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Job Opportunity Building Zones The provisions discussed in this bulletin can be found in the Omnibus Tax Act, 2003 Minn. Laws, 1st Special Session, Chapter 21, Article 1.
Broad Overview. The Commissioner of the Department of Trade and Economic Development (DTED), in consultation with the Commissioner of Revenue, can designate up to ten Job Opportunity Building Zones (“Zone”). The Commissioner can also designate up to five Agricultural Processing Zones. The stated intent is to distribute the Zones throughout the state. Each Zone can contain up to 5,000 acres and can be divided into separate noncontiguous subZones, located in one or more local government units. All Zones must be located outside the seven county metro area. A Zone cannot be located in a border city development zone. The City may however, remove property from a border city development zone contingent upon JOBZ status being designated. Tax benefits available to qualified businesses engaged in a trade or business operating in a Zone include: 1. Property tax exemptions, 2. Wind energy production tax exemptions, 3. State and local sales and use tax exemptions, 4. Corporate franchise tax (including alternative minimum tax) exemptions, 5. Refundable jobs credits, 6. Individual income tax (including the alternative minimum tax) exemptions, and 7. Minimum fee exemptions. Overview of Creation of the Job Opportunity Zone Opportunity Building Zones. Local government units have until October 15, 2003 to adopt a written development plan and submit an application to the Commissioner of DTED to seek designation as a Zone. The “applicant” can be a local government unit, or units, or a joint powers board acting on behalf of two or more local government units. The development plan must include, among other information, a map of the Zone with details on present uses and conditions in the area. The application must include, among other information, resolutions approving the application by all of the cities, towns, and counties that include the Zone. This resolution must provide qualifying businesses with local sales tax and property tax exemptions. In evaluating competing applications, the Commissioner is required to weigh a variety of needs based criteria to determine which of the applications are most likely to yield the most economic development and revitalization of economically distressed rural areas. The applicant/local government is required to submit an annual report to the Commissioner of DTED. Based on these reports, the Commissioner can modify the boundaries of the Zone or terminate the Zone if it is failing to meet its performance goals. If an area is removed from the Zone, tax exemptions for existing businesses continue to apply for the original duration of the Zone as follows: 1. Property tax exemptions continue to apply to improvements constructed before the first January 2nd following the removal. 2. Sales tax exemptions continue to apply until the first day of the next calendar month that begins at least 30 days after the removal. 3. Corporate and individual income tax benefits continue to apply to a facility that was in operation before the removal. The term includes five types of businesses operating within the Zone. They are:
2. Start up businesses located in a Zone. 3. Businesses operating in other states that expand or relocate into a Zone. 4. Businesses with operations in Minnesota that expand operations into a Zone. 5. Businesses with operations in Minnesota that relocate those operations into a Zone. However, a business that is relocating into a Zone, is a qualified business only if it increases employment in the Zone by at least 20% in the first year of operation and continues to meet that threshold for the duration of the Zone, or makes a capital investment equal to at least ten percent of the gross revenues of the relocated operation in the preceding taxable year. The business must also sign an agreement with the Commissioner of DTED to repay any tax benefits received in anticipation of meeting the employment or capital expenditure thresholds, if it fails to meet those thresholds. A business “relocates” if it (1) ceases one or more operations or functions at another location in Minnesota and begins performing substantially the same operations or functions at a location in the Zone or (2) reduces employment at another location in Minnesota during a period starting one year before and ending one year after it begins operations in the Zone and its employees in the Zone are engaged in the same line of business as the employees at the location where it reduced employment. "Relocate" does not, however, include an expansion by a business that establishes a new facility that does not replace or supplant an existing operation or employment, in whole or in part. For purposes of determining whether the “relocation” requirements must be met, a “business” is any business entity that is substantially similar in operation or ownership to the business entity seeking to be a qualified business. Agricultural Processing Zones. An Agricultural Processing Zone is a facility that transforms, packages, sorts, or grades livestock or livestock products, agricultural commodities, or plants or plant products into goods that are used for intermediate or final consumption including goods for nonfood use, and surrounding property. An Agricultural Processing Zone may not exceed the size of a site necessary for the agricultural processing facility, including ancillary operations and space for expansion in the reasonably foreseeable future. An agricultural processing facility located in an Agricultural Processing Zone is eligible for the same tax benefits as a qualified business located in any of the ten Jobs Opportunity Building Zones. Tax Provisions Property Tax Exemption. Amends Minn. Stat. § 272.02 by adding a new subdivision that exempts certain commercial, industrial, and utility property (both real and personal) in the Zone from property taxation. The exemption also applies to all improvements to land occupied by, and tangible personal property used by an agricultural processing facility in an Agricultural Processing Zone. This exemption does not apply, however, to the following:
Wind Energy Production Tax. Amends Minn. Stat. § 272.029 to add a new subdivision that exempts energy generated within a Zone from the wind energy production tax. Applies beginning with taxes payable in 2005 and continues each calendar year that begins during designation of the Zone. Corporate Taxes. Amends Minn. Stat. § 290.01, subd. 29, to allow a subtraction from taxable income for Zone income of a qualified business. Amends Minn. Stat. § 290.0921, subd. 3, to allow a subtraction from alternative taxable income for Zone income of a qualified business. Amends Minn. Stat. ch. 469 to add new section 469.317, which describes the mechanics of the franchise tax and alternative minimum tax subtractions. A business with its entire payroll and property within the Zone is exempt from the franchise tax and alternative minimum tax. A business with property and/or payroll both within and without the Zone calculates the subtraction by multiplying its net taxable income, or alternative minimum taxable income, by its “Zone percentage.” “Zone percentage” is defined in new Minn. Stat. § 469.310, subd. 7. The numerator of the fraction is the sum of the ratio of the taxpayer’s property factor under Minn. Stat. § 290.191 located in the Zone over the total Minnesota property factor calculated under § 290.191 plus the ratio of the taxpayer’s Zone payroll over the total Minnesota payroll determined under § 290.191. The denominator is two. “Zone payroll” is defined in new Minn. Stat. § 469.310. subd. 8. It is that portion of payroll as defined in Minn. Stat. § 290.191 that represents wages paid for services performed in the Zone or wages paid for services performed by persons with offices in the Zone if the employment requires the person to work outside the Zone and such work is incidental to the work performed by the individual within the Zone. If the business is part of a unitary business, the denominator of the payroll and property factors is the entire Minnesota payroll and property of the unitary business. The maximum subtraction is 20% of the sum of the corporation’s Zone payroll plus the adjusted basis of property at the time the property is first used by the corporation in the Zone. The corporate franchise tax and alternative minimum tax provisions are effective for tax years beginning after December 31, 2003. Minimum Fee on Corporations and Partnerships. Amends Minn. Stat. § 290.0922, subd. 2 and 3, to exclude Zone property and payroll from the calculation of the minimum fee imposed on qualified businesses. A business with its entire property and payroll located in a Zone is exempt from the minimum fee. Effective for tax years beginning after December 31, 2003. Individual Income Tax. Amends Minn. Stat. § 290.01, subd. 19b, to provide for a subtraction from federal taxable income for Zone income. Amends Minn. Stat. § 290.091, subd. 2, to allow a subtraction from individual alternative minimum taxable income for Zone income. Amends Minn. Stat. ch. 469 by adding section 469.316, which describes the mechanics of the income tax exemptions available for Zone activities. They are:
2. Exemption from tax on net income from operation of a qualified business. The exemption is calculated by multiplying the net income of the business by its Zone percentage. The maximum exemption is 20% of the sum of the business’s Job Opportunity Building Zone payroll plus the adjusted basis of property at the time the property is first used in the Zone. 3. Exemption from taxation on capital gains.
2. Gains from the sale or exchange of tangible personal property used by a qualified business in the Zone. If the tangible property was used both within and without the Zone, or owned prior to Zone designation, the subtraction is prorated based on the number of days that the property was used in the Zone. 3. Gains from the sale of a qualified business. The exemption is calculated by multiplying the gain by the business’s Zone percentage in the year prior to the sale. (For this calculation the denominator of the Zone percentage is the total payroll and property factors of the business, not simply its total Minnesota payroll and property. This exemption applies to the sale of a corporation, s-corporation or partnership interest, provided the Zone percentage exceeds 25%. At the request of the individual, the qualified business must certify to the individual in writing the applicable Zone percentage. Amends Minn. Stat. § 290.067, subd. 1, to clarify that an individual with exempt Zone income must prorate the child and dependent care credit in the same manner as a nonresident. Amends Minn. Stat. § 290.0671, subd. 1, to clarify that an individual with exempt Zone income must prorate the working family credit in the same manner as a nonresident. The individual income tax provisions are effective for tax years beginning after December 31, 2003. Sales Tax. Amends Minn. Stat. § 297A.68 by adding a new subdivision that provides an up front exemption from state and local sales and use tax for purchases of tangible personal property or taxable services purchased for use in a trade or business by a qualified business in a Zone. Also provides an exemption from state and local sales and use tax for building materials and supplies used to improve real property for use by a qualified business in a Zone. This second exemption applies to purchases made by the qualified business or by a contractor. The sales tax exemptions apply to sales made during the duration of the designation of the Zone. Sales Tax on Motor Vehicles. Amends Minn. Stat. § 297B.03 to provide an exemption from state and local sales tax on motor vehicles that are purchased by a qualified business, provided that the vehicle is principally garaged in a Zone and is primarily used as part of, or in direct support of the business operations carried on in the Zone. Effective for sales made after December 31, 2003. JOBZ Jobs Credit. Amends Minn. Stat. § 290.06 by adding a subdivision to allow a job credit against individual income, fiduciary, corporate franchise and individual and corporate alternative minimum tax, and the minimum fee for qualified businesses operating in the Zone. Amends Minn. Stat. ch. 469 by adding section 469.318, which provides the mechanics of the jobs credit. The credit is calculated as follows:
b. The increase in the business’s total Minnesota payroll since the year of designation. 3. The result is multiplied by 7% to determine the credit. The $30,000 and $100,000 amounts are adjusted annually for inflation beginning in 2005. The credit is refundable. The amount necessary to pay any refunds is appropriated to the Commissioner of Revenue from the general fund. Effective as a credit against taxes imposed for tax years beginning after December 31, 2003. Repayment of Tax Benefits. Amends Minn. Stat. ch. 469 by adding section 469.319, which requires the repayment of tax benefits if:
2. The business is no longer a qualified business, 3. The business has relocated into a Zone and has reduced employment below the 20% threshold required of relocating businesses, or 4. The business has failed to meet goals specified in its agreement with the Applicant/local government. The Commissioner of Revenue can extend for up to one year the period for meeting the goals. The business is required to make any repayment of state taxes or local sales taxes to the Commissioner of Revenue within 30 days after ceasing to operate as a qualified business in the Zone. If the taxpayer fails to make the repayment, the Commissioner can issue an order assessing the tax within two years of the date that the business ceased operation in the Zone, or within any other applicable period of limitation under Minn. Stat. ch. 289A. The assessment is made, and unpaid amounts collected, using procedures for the collection of tax established in Minn. Stat. chs. 270 and 289A. Penalties and interest imposed under Minn. Stat. ch. 289A are applicable. For the repayment of a property tax, the tax is due 30 days after the county auditor sends a tax statement to the business. It the business fails to pay, the repayment is added to the property tax for payment in the year following the year that the treasurer discovers that the business is no longer operating in the Zone. The repayment provision can be waived by the Commissioner of Revenue if he determines, in consultation with the Commissioner of DTED and local government officials, that repayment would not be in the best interest of the state or the Zone, or that the cessation of business was the result of circumstances beyond its control, such as loss of major suppliers or customers, natural disaster or unforeseen industry trends. Job Opportunity Building Zone Aid. Amends Minn. Stat. ch. 477A by adding section 477A.08, to partially reimburse cities and counties with large loss of tax base as a result of having a Zone. The aid applies when the difference between the actual net tax capacity of the city or county minus the net tax capacity if the property was subject to tax, exceeds three percent of the actual net tax capacity for the base year of 2003. The aid is equal to one half of the amount by which the difference exceeds the 3% threshold. A city or county eligible for aid must file a form prescribed by the Commissioner of Revenue by June 30 of the assessment year. The Commissioner will notify each city and county of its aid by August 15 of the assessment year. The aid is payable by the Commissioner by July 20 of the following year. The amount necessary to make aid payments is appropriated to the Commissioner of Revenue from the general fund. Appropriation. The Commissioner of DTED is appropriated $100,000 in fiscal year 2004 and $30,000 in fiscal year 2005 for the cost of designating Zones. The Commissioner of Revenue is designated $53,000 in fiscal year 2004 and $29,000 in fiscal year 2005 for the cost of administering the tax provisions of the JOBZ program. Dated: June 30, 2003
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