Wed, Aug 10, 2022

Indiana Modernizes Their Economic Development Tax Credit Toolbox

In March 2022, SB 361 became Public Law 135, which modernizes Indiana’s incentives programs and is expected to strengthen Indiana’s global competitiveness. Indiana is hoping these new and improved tools will help it win transformational development projects with high-wage jobs such as electric vehicle battery plants and microchip fabricators. Indiana’s SB 361 was introduced in early January 2022, coming on the heels of a busy legislative season for economic development in both Michigan and Ohio, which passed sweeping mega-project legislation to help those states compete and win in the competition for deal capital and jobs.

SB 361 makes improvements to existing programs and creates a few new ones along the way. The changes to existing economic development tools in the form of state income tax credits include:

  • Amending the Economic Development for a Growing Economy (EDGE) Tax Credit to allow for an award to a project that will create new jobs but does not propose a physical presence in the state, extending the term from a maximum of 10 years to 20 years and allowing an EDGE tax credit recipient to request a payment equal to the amount of the credit.1
  • Amending the Hoosier Business Investment Tax Credit to broaden the eligibility criteria and remove the annual cap of $55 million.2
  • Amending the Headquarters Relocation Credit to remove the requirement for a minimum number of jobs and to remove the $5 million annual limit on the tax credit.3
  • Amending the Redevelopment Tax Credit to remove the $50 million annual limit on the tax credit, to adopt a broader definition of qualified redevelopment site and rehabilitation for purposes of the credit, to increase the maximum credit to 30% and to remove the repayment provision for projects with at least $100 million of qualified investment.4

The bill limits the total amount of credits awarded by the state to $300 million for all taxpayers in a calendar year.5

EDGE Program Payment in Lieu of Tax Credit

Of particular interest to some companies will be the new EDGE program provisions that allow for a cash payment in place of claiming the refundable tax credit. This is of particular benefit to companies that are structured as pass-through entities where the tax credit may not benefit the company undertaking the project and, in some cases, can inure to the benefit of another state where a shareholder resides. To monetize the tax credit into cash, the taxpayer can elect to forgo claiming the credit against any state tax liability for that taxable year and request the Indiana Economic Development Corporation (IEDC) remit to the taxpayer an amount equal to the tax credit.6 Before making a payment, the taxpayer must provide to the IEDC a copy of the taxpayer’s EDGE agreement, the tax credit awarded to the taxpayer for that taxable year and any other information required by the IEDC.7 There are additional requirements for pass-through entities to be eligible to make this request, all of which seem reasonable and intended to reduce the potential for related companies to lay claim to the same credits. These include having authority to make the election and being entitled to the payment allowable under the statute.8 The new provisions also include a few enumerated instances in which an election is not allowed: if the taxpayer has claimed all or part of the credit, if a taxpayer who is a pass-through entity has passed through all or part of the credit as a tax credit, and if the taxpayer makes an election after the due date of the taxpayer’s tax return on which the credit would have been claimed, without regard to extensions.9 Lastly, the statute indicates that payments are subject to available funding, and these payments will be made from the $300 million annual funding available for tax credits.10

The IEDC is developing a process and policy for administering these changes to the EDGE program, for which guidance is expected shortly. In the meantime, it is clear from the language of the statute that a taxpayer “elects to forgo” the credit, and one might think that such an election implies that the subsequent payment is guaranteed, however, the statute also requires approval of the IEDC. As a precursor to payment, the IEDC may request “any other information” from the taxpayer, which opens the door to additional approval criteria that the state could consider in its decision to approve the payment. Although it remains to be seen how the IEDC will administer the new EDGE payment in lieu of credit provisions, the legislature has clear intent to provide greater flexibility and enhance the impact of the state’s tax credit programs to make Indiana more competitive.

Sources
1.I.C. Section 6-3-5-5, 6-3.1-13-17 and 6-3.1-13-18.
2.I.C. Section 6-3.1-26-20.
3.I.C. Section 6-3.1-30-8.
4.I.C. Section 6-3.1-34-6, 6-3.1-34-8, 6-3.1-34-16, 6-3.1-34-17 and 6-3.1-34-18.
5.I.C. Section 5-28-6-9.
6.I.C. Section 6-3-5-5(a).
7.I.C. Section 6-3-5-5(b).
8.I.C. Section 6-3-5-5(d).
9.I.C. Section 6-3-5-5(j).
10.I.C. Section 6-3-5-5(k).

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