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JOBZ Tax Exemptions Minnesota Job Opportunity Building Zones Fact Sheet
This fact sheet is also available in a printer-friendly version. You will need Adobe Acrobat Reader to view and print this document. Job Opportunity Building Zones are located throughout Minnesota, with the exception of the seven-county Minneapolis-St. Paul metropolitan area. A qualified business is a business located in a Zone that has entered into a Business Subsidy Agreement (BSA) with the appropriate local government. Businesses relocating operations into a Zone from another location in Minnesota must also sign a relocation agreement with the Minnesota Department of Employment and Economic Development. Qualified businesses in these Zones are eligible for JOBZ exemptions from sales, income, and property taxes and may be eligible for a refundable jobs credit based on increased payroll. Sales tax The sales tax exemption includes both state and local sales and use tax and applies to:
Motor vehicles: a motor vehicle purchased by a qualified business is exempt if the motor vehicle is principally garaged in the Zone and is primarily used as part of, or in direct support of, the person’s operations carried on in the Zone. To claim exemption, the buyer must submit a statement at the time of registration indicating that the business is a qualified JOBZ business, and that they have a BSA with the local government. Wind energy production tax Wind energy conversion systems located in a job opportunity building zone are exempt from the wind energy production tax. Property tax benefits Qualified businesses located in a Zone are exempt from some property taxes. The exemption applies only to improvements to real property, and personal property, that is classified by the assessor as class 3 property (commercial/industrial). The land value and any improvements that do not qualify (because they may be excluded from the Zone in the business subsidy agreement or because they are not class 3 property) continue to be subject to all property taxes. In addition, the exemption does not apply to levies to pay general obligation bonds or to levies approved by voters prior to 2004 to pay school district operating costs. The property tax exemption begins for a current assessment year if the business subsidy agreement is signed and the qualified business occupies the property by July 1 of that year. If the business subsidy agreement is signed after July 1 or the property is not occupied, meaning that business operations have commenced, until after July 1, the exemption will begin in the subsequent assessment year. Note, however, that the assessment year precedes the year in which tax statements are mailed and due to be payable. Therefore, to qualify for JOBZ exemption from taxes payable in 2007, the business must be occupying the JOBZ property, and must have a fully executed business subsidy agreement in place, by July 1, 2006. TIF Districts and JOBZ. Tax increment financing has limited applicability to JOBZ projects because property in a Zone is exempt from property taxes, which means that there are few, if any, increments for a TIF district to capture. Business income Businesses are allowed an exemption from individual and corporate tax, including alternative minimum tax, for income attributable to Zone activities. The actual exemption is determined through the use of the business’s “Zone percentage” which determines the exemption based on the actual physical location of the business property, and the actual physical location of the employees when performing the work. It is a two-factor formula based on the proportion of Zone property and Zone payroll compared to total Minnesota property and payroll.
A business with a Zone percentage less than 100% calculates its JOBZ subtraction by multiplying its net income by its Zone percentage. For purposes of determining the Zone percentage, “property” is defined in the same manner as it is defined for purposes of apportionment of income under M. S. 290.191. Download Schedule JOBZ and Instructions for more details. Zone payroll is defined as that portion of Minnesota payroll, as defined in M. S. 290.191, that is paid for services performed inside the Zone, or is paid for services performed outside the Zone by an employee with an office in the Zone, whose work outside the Zone is incidental to the work that the employee performs inside the Zone. Zone percentage for MN resident sole proprietors. The denominator of the property and payroll factor in the Zone percentage calculation is changed to worldwide sources (not just Minnesota property and Minnesota payroll) for Minnesota resident sole proprietors since Minnesota residents will be multiplying their Zone percentage by their worldwide business income. Zone percentage for members of a unitary group. If the qualified business is a member of a unitary group, the denominator of the property and payroll factors are the payroll and property factors of the entire group. No carryover of subtraction benefits. If a JOBZ subtraction reduces the taxpayer’s Minnesota taxable income below zero, there is no carryover of the loss to prior or future years. Minimum fee Zone property and payroll are excluded from the computation of the minimum fee of a corporation, partnership, or S corporation. Furthermore, if all of an entity’s Minnesota property and payroll is in a Zone, the entity is exempt from the minimum fee. Limitation on business subtraction The business income subtraction and the minimum fee base exclusion for all corporations, other than those exempt, are limited to twenty percent of the sum of Zone payroll and the adjusted basis of Zone property at the time it is first used in the Zone. Rental or capital gain income Rental income. Individuals and businesses (but not C corporations) are eligible for an income tax exemption if they rent or lease real or tangible personal property located in the Zone to a qualified business. If tangible personal property was used both inside and outside the Zone, the subtraction must be prorated based on the number of days that the property was used in the Zone. Capital gain income. Individuals and businesses (but not C corporations) are eligible for an income tax exemption for the gain on the sale or exchange of real or tangible personal property located in the Zone and used by a qualified business. The exemption for the gain on the sale of real property must be prorated for the number of days the asset was held during the period of Zone designation. Tangible personal property must be prorated based on the number of days the property was used by a qualified business in the Zone. Example. Jackie sells her warehouse on June 30, 2004. The warehouse was used by a qualified business and located in an area designated as a Zone since January 1, 2004. Jackie bought the property on January 1, 1994, and owned it for a total of 3834 days, 182 of which were as Zone property. She realized a gain on the sale of the property of $100,000. Jackie may take a subtraction for 182/3834 (.04747) of the $100,000 gain, or $4747. Gain on the sale of a qualified business. Individuals are eligible for an income tax exemption for capital gains on the sale of an ownership interest in a qualified business that is a partnership or corporation that has a Zone percentage of at least 25%. 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.) At the request of the individual, the qualified business must certify to the individual in writing the applicable Zone percentage. Refundable income tax credits. Individuals who qualify for the subtraction of income are required to prorate their Child and Dependent Care Credit and their Working Family Credit (but not the Education Credit). JOBZ Credit A refundable credit is generally available for qualified businesses that pay an average wage to employees working in the Zone in excess of $30,000 per year. The calculation of the credit factors in wages paid to employees working outside the Zone in the tax year as well as wages paid to Minnesota employees in 2003. Calculating the credit. The credit is 7% of the lesser of:
Full time equivalent (FTE) employee. A full-time equivalent employee is anyone who is considered full-time, or for those working less than full-time, the equivalent to 2080 expected hours of work time. For example, a part-time employee scheduled to work 32 hours a week is equal to a .80 full-time equivalent employee calculated as follows:
The $30,000 base amount and the $100,000 maximum wage amounts will be adjusted for inflation beginning in 2005. Claiming individual and corporate tax benefits Qualified businesses or individuals eligible for the business income, rental or capital gain subtraction, minimum fee reduction, or JOBZ jobs credit should complete Schedule JOBZ to calculate the subtraction and carry the subtraction or credit over to their corporate or individual income tax return. Partners, S corporation shareholders, and beneficiaries of an estate or trust do not complete Schedule JOBZ, but should receive their prorata share of the subtraction on Schedule KPI, KS or KF, respectively. They report the subtraction on line 11 of Form M1 and include Schedule KPI, KS, or KF with their return. Form M500 We are currently developing Form M500 for businesses that have a Business Subsidy Agreement to report the tax benefits they received for participating in a JOBZ. The tentative due date to file the form is October 15, 2005. You will probably be asked to report income tax exemptions, exclusions, and credits, as well as sales tax information such as purchases of goods, services, construction materials, and motor vehicles, that would otherwise have been subject to state and local sales tax. The filing of Form M500 is in addition to any reporting requirements agreed to in the Business Subsidy Agreement with the Zone administrator. JOBZ Resources Get fast, accurate help by contacting the right person. Sales and Use Tax Anne Gravelle, 651-556-6836 anne.gravelle@state.mn.us C corporation Franchise Tax Duane Gudknecht, 651-297-7000 duane.gudknecht@state.mn.us S corporations and Partnership Tax Phone: 651-296-3475 Property Tax Jason Nord, 651-556-6108 jason.nord@state.mn.us Stephanie Nyhus, 651-556-6109 stephanie.nyhus @state.mn.us Income Tax Margaret (Peggy) Hohn, 651-556-6437 margaret.hohn@state.mn.us Steve Graham, 651-556-3631 steve.graham@state.mn.us Minnesota Relay (TTY) 711 References: M.S. 290.191, Apportionment of net income M.S. 297A.68, Subd. 37 Job opportunity building zones M.S. 297B.03 (13), Exemptions M.S. 469.310, Definitions M.S. 469.316, Individual income tax exemption M.S. 469.317, Corporate franchise tax exemption M.S. 469.318, Jobs credit M.S. 272.02, Subd. 64 Job opportunity building zone property M.S. 272.029, Subd. 7 Wind energy production tax. Exemption This fact sheet is intended to help you become more familiar with Minnesota tax laws and your rights and responsibilities under the laws. Nothing in this fact sheet supersedes, alters or otherwise changes any provisions of the tax law, administrative rules, court decisions or revenue notices.
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