Importance of Tax

Incentives

Renewable Energy Storage

Working Group

March 12, 2014

Why are Incentives Necessary?

Signal a business friendly climate

Tool kit for economic developers

Fierce competition among states

Nationally a zero sum game; but New Mexico must plan

New Mexico can win

Anti-donation clause

Creates necessity for work-arounds

Tax Expenditures Basis of Tax Incentives

Provisions of state law that provide benefits to certain activities or groups by reducing tax liability

Almost all ED tax expenditures created in last 10 years – many see little activity

All Expenditures 2012 = debatable!

2013 paid claim amounts for the following economic development incentives:

Film Incentives - $9,494.5M

High Wage Tax Credits $24,202.4M

Technology Jobs Tax Credit & Research - $6,695.2M

Rural Jobs Tax Credit - $225,900

Angel Investment Tax Credit - $392,500

Investment Tax Credit - $1,468.4M

Breweries and Wineries Tax Credit - $799,000

Key Incentives

Rural Jobs Tax Credit

High Wage Jobs Tax Credit

Investment Tax Credit

Job Training Incentive Program

Tax Incentives Associated with Industrial Revenue Bonds (Industrial Revenue Bonds allows purchase of

manufacturing equipment free of gross receipts or compensating tax).

Single Sales Factor Associated with Manufacturing Facilities.

Other Specialized Incentives

Technology Jobs Tax Credit

R & D Small Business Tax Credit

Research and Development Gross

Receipts Tax Deduction

Angel Investment Tax Credit

Biomass-Related Equipment

Compensating Tax Deduction

Other Specialized Incentives

Advanced Energy Product Manufacturer’s

Tax Credit

Renewable Energy Production Tax Credit

Advanced Energy Tax Credit

Manufacturers Consumables GRT

Deduction

Rural Jobs Tax Credit

Enacted in 1999

25% of the first $16K per job (pop<15,000)

Or 12.5% of first $16K (pop>15,000)

JTIP eligible employers

Nonrefundable, Transferable

All CRS taxes except local options

High Wage Jobs Tax Credit

Enacted 2004

10% of eligible wages up to $12,000 per employee

Can be taken for 4 years

Based on $40K wages if pop>40,000

Based on $28K wages if pop<40,000

2012 Legislation: Language must be clarified

High Wage Jobs Tax Credit The new wage thresholds apply to jobs created on or before July 1, 2015. The lower thresholds apply

to jobs created before July 1, 2015 for the duration of the four qualifying periods.

Enacted 2013

Qualified employers – JTIP eligible

Made more than 50% of its sales to persons outside New Mexico during the most recent 12 months of the employer’s modified combined tax liability reporting periods ending prior to claiming this credit

Are growing with employment greater than the previous year

Qualified employers can take the credit for 4 years. The credit may only be claimed for up to one year after the end of the four qualifying periods. The credit can be applied to the state portion of the gross receipts tax, compensating tax and withholding tax.

Any excess credit will be refunded to the taxpayer. The credit shall not exceed $12,000 per year, per job.

Qualified employees:

• Must be a resident of New Mexico

• Cannot be a relative of the employer or own more than 50% of the company

Manufacturer’s Investment Credit

Enacted 1979; amended various times 5% value of qualified equipment; 85% of total liability

Requires job creation

changes after June 30, 2020 limits qualified investments to be limited to no greater than $2M for any taxable year.

must add a least one additional employee for every $500,000 of eligible investment if the total investment claimed is up to $30M. The taxpayer must add at least one employee for every $1M of investment if the total investment claimed is over $30M

Non-refundable - All CRS taxes including withholding tax

Sunset extended

JTIP – Powerful & Most

Attractive Incentive Since 1972

Helps create approximately 1000-1500 jobs per year

Assists 40-60 companies

Not tax-based

Wage subsidy

Current funding for FY15 $1.7M – seeking evergreen

Single Sales Factor

Enacted in 2013 Beginning January 1, 2014, New Mexico will begin phasing in a single

sales factor apportionment methodology for corporations whose principal business activity is manufacturing.

For the purposes of apportioning income, “manufacturing” excludes construction, farming, power generation, and processing natural resources including hydrocarbons.

Five-Year Policy Changes:

• Year Apportionment

• 2014 Double-Weighted Sales

• 2015 Triple-Weighted Sales

• 2016 70% Sales

• 2017 80% Sales

• 2018 Single Sales Factor

Technology Jobs Tax Credit

Enacted in 2000

Basic and “Additional” Credits

Additional credit requires $75K payroll increase for every $1Million in qualified expenses

4% of qualified expenditures – Urban

8% qualified expenditures – Rural

Recapture – applies to closure within 2 years

Cannot be used in conjunction with an IRB

R & D Small Business Tax

Credit Qualified R&D small business means a business that:

Employs no more than 25 employees in any prior calendar month

Had total revenue of no more than $5 million dollars in any prior fiscal year.

Did not in any prior calendar month have more than 50% of its voting securities or other equity interest with the right to designate or elect the board of directors or other governing body of the qualified business owned directly or indirectly by another business

Has made qualified research expenditures for the period of 12 calendar months ending with the month for which the credit is sought of at least 20% of its total expenditures for those 12 months.

Credit equal to the sum of all gross receipts taxes, compensating taxes or withholding

taxes due to the state for up to three years.

Qualified research is defined as that undertaken for the purpose of discovering information that is technological in nature and the application of which is intended to be useful in the development of a new or improved business component and in which substantially all activities constitute elements of a process of experimentation related to new or improved function, performance, reliability or quality, but not related to style, taste, cosmetic or seasonal design factors.

R & D Gross Receipts

Deduction

Any service that is exported from the state, including research and development services, are not subject to New Mexico gross receipts tax.

These services must be produced by a business with a New Mexico office, sold to an out-of-state buyer, and delivered and initially used out-of-state. This makes R&D a deductible transaction.

Angel Investment Tax Credit

NM Income Tax filer

Defined as a “qualified investor”, one may take a tax credit of up to $25,000 (25% of a qualified investment of not more than $100,000) for an investment made in a New Mexico company that is engaging in high-technology research or manufacturing.

Allowed to claim up to two qualified investments in a taxable year, provided that each investment is in a different qualified business.

Any portion unused at end of taxable year may carry forward for 3 consecutive years.

Biomass-Related Equipment

Compensating Tax Deduction

The value of equipment such as a boiler, turbine-generator, storage facility, feedstock processor, interconnection transformer or biomass material used for bio-power, bio-fuels, or bio-based products may be deducted in computing the compensating tax due. The biomass must originate from a dairy or feedlot and be

transported to a facility that uses agricultural biomass to generate electricity or make biocrude or other liquid or gaseous fuel for commercial use

Amount: $5 per wet ton

Statewide annual limit of $5 million in total credits

Unused credit may be carried forward for up to 4 years.

Program Budget: $5 million per year

Start Date: 1/1/2011 - Expiration Date: 12/31/2019

Advanced Energy Product

Manufacturers Tax Credit

Manufacturers of advanced energy vehicles, fuel cell systems, renewable energy systems or any component of an advanced energy vehicle, fuel cell system or renewable energy system or components for integrated gasification combined cycle coal facilities and equipment related to the sequestration of carbon from integrated gasification combined cycle plants

Tax credit of 5% of the taxpayer’s qualified expenditures and may be deducted from the taxpayer’s modified combined tax liability.

Unused portions of the credit may be carried forward for five years.

Renewable Energy Production

Tax Credit

Each qualified energy generator may earn

an income tax credit of 1 cent ($.01) per

kilowatt-hour for the first 400,000

megawatt-hours ( equivalent to

400,000,000 kilowatts) of electricity

produced using a qualified energy source

for 10 consecutive years, beginning with

the first year of production.

Advanced Energy Tax Credit

Advanced energy facilities, such as solar

thermal electric, advanced technology

coal, or recycled energy, may qualify for

up to $60 million in credits.

The credit is equal to 6% of facility

development and construction

expenditures.

Enacted in 2012

For the purpose of gradually removing the GRT

charged on electricity, gas and water used in the

manufacturing process.

There is a 20% reduction starting January 2013;

40% in 2014 and so on until it is completely

removed.

The importance of applying early is any tax paid

to any electricity provider before you get a NTTC

(Non Taxable Transaction Certificate) will be lost

forever.

Manufacturers Consumables

GRT Deduction

Accountability

Data is confidential and held by TRD

Not all incentives marketed to a company are actually used

Recapture exists in Technology Jobs Credit and JTIP – if company does not create jobs

Others have job metrics built in that escalate with benefit High Wage; Investment Credit; Technology Jobs

Additional Credit, JTIP

Sunset provisions

Thank you!

p.s. ….please call Taxation & Revenue if you

have any questions! :o)

Antoinette Vigil – Finance Development

Team Leader

NM Economic Development Department

antoinette.vigil@state.nm.us