Do "clawback" provisions apply to the tax incentives?
Yes, the law provides that the state and local governments can make
businesses repay all or part of the incentives under certain circumstances.
What conditions can trigger imposition of sanctions on a business?
The following circumstances can trigger imposing sanctions on a qualified
- The business stops operating in the zone
- The business stops being a qualified business (e.g., for a relocation, it
fails to meet the threshold employment or investment requirements)
- The business does not meet the performance goals established in the
business subsidy agreement. DEED can extend the authority to meet the goals by
up to a year.
Businesses that stop operations in a zone are subject to repayment of tax
benefits, while businesses that breach their business subsidy agreements and
enter amended agreements only suffer a temporary loss of JOBZ tax benefits.
When does a business stop operating in the zone for purposes of the repayment obligation?
The law provides two ways that a business can be deemed to have stopped its
operations in the zone. First and most obvious, the business can simply
terminate its operations in the zone. The law defines this by reference to the
business not performing a "substantial level" of the activities specified in the
business subsidy agreement. Second, the business can cease to be a qualified
business by violating its business subsidy agreement and failing to enter an
amended agreement with DEED (as described below).
What is the repayment obligation for a business that stops operating in the zone?
A business that ceases operating in the zone must repay the most recent two
years of tax benefits it received under JOBZ.
What repayment procedures apply?
In general, a business has 30 days to repay the tax benefits after it stops
operating in the zone or otherwise triggers a repayment obligation. For state
taxes, this will generally involve filing amended tax returns for the years in
question and paying the additional tax. For property taxes, the county auditor
will prepare revised property tax statements. The Department of Revenue (DOR)
has the same powers to collect these repayment obligations as it does to collect
other unpaid taxes. A repayment obligation for property taxes becomes a lien on
the real property. Repayments generally will be credited to the state or local
funds that would have received the original taxes.
Can the repayment obligation be waived?
Yes, the Commissioner of Revenue can waive the repayment obligation after
consulting with the Commissioner of Employment and Economic Development. In
order to grant a waiver, the commissioner must determine that the waiver is in
the best interest of the state and local governments and that the business's
actions were beyond its control–e.g., because of a natural disaster,
unforeseen industry trends, or loss of a major customer or supplier. The waiver must
be requested within 60 days of the issuance of the order.
What sanctions apply to businesses that breach their business subsidy
agreements, but continue zone operations?
A business that breaches its business subsidy agreement, but
that continues to operate in the zone can qualify for a lesser penalty of a
reduction in how long the business qualifies to receive JOBZ benefits. To
qualify for this reduced penalty, the business must apply to DEED and enter an
amended business subsidy agreement with the local government responsible for
administering the zone. DEED determines a period of time that the business will
be ineligible for JOBZ benefits (a minimum of one year) and the duration of the
zone (and availability of tax benefits to the business) is reduced by this
amount. DEED is to base this determination on how badly the business's failed to
satisfy its obligations under the business subsidy agreement. If a business
violates the amended agreement, however, it is permanently barred from receiving
JOBZ benefits and is subject to the two-year repayment obligation.