Several prominent publications have been creating buzz for Utah’s business friendly environment over the last several months. These include Forbes’ March 19, 2015, article, How Salt Lake City And Utah Became The New Gold Standard, The New Yorker’s February 3, 2015, article, How Utah Became the Next Silicon Valley, and Inc. Magazine’s November 10, 2014, article, Move Over, Silicon Valley: Utah Has Arrived.
The Forbes article cited the Beehive State’s balanced approach to pursuing the right policies as one of the factors that contributed to its rank as the overall best performing state for the second year in a row in the U.S. Chamber of Commerce Foundation’s annual Enterprising States 2014 study. That study considers economic performance, exports, technology, entrepreneurship, business climate, talent pipeline, and infrastructure for its performance rankings.
One facet of Utah’s strategy to encourage entrepreneurship is the offer of tax credits for businesses that locate or expand in enterprise zones.
As it currently stands, any city with a population of 10,000 or less, or county with a population of 50,000 or less is eligible to receive the enterprise zone designation. Authorities review and approve applications on the basis of economic development need and other factors, including the following:
- Pervasiveness of poverty, unemployment, and general distress in the proposed zone;
- Extent of chronic abandonment, deterioration, or reduction in value of commercial property in the proposed zone;
- Potential for new investment and economic development in the proposed zone;
- The applicant’s proposed use of other state and federal development funds or programs to increase probability of new investment and development occurring in proposed zone;
- The extent projected development in the zone will provide employment to residents in the zone, and particularly, individuals who are unemployed or economically disadvantaged;
- The degree to which the zone applicant’s application promotes innovative solutions to economic development problems and demonstrates local initiative.
The tax credits include the following:
- A $750 tax credit for each new full-time position filled for at least six months during the tax year;
- An additional $500 tax credit if the new position pays at least 125 percent of the county average monthly wage for the respective industry;
- An additional $750 tax credit if the new position is in a business which adds value to agricultural commodities through manufacturing or processing;
- An additional $200 tax credit, for two consecutive years, for each new position insured under an employer sponsored health insurance program if the employer pays at least 50 percent of the premium;
- A tax credit (not to exceed $100,000) of 50 percent of the value of a cash contribution to a 501(c)(3) private nonprofit corporation engaged primarily in community and economic development, and is accredited by the Utah Rural Development Council;
- A tax credit of 25 percent of the first $200,000 spent on rehabilitating a building which has been vacant for at least two years, and which is located within an enterprise zone;
- An annual investment tax credit of 10 percent of the first $250,000 in investment, and 5 percent of the next $1,000,000 qualifying investment in plant, equipment, or other depreciable property.
There is pending legislation, S.B. 179, which would take effect September 1, 2015 and modifies certain provisions. For example, S.B. 179 specifies that the aggregate average annual gross wages of the “high paying jobs” required under the law be 110 percent of the average wage of a community in which the employment will exist, rather than merely “compared favorably against” the wages of such community.
Also, the “new incremental jobs” condition requires that these are full-time employment positions in which the employee works a minimum of 30 hours per week; the prior legislation did not contain the 30 hour per week minimum.
Another element of Utah’s success is its self-described status as “The Indie Film State.” We recently wrote about certain states’ film tax credit programs, which resulted in some states, such as Kentucky, Georgia, and Nevada, as unexpected film havens. Now, Utah can be added to the list.
Last month, the Utah Film Commission announced that the Utah Governor’s Office of Economic Development (GOED) granted film incentives to four new projects, including an independent feature, “It’s Family.” Anticipated in-state spending is $5 million. Beyond this, the production will hire 124 local cast and crew along with 800 extras. The GOED board approved the production for a maximum tax credit of $1.25 million, which represents 25 percent of the dollars left in the state.
Combined with the other three projects, “Into the Mystic,” “Saturday’s Warrior,” and “Riot,” all of which are expected to begin filming in 2015, in-state spending is projected to be $6.2 million, and the productions are expected to hire approximately 260 local cast and crew.
Utah’s Motion Picture Incentive Program offers a 20 percent rebate for productions that spend between $200,000 and $1 million. For productions that spend over $1 million, the credit is 20 or 25 percent, depending on the percentage of cast and crew that is from Utah, and promotional activity, among other things. The tax credit has no per project cap.
“The World’s Fastest Indian,” which was released in 2004, was the first film project to enjoy Utah’s film tax credit incentive.
Balance between economic incentives and spending has been cited as a significant feature of Utah’s success. An example of how the state plans to re-direct certain tax revenue is HB 382, which Governor Herbert signed into law last month. It addresses the use of revenue collected from local sales and use tax for highways and public transit, and authorizes counties to impose a local option sales and use tax for highways and public transit.
An American Petroleum Institute study shows that as of April 1, 2015, the national average is 48.85 cents per gallon. As of January 1, 2013, Utah ranked #27 in a Tax Foundation state-by-state comparison.
The Utah Transportation Coalition (UTC) contends that Utah’s transportation needs are outpacing transportation funding and holds the legislation in high regard. The group reasoned that Utah’s “population will reach 3 million by 2015 and will double by 2050. In order to keep Utah moving, we’re faced with the challenge of not only maintaining, but also future-proofing our infrastructure.”
In addition, according to the UTC, city and county governments have only one-third to one-half the funds they need for transportation infrastructure, which has an adverse impact on rural roads in particular.
The UTC notes that even though Utah’s motor fuel tax has not increased since 1977, the buying power of the tax has decreased by 48 percent, while the cost of some transportation materials has increased by 300 percent over the last decade.
Along these lines, TheSpectrum.com pointed out that some of Utah’s most prominent politicians supported the increase because the state needs $54.7 billion in transportation spending over the next 30 years, and $32.7 billion in infrastructure spending over the next 50 years. Without new revenue sources, there could be an $11.3 billion shortfall in the transportation arena.