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Utah's newest tax credit.

UTAH'S NEWEST TAX CREDIT

Are you considering expanding your current manufacturing operation or establishing a new manufacturing business? Would you contemplate making a relocation or taking on a current manufacturing operation in a rural section of the state? If so, you should know about a tax benefit called an "enterprise-zone credit."

In the 1988 Utah legislative session, lawmakers passed HB51, which established the enterprise-zone credit as an incentive to bring jobs and investments to certain designated areas in the state that are economically distressed. Generally, the bill allows manufacturing companies, which bring new jobs and additional investment to the designated zones, to use the special tax credit to offset the Utah income tax or corporate franchise tax.

These zones are assigned on a county-by-county basis. A county can be designated as an enterprise zone for a period of five years, after which the county can reapply for a renewed term. Though the zone is designated for a period of five years, its designation can be revoked if it is not used by a business during a calendar year.

Two Benefits for Business

The enterprise-zone credit provides incentives in two specific areas. The first incentive relates to the number of jobs a business creates in the designated area. The second is based on the actual dollar amounts invested in buildings, equipment, or other depreciable assets. Specifically, the credit is outlined as follows:

Incentive #1

A $750 credit is allowed for each full-time job created which lasts for a period of not less than six months. An additional $500 may be claimed if the new job is one of three job classifications designated by each individual county.

Incentive #2

An investment-tax credit equal to 10 percent of the first $10,000 in investment, 5 percent of the next $90,000 in investment, and 2 percent of the remaining qualifying investment in buildings, equipment, or other depreciable property.

These credits do not have to be taken in the year the credits are earned, but they must be taken within five years or the credits will be forfeited.

Additional Benefits from Local Communities

In addition to this state tax credit, many of the local cities and counties provide additional benefits to help make the enterprise zone successful. These benefits range from education and training to marketing and actual funding. For example, Iron County has a commitment from Southern Utah University to provide some managerial and marketing services as well as vocational-support training to eligible businesses. The local school district has also offered its facilities and some human resources to help meet training needs. The county also generated over $100,000 in funding from local banks, utilities, and other businesses to assist in supporting various incentives.

In order for a county to qualify for the credit, it must meet a three-pronged test:

1. The county must have an unemployment rate equal to 150 percent of the state unemployment rate. 2. The per capita income of the county must be 80 percent or less of the state's average per capita income. 3. There must have been a net outmigration of people during each of the preceding three years.

A county which meets these three tests can submit an application to the state requesting designation as an enterprise zone. Figure 1 identifies those counties already approved.

Some Restrictions Apply

Generally, only three restrictions are imposed on a business. First, at least 51 percent of the company's employees must live in the enterprise zone. Second, the primary purpose of the business must be manufacturing; that is, businesses with "Standard Industry Classifications" from 2011 to 3999. In the last legislative session, however, House Bill 295 was passed to extend this credit to businesses with codes 7629, 7692, 7694, and 7699. These codes include the following businesses:

7629 - Electrical Repair Shops

7692 - Welding Repair

7694 - Armature Rewinding Shops

7699 - Repair Services

This second restriction specifically excludes construction. The third restriction disqualifies a business that permanently shuts down or curtails a business operation in another part of the state in order to move to an enterprise zone if such curtailment is reasonably expected to diminish employment in that part of the state.

How to Qualify

If you are in a position to take advantage of this relatively new and not widely known tax credit, the tax benefits received could give your business a significant boost. In addition to providing tax savings to you and your business, the resulting economic growth will also provide a vital benefit to the state's rural communities. If you are interested in obtaining more information, contact the Utah Department of Community and Economic Development, which is responsible for administering the enterprise-zone program.

Steven L. Ross, CPA, is manager of tax services at Deloitte & Touche. Lynn J. Ames is a staff consultant for tax services at the same company.
COPYRIGHT 1991 Olympus Publishing Co.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1991 Gale, Cengage Learning. All rights reserved.

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Title Annotation:a discussion of the advantages of an "enterprise-zone credit"
Author:Ross, Steven L.; Ames, Lynn J.
Publication:Utah Business
Date:Jul 1, 1991
Words:801
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