit.
3. Sales of $12,500,000 through $15 million, an eight percent credit.
4. Sales of $15 million through $17,500,000, a seven percent credit.
5. Sales of $17,500,000 through $20 million, a six percent credit.
6. Sales over $20 million, a five percent credit.
Note: Costs of salaries and wages for first year operations shall be deemed to be zero.
B. Research and Development Tax Credit: A person may receive a credit against income tax liability in the amount of ten percent of qualified research and development expenditures. Qualified R&D expenditures shall have the same meaning as qualified research and development expenditures included in the IRS code.
C. Workforce Development Tax Credit: A person may receive a credit against income tax liability in the amount of ten percent of its qualified training, education and workforce development expenditures. A twenty percent credit may be taken for qualified training, education and workforce development expenditures for the benefit of welfare to work participants.
Qualified training, education and workforce development expenditures shall mean:
1. Expenditures eligible for financial assistance under the Vermont Training Program; or
2. Expenditures defined by the United States Code concerning the employee educational
assistance initiative; or
3. Expenditures for employer-provided child care and transportation subsides that allow for
training and educational activities of welfare to work participants.
D. Export Tax Credit: A person that makes sales outside Vermont may take as a credit against its income tax liability, the difference between the income tax calculated under the existing state apportionment formula and the proposed formula which double weights the sales factor and disregards “throwback” provisions. This incentive is favorable to exporters, encouraging
Vermont businesses that export to declare a greater amount of taxable income in Vermont.
E. Small business Investment Tax Credit: A person may receive a credit against income tax liability in the amount equal to five to ten percent of its investments within the state of Vermont in excess of $150,000 in plants, facilities and machinery and equipment.
1. Employing fewer than 150 full-time employees, a ten percent credit.
2. Employing between 150 and 174 full-time employees, a nine percent credit.
3. Employing between 175 and 199 full-time employees, an eight percent credit.
4. Employing between 200 and 224 full-time employees, a seven percent credit.
5. Employing between 225 and 250 full-time employees, a six percent credit.
6. Employing more than 250 full-time employees, a five percent credit.
Note: A person includes a corporation, partnership, limited liability company, subchapter S corporation, or trust. The credit shall be available to a partner, member, shareholder, or beneficiary required to pay Vermont income tax in the same proportion as the income of the person is distributed to the partner, member, shareholder, or beneficiary.
Property Tax Stabilization Agreements:
There exist three alternatives to property tax stabilization as set out in Act 71.
1. A municipality may enter into a tax stabilization agreement with a property owner for the
municipal tax liability.
2. A municipality may enter into a tax stabilization agreement with a property owner for the municipal tax liability and the state education tax liability. If the business does not seek approval from the Vermont Economic Progress Council for stabilization on the education tax, then the municipality must make up the difference so that the municipality's education tax payment to the state remains the same.
3. The state, upon approval of VEPC, may enter into a tax stabilization agreement with a
property owner for the state education tax liability. The municipality must also approve a proportional stabilization of its municipal tax.
A municipality may apply to the Vermont Economic Progress Council for an allocation of the education grand list value for up to ten years, of a portion of the increase in the assessed value and liability. If allocated, the allocated portion of the education fund liability shall be used by the municipality to support economic development through the purchase or financing of infrastructure including, but not limited to wastewater treatment, water supply, transportation and utility connections.
A. Sales tax exemption shall apply to sales of electricity, oil, gas and other fuels used on site directly and primarily in the production or provision of products or services by a business approved by VEPC, or used directly or indirectly in manufacturing tangible personal property for sale.
B. Sales tax exemption shall apply to sales of building materials within any three consecutive years in excess of one million dollars in purchase value used in the construction, renovation or expansion of facilities which are used exclusively, except for isolated or occasional uses, for the manufacture of tangible personal property for sale. The threshold for sales of building materials can be reduced to $250,000 for all businesses if they receive approval from VEPC or are located in a designated downtown development district. This can only occur if the municipality is not
receiving an allocation for a project which is incorporated into a downtown development district.
C. Sales tax exemption shall apply to machinery and equipment, including system-based software used directly in the production or provision of products or services by a business that has obtained the approval of the Vermont Economic Progress Council or used directly or indirectly in manufacturing tangible personal property for sale.
Construction in Progress Property Tax Exemption:
Exempt from the statewide education property tax grand list are real property, excluding land, consisting of unoccupied new facilities, or unoccupied facilities under renovation or expansion that are less than 75 percent complete, not in use as of April 1 of the applicable tax year. This tax exemption shall be for a period not to exceed two years.
Brownfields Property Tax Exemption:
Exempt from the statewide education property tax grand list are real property consisting of the value of remediation expenditures incurred by a business for the construction of new, expanded or renovated facilities on contaminated property eligible under the redevelopment of contaminated properties program, including supporting infrastructure on sites eligible for the United States Environmental Protection Agency "Brownfield Program" for a period of ten years.
Tax Increment Financing Districts (TIF):
As it relates to the state education fund, the Vermont Economic Progress Council shall have the authority to approve or deny applications from municipalities that wish to use the taxes generated on the excess property valuation for interest and principal repayment on bonded debt or prefunding future tax increment financing district debt.
The council is hereby authorize to approve tax stabilization applications that may negatively impact the state education fund in an amount not to exceed $300,000 in fiscal year 1999.
The council is also authorized to approve economic tax incentives that may negatively impact the state general fund in an amount not to exceed $2,000,000 in fiscal year 1999.
Revenue positive projects will in no way affect the caps.
For more information on VEPC and the economic advancement tax incentives, contact Chris D'Elia, Vermont Economic Progress Council, national Life Building, Drawer 20, Montpelier, VT 05620-0501; 802-828-5256; [email protected].