HCS SB 377 -- BUSINESS INCENTIVES

SPONSOR:  Rupp (Flook)

COMMITTEE ACTION:  Voted "do pass" by the Committee on Job
Creation and Economic Development by a vote of 9 to 0.

This substitute changes the laws regarding business incentives.

MUNICIPAL TECHNOLOGY BUSINESS FACILITY PROJECTS (Section 67.2050,
RSMo)

The substitute allows municipalities to engage in projects
involving a technology business facility which is a facility
located in an underground mine with at least two million square
feet of space used for data processing, hosting, Internet
publishing and broadcasting, or web search portals.  The
governing body of any county, city, incorporated town, or village
is authorized to:

(1)  Carry out technology business facility projects for economic
development;

(2)  Accept grants from the federal and state governments for the
project's purposes and enter into agreements which may be
required by the grantor if the agreements are not contrary to
Missouri laws;

(3)  Receive any gifts and donations from private sources to be
used for the project's purposes; and

(4)  Enter into loan agreements, sell, lease, or mortgage to
individuals, partnerships, or corporations any component of a
technology business facility.

Transactions involving the lease or rental of any project
component are exempt from local sales taxes.  Leasehold interests
will not be subject to property taxes.

If an individual or corporation transfers property for a project
free of charge to the governing body of any municipality, it will
retain the right to have the governing body transfer the donated
property back at no cost.

TAX INCREMENT FINANCING (Section 99.865)

The substitute:

(1)  Requires the Director of the Department of Economic
Development to submit its annual tax increment financing (TIF)
report to the State Auditor;

(2)  Requires the State Auditor to post information provided in a
municipality's annual report to his or her web site in a
searchable database available to the public; and

(3)  Prohibits a municipality which fails to comply with state
TIF reporting requirements from implementing any new TIF project
for at least five years.

DOWNTOWN REVITALIZATION PRESERVATION PROGRAM (MODESA-LITE)
(Sections 99.1082 and 99.1090)

The substitute:

(1)  Defines "other net new revenues" as it relates to the
Downtown Revitalization Preservation Program, commonly referred
to as MODESA-Lite, as the amount of state sales tax increment or
state income tax increment, or the sum of both, as determined
under Section 99.918;

(2)  Defines "state income tax increment" as an estimate of the
income tax due the state for salaries and wages paid to new
employees in new jobs in the redevelopment project area and
created by the project.  The estimate will be a percentage of
gross payroll based upon an analysis done by the Department of
Revenue and cannot exceed 2%; and

(3)  Allows contributions to a downtown revitalization
preservation development project from any private not-for-profit
organization or local contributions from tax abatement or other
sources to be substituted on a dollar-for-dollar basis for the
local match of 100% of payments in lieu of taxes and economic
activity taxes from the development's fund.

MISSOURI DEVELOPMENT FINANCE BOARD (Sections 100.286 and 100.297)

Currently, taxpayers who contribute to the Missouri Development
Finance Board's Development and Reserve Fund receive a tax credit
equal to 50% of the contribution.  The board cannot issue more
than $10 million in tax credits in any calendar year or 5% of the
average growth in the general revenue receipts in the preceding
three fiscal years, whichever is less.  This limitation may be
exceeded if agreed to by the Commissioner of the Office of
Administration and the directors of the departments of Economic
Development and Revenue.

The substitute specifies that the total amount of tax credits
which the board may authorize or approve cannot exceed $10
million in Fiscal Year 2010.  This limitation can be exceeded if
agreed upon by the Commissioner of the Office of Administration,
the directors of the departments of Economic Development and
Revenue, and the chairmen of the House Budget Committee and the
Senate Appropriations Committee, in which case no more than $25
million in tax credits can be authorized or approved.  Tax
credits will be awarded on a first-to-file, first-to-receive
basis.  No tax credits can be authorized or approved after
June 30, 2013.

Currently, the board may authorize a tax credit to owners of
revenue bonds for infrastructure facilities.  The aggregate
principal amount of revenue bonds outstanding at any time related
to the tax credit cannot exceed $50 million.  The substitute
reduces this amount to $10 million for Fiscal Year 2010 and
thereafter.  None of these tax credits may be issued after
June 30, 2011.

BUSINESS USE INCENTIVES FOR LARGE-SCALE DEVELOPMENT (Sections
100.710, 100.720, 100.750, and 100.770)

Currently, an eligible industry with an economic development
project that is an office industry must create a minimum of 500
new jobs for the purposes of the Business Use Incentives for
Large-Scale Development (BUILD) Program.  The substitute reduces
the minimum number of new jobs to 350.

The substitute also authorizes the Missouri Development Finance
Board within the Department of Economic Development to allow the
program to temporarily suspend or waive its requirements if
market or economic conditions are such that an eligible industry
is unable to meet the program's requirements.

Currently, in order to approve an application, the board must
find that there is at least one other state that the applicant
verifies is being considered for the BUILD project and that there
is a significant disparity in the project's costs based on the
incentives offered by the competing state.  The substitute
removes these requirements.

TRANSPORTATION DEVELOPMENT DISTRICTS (Sections 105.145, 238.207,
238.212, and 238.235)

The substitute:

(1)  Requires the boards of directors of transportation
development districts to submit an annual report of financial
transactions to the State Auditor as required under Section
105.145.  Failure to submit a timely copy of the annual financial
statement will result in a fine of up to $500 per day;

(2)  Requires petitions to create transportation development
districts to include details of the budgeted expenditures,
including estimated expenditures for real physical improvements,
estimated land acquisition expenses, estimated expenses for
professional services, and estimated interest charges;

(3)  Requires the circuit court to order a public hearing on the
creation and funding of a proposed transportation development
district if the petition to create the district was filed by the
owners of all real property within the proposed district; and

(4)  Requires the Director of the Department of Revenue to
perform all functions regarding the administration, collection,
enforcement, and operation of transportation development district
sales taxes.

HISTORIC STRUCTURES REHABILITATION TAX CREDIT (Sections 253.550
and 253.559)

The substitute:

(1)  Specifies that no more than $165 million in tax credits can
be authorized by the Department of Economic Development for the
Historic Structures Rehabilitation Tax Credit Program beginning
July 1, 2010.  For Fiscal Year 2011 and thereafter, this cap will
be increased by the percentage equal to the increase in the
federal Consumer Price Index for All Urban Consumers.  Tax
credits authorized for applicants requesting less than $350,000
in tax credits will not count towards the cap.  Currently, this
program has no cap;

(2)  Requires that an application be submitted to the department
before tax credits are authorized.  The substitute specifies the
requirements of the application;

(3)  Requires all applications to be prioritized for review by
the department based on the date the application was postmarked.
Applications with the same postmark will go through a lottery
process to determine the order in which they will be reviewed;

(4)  Requires the department to authorize tax credits in an
amount equal to 120% of the estimated eligible costs for all
approved applications;

(5)  Specifies that, if the department allocates all of its tax
credits, applications awaiting review will be kept on file and
reviewed in order of receipt when the department receives its
next allocation of tax credits;

(6)  Requires all projects that receive tax credit authorization
to begin rehabilitation within two years of the date noted on the
letter received by the applicant notifying them of their approved
status.  Commencement of rehabilitation will be the date on which
physical work has begun and the applicant has incurred at least
10% of the estimated total costs of the rehabilitation; and

(7)  Requires an applicant with tax credit authorization to seek
final approval prior to claiming the tax credits.  The substitute
specifies the requirements of final approval.

TAX CREDITS FOR TECHNOLOGY-BASED EARLY STAGE MISSOURI COMPANIES
(ANGEL INVESTMENTS) (Sections 348.273 and 348.274)

The Department of Economic Development is authorized to allocate
up to $5 million in tax credits per year to encourage equity
investment in technology-based early stage Missouri companies,
commonly known as angel investments.  Investors who contribute
the first $500,000 in equity investment to a qualified Missouri
business may be issued a tax credit equal to 30% of the
investment or 40% if the qualified business is in a rural area or
distressed community.  An investor can receive a credit of up to
$50,000 for an investment in a single, qualified business or up
to $100,000 for investments in more than one qualified business
per year.  Credits can be carried forward for up to three years
or transferred.

QUALIFIED RESEARCH EXPENSES (RESEARCH AND DEVELOPMENT) TAX CREDIT
(Section 620.1039)

Currently, no tax credits for qualified research expenses can be
approved, awarded, or issued.  The substitute removes these
restrictions and allows a tax credit equal to no more than 6.5%
of a taxpayer's qualified research expenses.  The annual
aggregate cap on the amount of these tax credits that can be
authorized by the Department of Economic Development is $10
million.

Qualified research expenses will be limited to those incurred in
the research and development of agricultural biotechnology, plant
genomics products, diagnostic and therapeutic medical devices,
prescription pharmaceuticals consumed by humans or animals, and
electronic patient health record technology.  Expenses incurred
in the research, development, or manufacturing of power system
technology for aerospace; space; defense; implantable or wearable
medical devices; or gears, speed changers, and industrial
high-speed drivers utilized in the wind turbine industry are also
permitted.

The department director may allow a taxpayer to transfer up to
40% of the tax credits issued, but not yet claimed, between
January 1, 2010, and December 31, 2016.  The substitute requires
the department director to act between August 1 and August 15 on
tax credit applications filed between January 1 and July 1 for
claims from the previous year.

The formula is specified by which tax credits will be issued if
the eligible claims for the credits exceed the annual cap.  No
one taxpayer can be issued more than 30% of the total amount of
tax credits authorized in any calendar year.

QUALITY JOBS ACT (Sections 620.1878 and 620.1881)

The substitute:

(1)  Establishes an energy efficiency technology project as a new
project type within the Quality Jobs Act.  Within two years from
the date of approval, a qualified company must create at least 50
new jobs that are engaged in the development of new energy
efficiency technologies including those supporting clean or
sustainable energy or energy conservation or it must manufacture
energy efficient products or components.  A qualified company
with an energy efficiency technology project may retain 4% of the
withholding tax from its new payroll for five years if the
average wage of the new payroll equals or exceeds the county
average wage.  Five percent can be retained if local incentives
equal between 10% and 24% of the new direct local revenue; 6% if
local incentives equal between 25% and 49%; or 7% if local
incentives equal 50% or more of the new direct local revenue.  If
the qualified company creates at least 100 new jobs, it may
retain this amount for six years or for seven years if it creates
at least 500 new jobs.  If the withholding tax is not sufficient
to provide the entire benefit due the qualified company, the
department will issue a refundable tax credit for the difference.
If the qualified company demonstrates to the Department of
Economic Development that another company expands or commences
operations in Missouri or moves to Missouri from another state as
a result of its relationship to the qualified company, the
qualified company may be eligible for a jobs benefit.  The other
company must be either a direct supplier or direct purchaser of
the qualifying company and must create at least 10 new jobs
within a two-year period.   The jobs benefit is a tax credit
issued to the qualified company for three years and will be equal
to 50% of the withholding for the supplier/purchaser company's
new jobs if the average wage for these new jobs equals or exceeds
the county average wage for the county in which the
supplier/purchaser company is located;

(2)  Establishes a premium employment project as a new project
type within the act.  Within two years from commencement of
operations, a qualified company must create at least 100 new
jobs, offer all employees health insurance, and pay at least 80%
of the premium.  The wage for at least 100 of the new jobs must
be at least 180% of the county average wage.  A qualified company
with a premium employment project may retain 4% of withholding
taxes for five years if the average wage of the new payroll
equals or exceeds 180% of the county average wage.  Five percent
may be retained if local incentives equal between 10% and 24% of
new direct local revenue; 6% may be retained if the local
incentives are between 25% and 49% of new direct local revenue;
and 8% may be retained if local incentives equal 50% or more of
new direct local revenue.  If the withholding taxes are not
sufficient to provide the entire benefit due to the company, the
department will issue a refundable tax credit for the difference.
Tax credits issued for premium employment projects will not be
considered when issuing tax credits for technology business
projects or high-impact projects, nor will they be counted toward
the total amount of tax credits issued for the act as a whole.
If the qualified company does not pay at least 100 new employees
wages equal to at least 180% of the county average wage, the
qualified company will not receive tax credits for the balance of
the benefit period but may continue to keep the withholding taxes
if it otherwise meets the requirements of a quality jobs small
and expanding business or a high-impact project;

(3)  Revises the definition of "project facility" so that it may
include separate buildings located within 15 miles of each other.
Currently, the buildings must be within one mile of each other;

(4)  Allows a company which has filed or announced its intention
to file for bankruptcy on or after January 1, 2009, to be a
qualifying company for the Quality Jobs Program.  Currently, any
company which has filed for bankruptcy or has publicly announced
its intention to file for bankruptcy protection is prohibited
from being deemed a qualifying company for the purposes of the
program.  A qualifying company can be eligible if it:

(a)  Certifies to the department that it plans to reorganize and
not to liquidate; and

(b)  Produces proof after its bankruptcy petition has been filed
that it is not delinquent in filing any tax returns or making any
payments due to the state including, but not limited to, all tax
payments due after the filing of the bankruptcy petition and
under the terms of the plan of reorganization;

(5)  Revises the definition of "technology business project" as
it relates to the act to include certain clinical molecular
diagnostic laboratories;

(6)  Specifies how the department must apply the definition of
"project facility" when a business that has already received an
approved notice of intent later files another notice of intent;

(7)  Eliminates the per-company annual cap on technology business
projects within the program.  Currently, the per-company cap is
$500,000;

(8)  Eliminates the per-company annual cap on high-impact
projects within the program.  Currently, the per-company cap is
$750,000 or $1 million under certain conditions; and

(9)  Increases the annual cap on the program from $60 million to
$100 million.  This cap will not include tax credits issued for
premium employment projects.

MISSOURI JOBS FOR TECHNOLOGY AND SCIENCE DISTRICT (MO-JTS)
PROGRAM (Section 620.1895)

The substitute establishes the Missouri Jobs for Technology and
Science District (MO-JTS) Program which:

(1)  Allows the governing body of a municipality to establish a
MO-JTS district.  A MO-JTS project may be implemented in the
district according to a MO-JTS plan.  The district, plan, and
project must be established or adopted by ordinance.  The
substitute specifies the requirements of a MO-JTS plan and the
findings a municipality must make before adopting a MO-JTS plan;

(2)  Defines "MO-JTS revenues" as 50% of the incremental increase
in the general revenue portion of eligible state sales tax
revenues received under Section 144.020 and up to 100% of the
state income tax withheld on behalf of new employees by the
businesses located within the MO-JTS project.  Sales tax revenue
attributable to retail sales will only be included in this amount
if it can be proven that the sales tax revenue is attributable to
new sources which did not exist in the district in the baseline
year.  The substitute specifies what portion of sales tax revenue
will be deemed MO-JTS revenue for businesses that existed before
the formation of the district and for businesses which relocate
to the district;

(3)  Requires a MO-JTS project to be completed within 25 years;
and

(4)  Specifies that a MO-JTS project cannot obtain land by
eminent domain.

MISSOURI ADVANTAGE ACT (Sections 620.2056, 620.2059, 620.2062,
620.2065, 620.2068, 620.2071, and 620.2074)

The substitute establishes the Missouri Advantage Act which
allows applicants to qualify for benefits in one of five tiers as
follows:

(1)  Tier one requires an investment of at least $1 million in
qualified property and hiring at least 10 new employees;

(2)  Tier two requires investment of at least $3 million in
qualified property and hiring at least 30 new employees;

(3)  Tier three requires hiring at least 30 new employees;

(4)  Tier four requires investment of at least $10 million in
qualified property and hiring at least 100 new employees; and

(5)  Tier five requires investment of at least $30 million in
qualified property.

Taxpayers who qualify for tier one, two, three, or four projects
are entitled to a credit equal to 3% times the average wage of
new employees times the number of new employees if the average
wage of the new employees equals at least 60% of the Missouri
average annual wage for the year in which the application is
made; 4% of this amount if the average wage of the new employees
equals at least 75% of the Missouri average annual wage; 5% if
the average wage of the new employees equals at least 100% of the
Missouri average annual wage; and 6% if the average wage of the
new employees equals at least 125% of the Missouri average annual
wage.

Taxpayers who meet the requirements for tier two or tier four
projects will receive a credit equal to 10% of the investment
made in qualified property at the project.  Taxpayers who meet
the requirements for tier one projects will receive a credit
equal to 3% of the investment made in the qualified property at
the project.

To utilize these incentives, taxpayers must submit an application
to the Department of Economic Development.  The substitute
specifies the requirements of the application, including
application fees.  After an application is approved, the
department and the taxpayer will enter into a written agreement.
The requirements of the agreement are specified in the
substitute.

Any taxpayer receiving benefits under this act cannot
simultaneously receive benefits from the Quality Jobs Act for any
project.

Tax credits for all tiers can be used to offset income taxes
under Chapter 143.

Tax credits for tier one, two, three, and four projects can also
be used:

(1)  To offset the taxpayer's withholding taxes to the extent
that the liability is attributable to the number of new employees
at the project; and

(2)  To obtain a refund of sales and use taxes which are not
otherwise refundable and which are paid on purchases, including
rentals.  The substitute specifies how an applicant may claim a
refund and when it will be paid.  Interest will be allowed on any
refunds.

Tax credits may be carried forward for up to nine years for tier
one and three projects and for up to 14 years for tier two or
four projects.

If a taxpayer with a tier one or three project fails to meet the
required levels of employment or investment within four years
after the date on which the application was submitted, all or a
portion of the incentives can be recaptured or disallowed.  If a
taxpayer with a tier two, tier four, or tier five project fails
to meet the required levels of employment or investment within
six years after the date on which the application was submitted,
all or a portion of the incentives can be recaptured or
disallowed.

The Missouri Incentives Fund is created which will consist of
application fees submitted by taxpayers.  Upon appropriation,
moneys in the fund will be used solely for the administration of
the act.

The substitute requires the department to submit an annual report
to the General Assembly by July 15.  The substitute specifies the
requirements of the report.

Tax credits are not transferrable except in situations specified
in the substitute.

MISCELLANEOUS PROVISIONS

The substitute:

(1)  Authorizes municipalities to annex a land parcel used as a
research park only if all owners of the property consent in
writing, the parcel has not been sold within the previous six
months, and the municipality and county adopt reciprocal
authorizing ordinances (Section 71.275);

(2)  Allows a business headquarters to receive tax credits for
new or expanding businesses.  Expansions at headquarter
facilities will be considered separate business facilities and
entitled to the credits if at least 25 new employees and $1
million of new investment are attributed to the expansion.
Buildings on multiple non-contiguous properties will be
considered one facility if they are in the same county or
municipality.  No headquarters will receive the credits for
facilities commencing or expanding operations after January 1,
2020 (Section 135.155);

(3)  Increases the amount of tax credits which can be utilized
for qualified equity investments under the New Markets Tax Credit
Program from $15 million to $27.5 million per fiscal year and
allows investments to be made through Fiscal Year 2012.
Currently, no qualified equity investments can be made under the
program beyond Fiscal Year 2010 (Section 135.680);

(4)  Authorizes, beginning January 1, 2010, an income tax credit
for costs associated with a taxpayer's renovation of a rented
residence.  The rental property must be a multi-family dwelling
with at least two units, one of which must be occupied by the
taxpayer.  The credit will be equal to 20% of the renovation's
costs, up to $2,500 per taxpayer.  The tax credit will be issued
on a first-come, first-served basis and is not refundable or
transferable but can be carried forward for three years.  No more
than $5 million of these tax credits can be issued in any fiscal
year. (Section 135.1160);

(5)  Allows airports, beginning January 1, 2009, to retain all
revenues received from enplanement sales taxes collected from
passengers.  The revenues must be used solely for marketing
expenses incurred by the airport (Section 144.022);

(6)  Authorizes a sales tax exemption, beginning January 1, 2010,
on all electrical energy, gas, water, and other utilities
including telecommunications services, machinery, equipment, or
computers, and all retail sales of tangible personal property and
materials for the purpose of constructing, repairing, or
remodeling facilities used by data center and server farm
facilities that are more than 50,000 square feet (Section
144.055);

(7)  Increases, beginning January 1, 2010, the outstanding shares
and surplus threshold amount used to calculate a corporation's
annual franchise tax from $1 million to $10 million (Section
147.010);

(8)  Reduces the amount of tax credits that can be authorized
annually for the Family Development Account Program from $4
million to $300,000 beginning July 1, 2010 (Section 208.770);

(9)  Specifies that, under certain conditions, an out-of-state
wholesale drug distributor that is a drug manufacturer which
produces and distributes from a facility inspected and approved
by the federal Food and Drug Administration will not be required
to be licensed but must register its business name and address
with the Board of Pharmacy within the Department of Insurance,
Financial Institutions and Professional Registration and pay a
$10 filing fee.  This applies to wholesale drug distributors
located in a foreign country if they are authorized and in good
standing to operate as drug manufacturers within that
jurisdiction (Section 338.337);

(10)  Removes the provision prohibiting the Missouri Public
Service Commission from having jurisdiction over the rates,
financing, accounting, or management of any electrical
corporation operating as a not-for-profit cooperative (Section
393.110);

(11)  Expands the list of activities for which a taxpayer may
receive a remediation tax credit to include up to 100% of the
costs of environmental insurance premiums and the backfill of
areas where contaminated soil excavation occurs (Section
447.708); and

(12)  Limits the amount of tax credits which can be authorized
for Brownfield Remediation to $60 million per fiscal year.
Currently, the program does not have a cap (Section 447.708).

The provisions regarding income tax credits for the renovation of
a rental residence will expire December 31 six years from the
effective date of the bill and the provisions regarding
enplanement sales taxes will expire December 31, 2015.

The substitute contains an emergency clause for the provisions
regarding transportation development districts, Qualified
Research Expenses Tax Credit, Quality Jobs Act, Missouri Jobs for
Technology and Science District Program, Missouri Advantage Act,
annexation of a research park, New Markets Tax Credit Program,
sales tax exemption for data center and server farm facilities,
wholesale drug distributors, remediation tax credit, and
Brownfield Remediation Tax Credit limit.

FISCAL NOTE:  Estimated Cost on General Revenue Fund of More than
$829,158 to More than $43,329,158 in FY 2010, More than
$8,090,471 to More than $55,610,471 in FY 2011; and More than
$8,117,775 to More than $55,637,431 in FY 2012.  Estimated Effect
on Other State Funds of an income of Unknown to a cost of Unknown
in FY 2010, FY 2011, and FY 2012.

PROPONENTS:  Supporters say that the state recruited businesses
to locate in a specific research park based on the taxes that
were in place at the time.  Since then, the city which borders
the research park tried to annex it for the sole purpose of
assessing franchise taxes on those businesses.  It was a tax grab
by the city.  The bill will prevent this from happening again,
which is important since the state promised these businesses a
certain tax environment.  The businesses are going to leave if
they cannot receive assurance that they will not be annexed.

Testifying for the bill were Senator Rupp; Representative
Dieckhaus; and Missouri Chamber of Commerce and Industry.

OPPONENTS:  There was no opposition voiced to the committee.

OTHERS:  Others testifying on the bill say that they do not want
counties to have the ability to stop the annexation if the land
owners and the city both want the annexation to proceed.

Testifying on the bill was Missouri Municipal League.

Missouri House of Representatives
95th General Assembly, 1st Regular Session
Last Updated November 17, 2009 at 9:26 am