Massachusetts enacts economic development bill
Includes reforms to current incentives and provides for new incentives
TAX ALERT |
On Aug. 10, 2016, Gov. Charlie Baker signed House Bill 4569 into law, reforming the state’s economic development incentive program and introducing new state tax incentives, such as an angel investor tax credit and a college savings tax incentive program, among others, effective for tax years beginning on or after Jan. 1, 2017.
Economic development incentive program reform
House Bill 4569 provides reform to the Commonwealth’s tax incentive program, with the intention of making tax incentives more easily accessible and attractive to taxpayers. The legislation provides that the Commonwealth’s economic development incentive program (EDIP), shall be administered by the Economic Assistance Coordinating Council (EACC), under the oversight of the secretary of housing and economic development.
The EACC will be permitted to grant refundable tax credits up to $5 million per certified project for any single calendar year, with a maximum of $30 million of credits awarded for any calendar year. Current maximum allowed credits awarded for any calendar year is $25 million.
To qualify for tax incentives, a controlling business may petition the EACC to certify a project by submitting certain project information to the EACC, such as:
- a detailed description of the project
- the amount of capital investment to be made
- the number of new jobs to be created and existing jobs to be retained
- any other economic or public benefits expected to result
- a municipal project endorsement
- any other information the EACC requires
The EACC may then certify, deny or certify the project with conditions.
Upon certification of the project, the EACC may award the above mentioned tax credits based on many factors including, but not limited to:
- the degree in which the project is expected to increase employment
- the timeframe within which new jobs will be created
- the amount of capital to be invested
- the degree of new economic activity within Massachusetts that the project is expected to create
- the economic need of the municipality or region where the project is based
- any commitments by the controlling business to use Massachusetts firms, suppliers or vendors
The EACC has wide discretion as how to weigh and apply the criteria.
Angel investor tax credit
The legislation creates an angel investor credit, similar to the angel investor credit vetoed by former Gov. Deval Patrick in 2014. Under the bill, a ‘taxpayer investor’ may earn a credit in the amount of 20 percent of the amount of the taxpayer’s investment in a ‘qualifying business’ and up to 30 percent if the qualifying business is located in a gateway municipality. A taxpayer investor is an accredited investor, as defined by the United States Securities and Exchange Commission pursuant to 15 U.S.C. Section 77b(15)(ii), who is not the principal owner of the qualifying business and who is involved in the qualifying business as a full-time professional activity.
A qualifying business is a business that:
- has its principal place of business in Massachusetts
- has at least 50 percent of its employees located at its principal place of business
- has a fully developed business plan
- employs 20 or fewer full-time employees at the time of the taxpayer investor’s initial qualifying investment
- has a federal tax identification number
- has gross revenues equal to or less than $500,000
A ‘qualifying investment’ is a monetary investment that is at risk and not secured or guaranteed. However, qualifying investments do not include venture capital funds, hedge funds and commodity funds with institutional investors, or investments in a business involved in retail, real estate, professional services, gaming or financial services.
Taxpayer investors may invest up to $125,000 per qualifying business per year, with a $250,000 maximum for each qualifying business. The maximum for credits allowed to a taxpayer investor is $50,000 and the credits may be taken in the year of the initial investment or in any of the three subsequent taxable years.
College savings tax incentive program
The bill also includes a college tax incentive program. Under the legislation, a deduction may be taken for the amount equal to the contributions made during the taxable year to a prepaid tuition program or college savings program (section 529 plans) established by the Commonwealth or an instrumentality or authority of the Commonwealth. The maximum deduction allowed is $1,000 for single, married filing separately and head of household filers, and $2,000 for married filing jointly filers.
A notable omission from the economic development bill was a previously proposed tax on short-term hospitality rentals. Also noticeably absent from the final legislation was a proposed increase in the earned income tax credit, along with a previously included amendment to the bill that required tax-exempt organizations to pay temporary property tax on recently purchased properties. Massachusetts taxpayers currently receiving incentives or considering applying for incentives should carefully review the changes provided in House Bill 4569 and speak to their tax advisors with questions.