| Legislature Home | Links to the World | Help | Advanced Search |
|
|
| House | Senate | Joint Departments and Commissions | Bill Search and Status | Statutes, Laws, and Rules |
JOBZ provides a variety of tax benefits to qualified businesses and some individuals located in a zone. These include the following:
Tax incentives under JOBZ require (in nearly all instances) the involvement of a qualified business. If the tax incentives are provided directly to the business entity, it must be a qualified business. If incentives are provided to an individual, it generally must be based on an investment in or operation of a qualified business. The law’s definition of “qualified business” requires satisfying a multi-part test:
Effective date of the 2005 changes. The 2005 Legislature substantially revised the definition of a qualified business, adding the DEED deal evaluation requirement and the minimum compensation requirement. In addition, the 2005 legislation repealed a prior law allowing a relocating business to qualify by making a large capital investment in zone. These 2005 changes became effective for business subsidy agreements entered after June 30, 2005.
Yes, but only if the retailer is not primarily engaged in selling to purchasers located in the zone. Thus, a store that mainly sells to shoppers in the store would not qualify, while a catalogue or mailorder sales operation would.
No, the law prohibits a public utility, as defined in Minnesota Statutes, section 300.111, from being a qualified business. This applies to entities engaged in producing, generating, transmitting or selling gas, electric, or telephone service. The 2005 Legislature enacted this prohibition in response to the grant of JOBZ status to Meeker Cooperative Light and Power Association by the city of Litchfield. It was effective for business subsidy agreements entered into after July 14, 2005.
Yes, in order to qualify for JOBZ tax incentives, a business must enter a business subsidy agreement with the zone or subzone administrator.
No, tax incentives are available only during the designation of a zone. This will cause the JOBZ incentives to diminish in attractiveness to businesses newly locating in a zone as time goes by. For example, a business locating in a zone in year eight of the 12-year designation would only qualify for only four years of tax incentives.
The 2006 Legislature enacted one exception to this general rule. It allowed three additional years of tax incentives for a qualified business that operates an ethanol plant and enters its business subsidy agreement after April 30, 2006 and before July 1, 2007. (This exception was enacted in two different laws. The second law, which would govern as the later enactment, did not contain the restriction that the business subsidy agreement must be entered before July 1, 2007. The 2007 Revisor’s bill is expected to repeal the second enactment, clarifying that the business subsidy agreement must be executed before July 1, 2007 to qualify for the three-year extension of tax incentives.)
The zone percentage is used to apportion income for purposes of calculating JOBZ’s exemptions under the individual and corporate franchise taxes. It is based on the average of the zone property and payroll ratios to total Minnesota property and payroll. The zone percentage equals the sum of the two ratios (zone payroll/Minnesota payroll + zone property/Minnesota payroll), divided by two.
This factor applies to qualifying businesses relocating operations into a zone. The percentage is used to reduce or apportion the individual income tax and corporate franchise tax exemptions for business income. The intent is to limit the tax incentives in proportion to the qualified business’s increases in its payroll of the relocated operations. The relocation percentage does not apply to the sales or property tax exemptions or to the individual income tax exemptions for rents or capital gains; the business receives the full benefits of those exemptions. The jobs credit formula limits the credit’s benefits to increases in payroll.
The relocation payroll percentage is determined for each taxable year as follows:
(zone payroll - relocated payroll)
zone payroll
The relocated payroll amount is the payroll of relocated operations in the last full year of operations before the relocation. Note that this amount is not adjusted for inflation, so payroll increases to compensate for inflation qualify for the tax benefits. The law is not clear, but relocated payroll likely excludes payroll from operations outside of Minnesota. For example, the restrictions preventing some relocating operations from being a “qualifying business” in the definition section of the statute apply only to the relocation of Minnesota operations. (Note: restrictions tied only to relocation of Minnesota operations may raise constitutional concerns about whether the incentives discriminate against interstate commerce.)
Effective date. The 2005 Legislature added the zone payroll percentage limitation. It applies to business subsidy agreements that are fully effective after August 31, 2005. Business subsidy agreements that were fully effective before that date receive the full exemption.
The individual income tax exemption applies to three categories of income received by individuals, trusts, or estates:
A qualified business operating in a zone is exempt from the corporation franchise tax. (The corporate franchise tax is often referred to as the corporate income tax.) This includes exemptions under the regular tax, the alternative minimum tax, and minimum fee. The regular tax exemption is determined by multiplying the corporation’s income by its zone percentage and its relocation payroll percentage. The product is subtracted from the corporation’s Minnesota taxable net income (i.e., after it has been apportioned to Minnesota). A similar procedure in used to calculate the exemption from the corporate alternative minimum tax. Since the zone percentage is based on zone property and payroll, this exemption is based on the proportion of the business’s Minnesota production that is in the zone. As under the individual income tax, the amount of income exempted is capped at 20 percent of the sum of zone payroll and the adjusted basis of the property in the zone at the time the property was placed in service in the zone.
The business entity minimum fee applies to corporations and “pass-through” tax entities, such as S corporations and partnerships that are exempt from the regular corporate franchise tax and the alternative minimum tax. The fee is calculated based on the Minnesota property, payroll, and sales of the business entity. The exemption simply excludes zone property and payroll from the minimum fee calculations. If the business’s only operations are located in the zone, the business is completely exempt from the minimum fee. Thus, these businesses will be exempt from any fee that would apply based on their Minnesota sales, while businesses with operations within and outside of the zone would not enjoy an exemption for their sales – whether made from zone locations or not.
Qualified businesses are exempt from state and any local sales taxes that otherwise would apply to their purchases. This exemption applies to goods and services used or consumed in the zone; a business cannot conduct its procurement activities in the zone for use outside of the zone and qualify for the exemption. The exemption includes building materials purchased by a contractor to build facilities in the zone for a qualified business. In addition, purchases by a qualified business of motor vehicles are exempt from the motor vehicle sales tax.
No, the exemption is limited to purchases by qualified businesses for use by the business. Purchases by residents for personal consumption purposes are not exempt.
The property tax exemption applies only to improvements (e.g., buildings) classified as commercial and industrial property. Thus, the exemption does not apply to the land value or residential or agricultural use property. To qualify for an exemption, the occupant of the property must be a qualified business.
No, levies to pay general obligation bonds and school operating referendum levies, approved before the designation of the zone, are not included in the exemption. Zone properties must continue to pay these property taxes.
No, this property is generally exempt from taxation and, therefore, is not included in captured tax capacity under the TIF Act. Captured tax capacity is the value that generates tax increment. Thus, exclusion from captured tax capacity prevents the generation of increment even though the property pays some debt levies. (School operating referenda, the other category of taxes that continue to apply, are calculated on market value, rather than tax capacity, and do not enter in TIF calculations at all.)
In addition, if a TIF district is created within a zone, when the zone designation expires and the property becomes taxable, the value at the time of the expiration of the exemption will be included in “original tax capacity” of the TIF district. This will prevent capturing of increases in the value of the property that occur during the zone designation. (Note: In the biotechnology zone law, the legislature explicitly provided that a TIF district could capture these increases when the zone expired. This was intended to allow combining zone incentives during the duration of the zone designation with TIF incentives after the biotech zone expires.)
No. Although the original JOBZ law did provide for payment of state aid to cities and counties in certain circumstances, the 2005 Legislature repealed this aid authorization.
JOBZ provides a refundable jobs credit for qualified businesses located in zones. This credit applies roughly to the amount of pay to new workers in the zone that exceeds $30,000 but not more than $100,000 per year. The credit is calculated by taking the lesser of (1) the zone payroll for the calendar year, minus the zone payroll in the year before designation of the zone or (2) Minnesota payroll for the calendar year, minus Minnesota payroll for the year before the zone designation. (This limitation is intended to prevent businesses that reduce jobs elsewhere in Minnesota from qualifying for an offsetting increase in zone jobs.)
Second, the increase in the number of FTE employees in the zone over the calendar year before the designation of the zone is multiplied by $30,000 and subtracted. Third, the remainder is multiplied by seven percent to yield the credit. (In calculating payroll, amounts paid in a calendar year over $100,000 are excluded from the calculation. This caps the credit attributable to compensation paid to any employee at $4,900 = ($100,000 - $30,000) * 7% credit rate.) If the credit exceeds the tax liability of the business, the state provides a refund to the business.
The Department of Revenue biennially estimates state tax expenditures. The most recent edition of these estimates was prepared in February 2006. State of Minnesota Tax Expenditure Budget Fiscal Years 2006 – 2009, available at: www.taxes.state.mn.us/taxes/legal_policy/other_supporting_content/2006_tax_expenditure.pdf .
The table summarizes the tax expenditures for the various JOBZ tax incentives from this report. The amounts are in thousands of dollars.
| Tax incentive | FY 2006 | FY 2007 | FY 2008 | FY 2009 |
| Individual income tax exemption | $1,000 | $1,400 | $1,600 | $1,700 |
| Jobs credit - individual income tax | 200 | 300 | 300 | 400 |
| Corporate franchise tax exemption | 1,800 | 2,500 | 2,800 | 3,000 |
| Jobs credit - corporate franchise tax | 200 | 400 | 400 | 500 |
| Sales tax exemption | 4,800 | 4,300 | 4,700 | 4,800 |
| Motor vehicle sales tax | * | * | * | * |
| Total | $8,000 | $8,900 | $9,800 | $10,400 |
|
* Less than $50,000 |
||||
August 2006