Development Opportunity Zone Tax Credits

Program Goal:

The goal of the Development Opportunity Zone (DOZ) Program is to incent new and expanding business in the Cities of Beloit, Janesville and Kenosha.

The program primarily supports the following WEDC Strategic Pillar and Focus Area:

Business Development: Business Retention and Expansion

Program Description:

The program supports job creation, job retention, capital investment and environmental remediation by providing nonrefundable tax credits that can help to reduce a company’s Wisconsin state income tax liability, thereby helping to enhance its cash flow to either increase the expansion project’s scope, accelerate the timing of the project or enhance payroll. Also, the program incents the creation of jobs for target group members.

Eligibility Requirements:

Generally, businesses located in or relocating to an area designated as a Development Opportunity Zone under Wis. Stat. §238.395(1) – currently the Cities of Beloit, Janesville and Kenosha – may be eligible for Development Opportunity Zone Tax Credits.

A Certified Business may qualify for tax credits only for activities that occur after an eligibility date established by WEDC – and while the particular area(s) is designated as a DOZ – currently:

  • The City of Beloit’s designation extends until July 31, 2021,
  • The City of Janeville’s DOZ designation extends until February 28, 2020, and
  • The City of Kenosha’s DOZ designation extends until March 8, 2021.

Any person that is conducting or intends to conduct economic activity under the DOZ must submit a project plan, in conjunction with the local governing body of the city in which the DOC is located. The project plan must comply with the requirements under Wis. Stat. Sec. 238.395(3)(b).

Definitions:

The following definitions supplement those in Wis. Stat. §238.395, §71.07(2dm) and (2dx), §71.28(1dm) and (1dx), §71.47(1dm) and (1dx), and §76.636.

  • “Certified Business” means a business certified by WEDC as eligible to earn Tax Credits based on the parameters of this guideline and based on the business’ total number of Eligible Employees in the State of Wisconsin as determined by the Federal Employment Identification Number (“FEIN”) under which the business files its taxes.
  • “Certification Date” means the date, designated by WEDC, on which the eligibility to earn Tax Credits begins. No activities occurring prior to the Certification Date will be considered in allocating Tax Credits.
  • “Environmental Remediation” means removal or containment of environment pollution, as defined in Wis. Stat. §299.01(4), and restoration of soil or groundwater that is affected by environmental pollution, as defined in Wis. Stat. §299.01(4), in a brownfield if that removal, containment or restoration fulfills the requirement under sub. (2de)(a)1 and investigation unless the investigation determines that remediation is required and that remediation is not undertaken.
  • A “Full-Time Job” means a regular, non-seasonal full-time position in which the annual pay for the position is more than the amount determined by multiplying 2,080 by 150 percent of the federal minimum wage and an individual in the position is offered retirement, health and other benefits that are equivalent to the retirement, health and other benefits offered to an individual who is required to work at least 2,080 hours per year. “Full-Time Job” does not include initial training before an employment position begins.[1] Employees that do not meet the definition will not be counted toward headcount or wages. Part-time employees do not count.
  • “Ineligible Business” means businesses ineligible for tax credits unless extraordinary circumstances exist, including but not limited to a serious threat of a business leaving the state, significant job creation or retention, or significant capital investment, and such extraordinary circumstances are approved by the Board of Directors’ Awards Administration Committee. Such Ineligible Businesses include:
    • Payday loan and title companies
    • Telemarketing, other than inbound call centers
    • Pawn shops
    • Media outlets
    • Retail
    • Farms
    • Primary care medical facilities
    • Financial institutions
    • Businesses in the hospitality industry
  • “Member of a targeted group” means a person who resides in an area designated by the federal government as an economic revitalization area, a person who is employed in an unsubsidized job but meets eligibility requirements for a Wisconsin Works employment position, a person who is employed in a trial job, or in a trial employment match program, a person who is eligible for child care assistance, a person who is a vocational rehabilitation referral, an economically disadvantaged youth, an economically disadvantaged veteran, a supplemental security income recipient, a general assistance recipient, an economic disadvantaged ex-convict, a dislocated worker, or a food stamp recipient.
  • “Tax Credits” means the DOZ Tax Credits authorized pursuant to Wis. Statutes §§238.395, 71.07 (2dx), 71.28 (1dx) and 71.47(1dx).

[1] While there are two statutory definitions of Full-Time Employee, WEDC utilizes the above identified definition in its contracts.

Certification:

Companies can be certified for DOZ tax credits in four categories: Job Creation, Job Retention, Capital Investment (Real and Personal Property) and Environmental Remediation. Each are described in detail herein.

Job Creation:

Job creation allocations will be based on projected jobs to be created over three years. Businesses will earn job creation tax credits for a maximum of three years, and must maintain jobs for five years, commencing on the Certification Date established by WEDC. Once DOZ expiration date passes, no additional tax credits can be claimed under the program, but the company must maintain all jobs for the full five years after the Certification Date.

The following job creation credits may be available:

  • Up to $8,000 in tax benefits will be allowed for creating a Full-Time Job in the DOZ filled by a member of the targeted population. Any Wisconsin Works subsidy under Wis. Stat. Sec. 49.147(3)(a) paid for the created jobs must be deducted from the calculation of credits.
  • Up to $6,000 in tax benefits will be allowed for creating a Full-Time Job in the DOZ filled by an individual who is a Wisconsin Resident that is not a member of the targeted population. Any Wisconsin works subsidy under Wis. Stat. Sec. 49.147(3))a) paid for the created jobs must be deducted from the calculation of credits.

Award amounts will be made with consideration of unemployment rates, recent layoffs, health benefits, regional poverty rates, distressed county, per capita income, and public involvement necessary to move the project forward.

At least one-third of the tax credits claimed by a business based on creating full-time jobs shall be based on creating jobs that are filled by members of a targeted group. WEDC may grant exceptions to this requirement if the corporation determines that a business has made reasonable attempts to hire members of a targeted group, but has been unable to hire sufficient numbers of target group members to reach the one-third standard.

Job Retention:

Job retention tax credits are available only for positions that WEDC identifies would not have been retained without the tax credits. Businesses will earn job retention tax credits over five years and must maintain those jobs during the entire five-year period, commencing on the Certification Date. Once the DOZ expiration date passes, no additional tax credits can be claimed under the program, but the company must maintain all jobs for the full five years after the Certification Date.

The following job retention credits may be available:

  • Up to $8,000 in tax benefits will be allowed for retaining a Full-Time Job in the DOZ if the WEDC identifies that a significant capital investment was made to retain that job. Any Wisconsin Works subsidy under Wis. Stat. Sec. 49.147(3)(a) paid for the retained jobs must be deducted from the calculation of credits.
  • Up to $6,000 in tax benefits will be allowed for retaining a Full-Time Job in the DOZ filled by an individual who is a Wisconsin Resident that is not a member of the targeted population. Any Wisconsin works subsidy under Wis. Stat. Sec. 49.147(3))a) paid for the retained jobs must be deducted from the calculation of credits.

Award amounts will be made with consideration of unemployment rates, recent layoffs, health benefits, regional poverty rates, distressed county, per capita income, and public involvement necessary to move the project forward.

Capital Investment:

Allocation of capital investment tax credits will be limited to up to 3% of the eligible capital investment. The tax credits can be earned on both real and personal property capital investments.

Businesses whose primary activity includes retail, commercial development, recreation, entertainment or direct health care are not eligible to earn tax credits through capital investment.

Allocation of credits will be based on eligible capital investments projected over a three-year period. Businesses will have three years in which to earn allocated credits, which will be released annually based on the actual eligible capital investment tacking place during the preceding year.

Tax credits allocated for capital investment must meet the following criteria:

  • There must be capital investment in a project that is beyond a Certified Business’s normal capital expenditures. This specific purpose includes, but is not limited to,  diversifying product lines and modernizing and enhancing the efficiency of production processes.
  • The amount of the investment is at least $10,000 for each full-time employee working at the Certified Business’s project location, or $1,000,000, whichever is less.
  • At least 25% of the tax benefit verified by WEDC must be based on creating or retaining full-time jobs. WEDC may grant exceptions to this requirement if WEDC determines that a business makes a significant capital investment.

Personal Property Capital Investment:

At least 50% of the use of the depreciable, tangible personal property (i.e., equipment, machinery) shall be for the Certified Business’s operations located in the DOZ.

The depreciable, tangible personal property (i.e., equipment, machinery) must be purchased after the certification date and cannot be purchased from a Related Person. “Related Person” includes a family member, such as a brother, sister, parent, grandparent, child, grandchild, spouse or in-laws; a corporation or any entity that owns more than 50% of the Certified Business; or any corporation which is part of the same controlled group of corporations.

Real Property Capital Investment:

A Certified Business may qualify for capital investment tax credits for an amount expended to construct, rehabilitate, remodel or repair real property if the business began the physical work of construction, rehabilitation, remodeling or repair, or any demolition or destruction in preparation for the physical work after the Certification Date specified by WEDC. Physical work does not include preliminary activities such as planning, designing, securing financing, researching, developing specifications or stabilizing property to prevent deterioration.

The claimant may claim credits for amounts expended to acquire the real property if either of the following are met:

  1. the claimant acquired the real property after the designation of the property as a DOZ and the property was not a “Previously Owned Property as defined in Wis. Stat. Sec. 71.07(a)4; or
  2. the completed project was placed in service after the claimant was certified.

To the extent that the property is not being used for the purpose for which the claimant is certified, the credit will be reduced on a proportional basis.

Environmental Remediation:

Tax benefits for environmental remediation are determined at 50% of eligible costs A business is not required to quality for job creation, job retention, or capital investment credit in order to obtain credits for environmental remediation under §§ 71.07(2dx)(b)1, 71.28(1dx)(b)1, 71.47(1dx)(b)1, or 76.636, Wis. Stats. Credits may only be earned under this activity for an eligible remediation activity.

Verification:

WEDC will annually verify the amount of Tax Credits earned and able to be claimed by the Certified business based on eligible activities, and may request additional information from the Certified Business. WEDC will notify the Certified Business and the Department of Revenue of the amount eligible to be claimed against the Certified Business’s taxes each year with a written verification of the Tax Credits earned. A Certified Business must attach appropriate forms to its Wisconsin tax return submitted to the Department of Revenue to obtain the tax benefits. No person may file with the Department of Revenue for Tax Credits without the written verification of WEDC.

Tax Credits are non-refundable. If the amount of the Tax Credits approved for a tax year exceeds the amount of tax due for the tax year, the excess credit may be carried forward for up to 15 years.

The corporation shall revoke the entitlement of a person to claim tax benefits if the person does any of the following:

  • Supplies false or misleading information to obtain the tax benefits;
  • Leaves the development opportunity zone to conduct substantially the same business outside of the development zone; or
  • Ceases operations in the development opportunity zone and does not renew operation of the trade or business or a similar trade or business in the development opportunity zone within 12 months.

Incentives and Available Funding (FY18): $2,972,650 – Janesville; $9,519,000 – Beloit; $9,250,000 – Kenosha

Activities and Expected Outcomes:

Assist 4 businesses to support the creation of 10 jobs, retention of 200 jobs, and achieve a 25:1 leverage of other investment.

Performance Reporting:

Recipients will be required to annually submit annual project report capital investment, job creation and job retention, as well as any other contract deliverable.

WEDC may impose additional reporting requirements to evaluate project performance and to ensure compliance with contract deliverables.

Application and Awards Process:

Applicants for a Development Opportunity Zone certification should complete an application through a regional economic development director. The completed application will be assigned to an underwriter and go through the award review process.

For more information on application review, internal process and award distribution, please refer to WEDC’s award administration policies and procedures.