Transferable Tax Credits - The RSH Groupket cap of publicly traded life sciences companies in the state had increased to $29.7 billion versus $16.9 billion in 2005. In response to

54 TRADE & INDUSTRY DEVELOPMENT • MARCH/APRIL 2009

SPECIAL REPORT Tax Credits & Incentives

Transferable

Tax CreditsThe Credit Crunch of 2008 has hit the world of economicdevelopment hard. Companies that were considering expansion ofexisting facilities or new facilities have rushed to the sidelines due touncertainty in the capital markets, general economic malaise andinvestor concern.

A recent study conducted by DCI onbehalf of the Greater Houston Partner-ship shows that 38 percent of site consul-tants expect to see a decrease in thedemand for their services as a result ofrecent changes in the world-wide eco-nomic climate. Over two-thirds of all siteconsultants have seen projects either ter-minated or placed on hold in the last sixmonths.

Yet, studies show that there continuesto be strong demand for new locations inthe energy, medical, biotechnology andservices sectors. Recent estimates of en-ergy-related projects indicate that over$15 billion per year is expected to bespent each year over the next decade onalternative energy projects in the UnitedStates alone. In addition, an aging popu-lation and changing financial conditionsbodes well for the med-tech and servicessectors of the economy.

The Drive for Growth IndustriesMany states have shifted their eco-

nomic development attraction programstowards these industries. Massachusetts,for example has recently launched ag-gressive attraction programs in both thelife sciences as well as the alternative en-ergy industries. Grants, tax credits, taxabatements, R&D credits and other pro-grams are typically targeted towards

By James H. Renzas

Providing Assistance Where Assistance is Needed

of the credits to companies with currenttax liability in the state.

In 1999, a New Jersey state law wentinto effect allowing emerging technologyand biotechnology companies to transfer,“sell,“ their unused New Jersey Net Op-erating Loss carry forwards (NOL’s) andNew Jersey Research and DevelopmentTax Credits (R&D Credits) for cash.Profitable companies, paying New Jerseycorporate tax, can “buy” these credits at adiscount thereby reducing their state taxobligation. Administered by the StateEconomic Development Authority andpassed by the Senate and General As-sembly of the state of New Jersey ( P. L.1997, c334, Senate No. 1709-Final Ver-sion Chapter 140), the intent of this law isnot only to stimulate economic growthwithin the state, but also to aggressivelyexpand the State’s emerging technologyand biotechnology industries.

The response to the program has beenquite favorable. According to an Ernst andYoung study conducted on behalf ofBioNJ, the number of life sciences com-panies located in New Jersey has increasedfor the third year in a row to 238, with over6,155 employees. R&D expenditures atpublic life sciences companies have in-creased to $1.2 billion in 2007 versus just$737 million in 2005. The aggregate mar-ket cap of publicly traded life sciencescompanies in the state had increased to$29.7 billion versus $16.9 billion in 2005.

In response to questions that look atwhy companies locate and remain inNew Jersey, 61 percent of the 2008 re-spondents indicated that the New Jerseystate government provides and supportsthe industry, a (Continued on page 58)

these emerging industry companies as amethod to attract high-paying technologyjobs in critical industry segments.

California, for example, offers a gen-erous Research and Development taxcredit which provides companies 15 per-cent of the excess of current year researchexpenditures for qualified research con-ducted in the state of California. TheState has rightly promoted itself as thecenter for biotechnology and has toutedthe industry’s impact on the State and itsresearch institutions. Yet, few life sci-ences companies show a profit in the 15-year life-cycle typically required for thecreation of a new biotechnology product.Most companies in this segment are re-search intensive organizations that aim toget the product through a rigorous FDAapproval process and then capitalize uponthe value- added research by selling or li-censing the technology to a much largerorganization.

As generous as it is, California’s Re-search and Development tax credit doesnot provide the needed stimulant to thebiotech industry because these creditscannot be monetized. This is because theCalifornia Research and Developmentcredits are non-transferable.

Other states have recognized this prob-lem and have implemented tax creditswhich can be monetized through the sale

www.tradeandindustrydev.com 55

Grants, tax credits,tax abatements,

R&D credits and other programs are

typically targeted towards

merging industry companies

as a method to attract high-

paying technology jobs in

critical industry segments.

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SPECIAL REPORT Tax Credits & Incentives (Continued from page 55)

statistic that has increased every yearsince 2003. A key component of this sup-port is the Tax Credit Transfer programthat allows companies that are not mak-ing a profit to sell Net Operating Losses(NOL’s) and Research and DevelopmentTax Credits.

What are Transferable Tax Credits?

Transferable tax credits allow thecompany which generates the state taxcredits to sell these credits on the mar-ket to companies that have state tax lia-

bility. Transferability allows an entitythat has more tax credits than tax liabil-ity to sell what it cannot use. Transfer-ability also allows entities that receivemultiyear credits for capital projects tosell the credits and obtain the financingthey need.

Transferable tax credits differ from re-fundable tax credits in that the state willnot provide a cash refund of unused taxcredits where the company has insuffi-cient tax liability to take advantage of theprogram. Many states have enacted bothtransferable and refundable tax credits asa way of providing stimulus to industrieswhere job creation and investment areimportant to the state’s economic devel-opment program.

Transferable Tax Credits DriveOregon Renewable Industry

The State of Oregon offers the Busi-ness Energy Tax Credit to those who in-vest in energy conservation, recycling,renewable energy resources and less-pol-luting transportation fuels. A transferabletax credit of 50 percent is available forcompanies in the following industries:• High Efficiency Combined Heat

and Power• Renewable Energy Resource

Generation• Renewable Energy Resource

Equipment Manufacturing Facilities

Through 2007, there were more than14,000 Energy Tax Credits issued inOregon.

Trade, business or rental propertyowners who pay taxes for a business sitein Oregon are eligible for the tax credit.The business, its partners or its share-holders may use the credit. The applicantmust own or be the contract buyer of theproject (the project owner). The businessmust use the equipment for the project orlease it for use at another site in Oregon.A project owner also can be an Oregonnon-profit organization, tribe or publicentity that partners with an Oregon busi-ness or resident who has an Oregon taxliability. This can be done using the Pass-through Option.

The Pass-through Option allows a pro-ject owner to transfer their Business En-ergy Tax Credit project eligibility to a


pass-through partner for a lump-sum cashpayment. A project owner may be a pub-lic entity or non-profit organization withno tax liability or a business with tax lia-bility that chooses to use the Pass-through Option.

According to an Economic ImpactStudy prepared by ECONorthwest inMay 2007, the annual benefits of theBusiness and Residential Energy TaxCredit programs in Oregon far exceededthe costs of administering the program.Of the $73.8 million committed in 2006,for example, the net impact on the Ore-gon economy included:• Increased output in Oregon’s economy

of $142.7 million• 1,240 new jobs in Oregon• $18.6 million in new Oregon wages• An increase of $10 million in state and

local government tax revenues• A decrease in commercial and residen-

tial energy costs of $48 million.

Solar manufacturers are increasinglyconsidering Oregon as a location formanufacturing and production as a resultof these programs. Solaicx, a manufac-turer of mono-crystalline silicon ingotsand wafers used in the solar industry, an-nounced in June 2008 that it will estab-lish its first high-volume manufacturingfacility in Portland, Oregon. In March,2008, SolarWorld Group, based in Ger-many, said it will convert an existingsemiconductor plant in Hillsboro, Ore-gon to a solar-wafer and cell manufac-turing facility. When fully operational, itwill be the nation’s largest solar produc-tion facility.

SpectraWatt, an Intel spin-off, willmake solar cells in Hillsboro, with an ini-tial employment of 135, with potentialfor expansion. XsunX is completing itsfactory in Wood Village, Oregon. Thecompany has plans to expand up to 100MW in solar panel production capacity.

Average wages in the solar manufactur-ing industry in Oregon is in the $60,000per year range.

www.tradeandindustrydev.com 59

(Continued on page 60)

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Refundable tax credits differ

from transferable tax credits,

in that refundable, or non-

wastable tax credits can be

applied to state taxes to reduce

the tax owed to below zero,

resulting in a moderate

negative income tax.

erate negative income tax. Becausetransferable tax credits can only be soldwhere there is a buyer who needs taxcredits, situations

Refundable Tax CreditsBecoming More Popular

Refundable tax credits differ from



transferable tax credits, in that refund-able, or non-wastable tax credits can beapplied to state taxes to reduce the taxowed to below zero, resulting in a mod-

Northwest Indiana is fostering a better business climate ideal fortechnology-based businesses like data centers to TDL and ware-housing facilities to advanced manufacturing operations.

It’s as easy as one-two-three: 1 percent property tax on residen-tial properties creating an even more affordable quality of life; 2 per-cent property tax for multi-tenant units; and 3 percent property tax forbusiness and industry.

These property caps were the result of the Indiana General As-sembly’s House Enrolled Act 1001 effective June 30, 2008 and willphase in over the next two years. The 1-2-3 percent caps are basedon real and personal property value.

This law provides for a stable tax environment allowing organi-zations to accurately assess their tax liability – a key to making in-formed, educated business decisions.

On the technology front, Northwest Indiana is pursuing legisla-tion to further compete with surrounding states. If passed, the lawwill provide that the enterprise information technology equipmentowned by an eligible business is exempt from personal property tax-ation for 25 years following the date on which the equipment isplaced in service.

Indiana state legislators are addressing this “Transformation Leg-islation” in the current session. This is yet one more step in stabiliz-ing the Indiana tax climate.

With defined technology districts and associated legislation, tech-nology-related businesses will find Northwest Indiana on the shoresof Lake Michigan an ideal location for operations.

For regional information, site selection assistance and workforcedata, please visit www.nwiforum.org.

IND

IAN

A Northwest Indiana – Fostering a Better Business Climate




in fast growing industries and those inemerging fields with heavy developmentspending can more easily utilize refund-able tax credits

can arise where there is insufficient taxliability to fully utilize available trans-ferable tax credits. Refundable tax cred-its, however, avoid this problem because

they allow the recipient of the tax cred-its to actually receive a cash rebate ofunutilized tax credits, once all tax lia-bility has been fully utilized. Companies



An economic development tool used by the City of Houston,Tax Increment Reinvestment Zones (TIRZs), are not only sparkingdevelopment, but literally changing the landscape of local com-munities. Houston’s Greenspoint area has become a model fortax increment financing, delivering projects that attract developersand businesses.

“The TIRZ is bringing enhanced streetscape, which includeswider sidewalks, landscaping, trees, public art and benches,”said Sally Bradford, executive director of the Greater GreenspointRedevelopment Authority (GGRA), which oversees Greenspoint’s3,500-acre TIRZ. The TIRZ reimburses developers for includingpublic amenities in projects. For a TIRZ to operate, the area’s tax-ing jurisdictions must agree to return their annual incremental in-crease in tax revenue over an established base amount to thezone for projects.

Myers, Crow & Saviers, Ltd., a real estate and investment firm,has attracted tenants such as Continental Airlines, FMC Tech-nologies, ExpressJet’s corporate headquarters and the UnitedStates Postal Service to its five Greenspoint office projects. Thefirm has worked with Greenspoint’s TIRZ to enhance its develop-ments and meet a key need of providing multiple access points forits high density users.

“Only two curb cuts are allowed on the frontage road by theTexas Department of Transportation for this parcel, which limitsaccess,” said Greg Mondshine, the firm’s managing director,speaking of a 50-acre parcel it’s developing. “In order to createbetter access, a new street must be built. The TIRZ has approvedthis project, helping us meet the needs of tenants,” he added.For more information on the GGRA, please log on towww.greenspoint.org.

TE

XA

S Houston’s Greenspoint: Using Incentives with Impact




because it does not require a willingbuyer to take advantage of the credits.In addition, the tax credits are availableat a 1:1 basis with cash versus 70 to 85percent for transferable tax credits.

Among the states offering refundabletax credits are Michigan with its MEGAtax credit program; Indiana with its EDGEprogram and numerous state film produc-tion tax credits; Ohio’s Job Creation TaxCredit; Nebraska’s Advantage Program;New York’s Economic DevelopmentZone; Utah’s Economic DevelopmentZone tax credit; Maryland’s One MarylandTax Credit, and many other programs.

These programs are among the mostdesirable as companies never have toworry about whether or not these creditscan be monetized.

Tracking and Compliance is KeyThe common thread between both trans-

ferable and refundable tax credits is the

need for rigorous compliance to ensure thatthe programs are being used as specifiedby the tax code. In addition, many compa-nies do not correctly calculate the value ofthese credits or provide timely reports asrequired by law. Recently, for example, wehad a client who had successfully appliedand pre-certified for a New York EmpireZone project which entitled the companyto up to $3,000 per new hire in refundabletax credits. Due to management changes,however, the company failed to providecompliance reports to the state as requiredby law, and the Empire Zone project wasde-certified. The dollar loss associated withthe failure to file timely reports has beenestimated to be in the millions of dollars.

In addition, many companies do not ef-fectively communicate with state and lo-cal officials regarding the status of theirprojects. Many programs require verifica-tion of job creation or investment. In anuncertain market, companies may not al-



ways be successful in creating the numberof jobs that they have projected during theincentives negotiation process. Regularcommunications between state and localofficials can help stem the loss of all or aportion of investment or job creation taxcredits. Alternatively, if the company cre-ates far more jobs or investment than wasoriginally contemplated, this regular com-munication program can help you qualifyfor more credits.

Whenever you or your company areconsidering establishing new or expandedfacilities, a survey of all available taxcredits should be conducted as a normalpart of doing business. Companies likeBedford can handle this on a contract ba-sis or this can be done by internal staff re-sources. Once your company hassuccessfully applied for tax credits, it isimportant that you have a system in placeto monitor and maintain these tax creditsto ensure full utilization. T&ID




Documents

Transferable Tax Credits - The RSH Groupket cap of publicly traded life sciences companies in the state had increased to $29.7 billion versus $16.9 billion in 2005. In response to