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HomeMy WebLinkAbout04-13, Tax Incentive Programs in South Dakota TAX INCENTIVES & WORKFORCE TRAINING . CASS COUNTY & NORTH DAKOTA TAX INCENTIVES *Corporate Income Tax Exemption *No Personal Property Tax *Property Tax Exemption *Sales&Use Tax Exemption *Agricultural Processing Tax Credits *Research&Development Expense Credit *Seed Capital Tax Credit *Angel Fund Investment Credit *Workforce Recruitment Credit *Internship Employment Credit *CORPORATE INCOME TAX EXEMPTION Newly established primary sector businesses,or expansions of existing primary sector businesses,are eligible for a five-year exemption from North Dakota state corporate income taxes. For business expansion, the exemption applies to the increase in corporate income attributable to the expansion project and related to North Dakota revenues. * NO PERSONAL PROPERTY TAX North Dakota exempts all personal property from property taxation. * PROPERTY TAX EXEMPTION A qualifying project may receive a complete or partial exemption from ad valorem taxation for up to ten years on new or existing buildings or structures used in the qualifying project.Land is not exempted.Buildings in a Tax Increment Financing district are not eligible for the property tax exemption. 1 FargoMoorhad * SALES & USE TAX EXEMPTION COMPUTER AND TELECOM EQUIPMENT A sales and use tax exemption is allowed on the purchases of computer and telecommunications equipment that are an integral part of a locating or expanding primary sector business.The exemption does not apply to replacement equipment. MANUFACTURING AND AGRICULTURAL PROCESSING EQUIPMENT Newand expanding businesses may receive a sales and use tax exemption on the purchases of manufacturing or agricultural processing equipment.The exemption does not apply to replacement equipment. AGRICULTURAL COMMODITY PROCESSING PLANT CONSTRUCTION MATERIALS Construction materials used to construct an agricultural commodity processing facility are exempt from sales and use taxes. *AGRICULTURAL PROCESSING TAX CREDITS A corporation is allowed an income tax credit for constructing a new facility, or adapting or adding equipment to retrofit a facility that either produces or blends biodiesel fuel or crushes soybeans or canola. The credit is equal to 10%of the direct costs incurred and is allowed in each of five tax years.An unused credit may be carried forward up to five years.The maximum a corporation can claim under this credit is $250,000. * RESEARCH AND DEVELOPMENT EXPENSE CREDIT The credit is equal to a percentage of the excess of qualified research expenses in North Dakota over the base period research expenses in North Dakota."Qualified research expenses"and"base period research expenses"are the same as defined in Internal Revenue Code Section 41, The credit to be applied to the excess expenses is 25 percent of the first $100,000 of excess expenses, and eight percent for excess expense above $100,000. Subject to certain conditions, a taxpayer may sell, transfer, or assign up to $100,000 of its unused tax credit to another taxpayer if the taxpayer selling the credit is a certified primary sector business with annual gross revenues of less than$750,000 that conducts research after December 31,2006 and has not previously earned or claimed the credit in North Dakota. * SEED CAPITAL INVESTMENT CREDIT An individual,estate,trust,partnership,corporation or limited liability company is allowed an income tax credit for investing in a qualified primary sector business. The credit is equal to 45%of an investment with no more than$112,500 allowed in any taxable year.The unused credit may be carried forward up to four 2 FargMoorhead years.Only the first$500,000 of eligible investments in a certified business is eligible for the tax credit.The , total amount of tax credits allowed for investments made in all certified businesses in any calendar year is ' limited to$3.5 million. Qualified businesses are those that have North Dakota residents as the majority of their employees,performs the majority of its business activity in the state,and relies on innovation,research or the development of new products and processes in its plans for growth and profitability. *ANGEL FUND INVESTMENT CREDIT An individual,estate,trust or corporation is allowed an income tax credit for investing in an angel fund in North Dakota. The credit is equal to 45 percent of the investment,up to a maximum credit of$45,000 per year.An unused credit may be carried forward up to four tax years. *WORKFORCE RECRUITMENT CREDIT A business that employs extraordinary recruitment methods to recruit and hire employees for hard-to-fill positions in North Dakota is eligible for a credit equal to five percent of the compensation paid during the first 12 consecutive months to an employee hired to fill a hard-to-fill employment position and is allowed in the first year following the year in which the employee completes the 12 consecutive month employment period. To be eligible for the credit the employer must pay an annual salary that is at least 125 percent of North Dakota's average wage and must have employed all of the following recruitment methods for at least six months to fill a position for which the credit is claimed:contracted with a professional recruiter for a fee; advertised in a professional trade journal,magazine or other publication directed at a particular trade or profession;provided employment information on a website for a fee;paid a signing bonus,moving expense or atypical fringe benefits.In addition,if an employer claims the credit,an employee hired in a hard-to-fill position is allowed a deduction for a signing bonus,moving expenses,or atypical fringe benefits paid by the employer. * INTERNSHIP EMPLOYMENT CREDIT Businesses in North Dakota are allowed an income tax credit for employing an intern.The credit is equal to 10%of the intern's compensation and is allowed for up to five interns employed at the same time.An employer can claim no more than$3,000 of credits for all tax years.Interns must be enrolled in a college or vocational technical education program in a field related to the work being performed and must be supervised and evaluated by the employer,and the internship must qualify for academic credit. 3 FRR6o 0oorh ad CASS COUNTY & NORTH DAKOTA WORKFORCE TRAINING PROGRAMS * North Dakota New Jobs Training Grant * Workforce 20/20 Program * NORTH DAKOTA NEW JOBS TRAINING GRANT The North Dakota New Jobs Training Program offers a cash grant,in the form of a refund of the employer's portion of an employee's state income tax withholding,to primary sector businesses locating or expanding in North Dakota.The refund is based on the numberofjobs created and salaries of thesejobs,and is projected over a period of 10 years. Funds are distributed on a quarterly basis. The contract can be updated to accommodate new hires above and beyond those in the initial contract. potential grant — nd new jobs training grant Average Annual Salary 25 Employees 50 Employees 100 Employees $40,000 $140,000 $280,000 $560,000 $60,000 $283,500 $567,000 $1,134,000 $80,000 $482,000 $964,000 $1,928,000 *WORKFORCE 20/20 PROGRAM This program provides matching grants to assist qualified North Dakota employers in training or upgrading their employees'skilIs. Qualified employers are those that are either:1)new to the state,2)expanding existing operations in the state,or 3) introducing new industry technologies or production methods. Application to the state,and its approval,must be completed before the training commences. potential grant reimbursement — workforce 20/20 program $450 average per employee:35 full-time employees=$15,750 4 Fargo-Moorhead CASS COUNTY & NORTH DAKOTA ' FINANCING , * North Dakota Development Fund * Bank of North Dakota * Small Business Administration * Private Sources *NORTH DAKOTA DEVELOPMENT FUND PROGRAMS The North Dakota Development Fund,part of the North Dakota Department of Commerce,provides flexible gap financing for new or expanding primary sector businesses in the state. NORTH DAKOTA NEW VENTURE CAPITAL ENTREPRENEUR LOAN DEVELOPMENT FUND/RURAL FUND PROGRAM REVOLVING LOAN FUND borrower Primary sector business Primary sector business Any business funding limit $300,000 and based on job $300,000 $20,000 creation interest rate lower than market rate- Lower than market rate- Lower than market rate- subject to risk of project subject to risk of project subject to risk of project term working capital 1-3 yrs working capital 1-3 yrs working capital 1-3 yrs equipment 3-5 yrs equipment 3-5 yrs equipment 3-5 yrs real estate 7-10 yrs real estate 7-10 yrs real estate 7-10 yrs min.equity 15% 15% 15% corpJpers. Yes Yes Yes guarantees qualifications a North Dakota business a North Dakota business a North Dakota business using services of a certified Entrepreneur Center cost and fees I%of original loan or equity 1%of original loan or negotiable balance equity balance miscellaneous Development Fund:for Does not have a job For every$4 of state funds, businesses located in cities creation requirement $1 of non-state matching with a pop.of 8,000 or more; Equity financing available funds is required job creation of one job per Does not have a job $20,000 creation requirement Rural Fund:for businesses located in cities of less than 8,000,job creation requirement of one job per $30,000 Equity financing available 5 Fargo�Mwrh ad 1 �k BANK OF NORTH DAKOTA PROGRAMS 1 The Bank of North Dakota(BND)is the only state-run bank in the United States.Its commercial lending program serves the credit needs of the state and are made on a sound and collectible basis.All business loans are made in participation with a lead lender.The lead lender completes and submits an application requesting BND's participation. BUSINESS BEGINNING PACE MATCH DEVELOPMENT ENTREPRENEUR LOAN LOAN GUARANTEE borrower Any business N.D.resident with a Primary sector Primary sector high school diploma business business or GED funding limit $1,000,000 BND may guarantee up to BND lending up to BND lending up to 85%of loan limit limit BND participation Lead lender Maximum loan Lead lender Lead lender requirements required-averages may not exceed required-BND must required 50-60%of total loan $100,000 participate at 50%- 80%of total loan use of proceeds working capital, business start-up term working real property and equipment, or expansion costs, capital,equipment, equipment real property, including legal, real property refinancing accounting or business planning interest rate Variable rate:prime Lender rate may 5%below yield rate BND's share-equal less 0.50%,or Fixed not exceed 3%over and not less than terms U.S.T-Note rate:comparable BND base or NY 5%below Prime rate plus.25%-.75%. FHLB rate plus prime with a floor of 1% May be adjusted 2.25% periodically term Averages:working The guarantee may Averages:working Averages:working capital 1-5 yrs, not exceed 5 yrs capital 1-5 yrs, capital 1-5 yrs, equipment 5-7 yrs, equipment 5-7 yrs, equipment 5-7 yrs, real estate 12-15 yrs real estate 12-15 yrs real estate 12-15 yrs collateral First security Negotiable First security interst First security interst interest on on acceptable on acceptable acceptable business business assets business assets and assets corporate guarantee equity requirements No minimums, No minimums, Based on project No minimums, based on project based on project and management based on project and management and management and management personal guarantee Yes Yes Yes Corporate guarantee from parent if borrower is a subsidiary 6 Mrgo�tMoorh ad BUSINESS BEGINNING PACE,cont. MATCH,cont. DEVELOPMENT ENTREPRENEUR LOAN,cont. LOAN GUARANTEE, cont. credit criteria Based on borrower In compliance with Based on borrower Borrower must and project the lead lender and project have a long-term credit rating of "A"or better,or its equivalent. qualifications N.D.business A North Dakota N.D.business that Project must resident with a net creates at least demonstrate a worth of less than one job for every significant impact $200,000 $100,000 of loan on the state's proceeds economy. cost and fees Assessed on a loan- Guarantee fee of Minimum of$250, Assessed on a loan- by-loan basis. .5%per year or assessed on a loan- by-loan basis. a one-time fee by-loan basis. of 1.5%of the guaranteed portion. miscellaneous Available for May be in Maximum buydown Bank line of credit refinancing. conjunction is$300,000 per loan may be substituted with other BND per biennium. for'A"credit rating. programs. Fargo,`�tMoorhad CLAY COUNTY & MINNESOTA ' TAX INCENTIVES * Border Cities Enterprise Zone * Job Opportunity Building Zone(JOBZ) * Property Tax Abatement * No Personal Property Tax * Research&Development Tax Credit * Angel Fund Tax Credit * BORDER CITIES ENTERPRISE ZONE Under Minnesota law,the Clay County cities of Moorhead and Dilworth are classified as border cities for purposes of the Border City Enterprise Zone and Development Zone legislation. Qualifying businesses that locate or expand in Moorhead or Dilworth are eligible for tax reductions under the Border Cities Enterprise Zone legislation. Potential tax reductions include the following,which are determined at the city level: -Sales tax exemption for construction equipment and/or materials used in the zone,and purchased after applying for zone designation; -Corporate income tax credit of up to$3,000 per additional,non-construction employee; -Corporate income tax credit for a percentage of the cost to finance new facilities; -Property tax credit for a portion of the property taxes paid for new or expanding industrial or commercial facility; -Seed capital tax credit of 45 percent of the amount invested in a qualified business,up to$112,500 per year. In addition,Border Cities may designate specific portions of the city as Development Zones.These Development Zones have their own potential tax deductions. *JOB OPPORTUNITY BUILDING ZONE 0OBZ) The JOBZ program provides a qualified business a variety of tax incentives through the year 2015.A qualified business is one that is located in a JOB Zone and has entered into a Business Subsidy Agreement (BSA)with a local government. Potential benefits include: -Individual or corporate income tax exemption.The income tax exemption is based on the Zone Percentage,which is a calculation of the percentage of the company's total business that is performed in the Zone. 8 Fargo tMwrhead -Sales and use tax exemption on goods and taxable services and construction materials and supplies. Goods and qualified services must be purchased by the qualified business and primarily used and consumed within the Zone.Examples of goods and taxable services that would qualify include office equipment and software,office supplies and utilities.Construction material and supplies must be used to construct or improve real property in the Zone,and must be used or consumed by the qualified business upon completion of the project.Therefore,drywall,cement,etc.that is used to construct a facility would be exempt,while a bulldozer owned by a contractor and used in a Zone would not be exempt. -One hundred percent property tax exemption for construction or improvement of real and/or personal property located within the Zone and classified as Class 3 property-commercial or industrial.Land,and property not classified as Class 3 property are subject to property tax. -A jobs credit that is available to qualified businesses paying an average of at least$30,000 per year. There are JOB Zones located in Barnesville,Glyndon,Hawley and Moorhead. * PROPERTY TAX ABATEMENT Primary sector businesses locating in Clay County may be eligible for an economic development property tax abatement.Each individual political subdivision--city or town,county and school district--makes its own determination of whether or not to abate the tax it imposes,and sets the length of the abatement.If all three political subdivisions approve the abatement,the maximum abatement term is 15 years;if two of the three approve the abatement,the maximum abatement term is 20 years.The taxes imposed by special taxing districts,such as a watershed or regional agency,are not eligible for abatement. * NO PERSONAL PROPERTY TAX Minnesota exempts all personal property from property taxation. * RESEARCH & DEVELOPMENTTAX CREDIT Minnesota businesses are eligible for a refundable tax credit of 10%on R&D expenditures,up to the first$2 million in eligible expenses.For eligible expenses above$2 million,the credit is 2.5%.If the credit exceeds the company's income tax liability,a refund will be issued. *ANGEL TAX CREDIT Minnesota's angel tax credit provides incentives to investors or investment funds that invest in startup and emerging companies focused on high technology or new proprietary technology.The income tax credit is equal to 25% of the investment, up to $125,000 per year per individual (or $250,000 per year for those married and filing jointly.)The tax credit is refundable,and investors need not live in the state of Minnesota to claim the credit. 9 RE 4Moorhead D-W.�d CLAY COUNTY & MINNESOTA , WORKFORCE TRAINING PROGRAMS * Minnesota Job Skills Partnership * Minnesota Pathways Program * Low Income Worker Training Program * MINNESOTA JOBS SKILLS PARTNERSHIP The Minnesota Job Skills Partnership(MJSP)program was created to join Minnesota businesses and schools in developing a competitive workforce.The program provides grants to one or more education institutions to supply newjob training or retraining to existing employees. Funds awarded by the program may be allocated to training-related costs or educational infrastructure improvements to assist current businesses or businesses interested in locating operations in Minnesota. Participating businesses must match grant amounts with equal or greater amounts of in-kind contributions. Two separate applications are available,one for grants of up to$50,000 and the other for grants of up to $400,000. * MINNESOTA PATHWAYS PROGRAM The Program is designed to act as a catalyst between business and education in developing cooperative training projects that provide training,new jobs and career paths for individuals making the transition from public assistance to the workforce.Grants are awarded to educational institutions with businesses as partners.Public and/or private educational institutions within the state are eligible.Preference will be given to projects that provide employment with benefits and/or with defined career paths.All projects must have at least one educational institution and one business working together. Funds may be used for educational infrastructure improvements necessary to support businesses located or intending to locate in Minnesota.Requests for wage subsidies and tuition reimbursements are ineligible. $400,000 of Pathway funds per grant can be awarded for a project.A cash or in-kind contribution from the contributing business must match Pathway funds on at least a one-to-one ratio. * LOW INCOME WORKERTRAINING PROGRAM The Low Income Worker Training Program is intended to be used as a means for covering the cost of training for training-ready individuals who have incomes at or below 200 percent of the Federal poverty line to acquire additional skills in order to move up the career ladder to higher paying jobs and economic self-sufficiency.These grants-in-aid may be awarded to Minnesota public,private,or non-profit entities,or partnerships of two or more of these entities,that provide employment services to low-income individuals. Eligible organizations may use grant funds to provide eligible eligible trainees with work-skills training and education.The use of grant funds may also include training-related materials and supplies,and when deemed appropriate by the Board,up to 10 percent of direct-training costs may be used for project-related administration costs. 10 Fargo_Moorhad CLAY COUNTY & MINNESOTA FINANCING * Minnesota Investment Fund * Small Business Development Loan Program * West Central Initiative Revolving Loan Funds * West Central Initiative Community-Based Component Funds * MINNESOTA INVESTMENT FUND The Minnesota Investment Fund provides grants that create and retain high-quality jobs in Minnesota,with a focus on industrial,manufacturing and technology-related industries.Grants are awarded to local units of government who provide loans to assist expanding businesses. Loans for land,building,infrastructure improvement,equipment,and training to support businesses located or intending to locate in Minnesota are eligible.Working capital,retail business and industrial park development projects are ineligible.All projects must meet a minimum criteria for private investment, number of jobs created or retained,and wages paid.There is a maximum of$500,000 per grant,and only one grant per state fiscal year can be awarded to any individual governmental unit.At least 50 percent of the total project costs must be privately financed through owner equity and other lending sources,and most applications that are actually selected for funding have around 70 percent privately financed.Grant terms are for a maximum of 20 years for land and buildings and 10 years for machinery and equipment. Interest rates are negotiable. * SMALL BUSINESS DEVELOPMENT LOAN PROGRAM Manufacturing or industrial companies that meet the federal definition of a small business are eligible for loans of up to$5 million through this program.Generally,20%of the project costs must be privately financed through equity or other sources.Terms are generally 20 years for real estate and 10 years for equipment.Collateral is required in the form of first mortgage on real property or equipment financed with the program and personal guarantees of owners. *WEST CENTRAL INITIATIVE REVOLVING LOAN FUNDS The West Central Initiative Foundation assists businesses and communities in west central Minnesota by providing gap financing to eligible new and expanding businesses.West Central Initiative's loan programs typically supplement conventional bank financing,anywhere from 10 percent to 40 percent of the total financing for eligible applicants.Eligible projects must be able to prove that a financing gap exists and the bank is not able to fund the entire project. FHg Moorh ad The Industrial Loan Fund is West Central Initiative's fund for larger loans of between$20,000 and$300,000. Loans from this fund are often offered at a rate below the market rate and are typically used to fund new construction of a building or the purchase of equipment or existing real estate,and in some cases may be used for working capital or other intangible uses. The loan must always be collateralized and will require a personal guarantee if the borrower is a coporation. The Small Enterprise Loan Fund (SELF)is West Central Initiative's fund for small loans of between $1,000 to $35,000.It is used to fund fixed assets and working capital for small local businesses,startups and some retail businesses.The retail sector is limited to those businesses that do not compete with others in the immediate trade area or region. *WEST CENTRAL INITIATIVE COMMUNITY-BASED COMPONENT FUNDS A number of Clay County communities offer their own community-based revolving loan funds through the West Central Initiative.They include Barnesville,Felton,Hawley, and Wen Hitterdal;for more information on eligibility and funding,please contact our office. Clay County also operates the Clay County Loan Fund to assists businesses that demonstrate a financing gap and that most likely would not succeed without the fund's support.Specific use of loan funds could include machinery or equipment,real estate,working capital,inventory and related expenses and professional fees.The maximum loan amount is$20,000 or ten percent of the net assets of the fund, whichever is greater,and can not surpass 50 percent of the total project cost. 2 Fargo0Moorhad