Development Opportunity Zone Tax Credits
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
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.
Development Opportunity Zone projects must meet the requirements as contained in Wis. Stat. §238.395, §71.07(2dm) and (2dx), §71.28(1dm) and (1dx), §71.47(1dm) and (1dx), and §76.636. These statutes cover definitions, eligibility and limits on these tax credits. 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. Positions that are created as a result of the tax credits claimed must be maintained for at least five years after the Certification Date established by WEDC.
Except for person claiming tax benefits only for environmental remediation under Wis. Stat. §71.07(2dx)(b)1, §71.28(1dx)(b)1, §71.47(1dx)(b)1, or §76.636, the program requires at least 25 percent of the tax benefit claimed by a person to 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.
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.
- “Full-Time Job” means a regular, non-seasonal full-time position in which an individual, as a condition of employment, is required to work at least 2,080 hours per year, including paid leave and holidays, and for which the individual receives pay that is equal to at least 150 percent of the federal minimum wage and benefits that are not required by federal or state law. “Full-Time Job” does not include initial training before an employment position begins. -OR- 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. Employees that do not meet one of these two definitions will not be counted toward head count 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
- 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. Stat. §238.395, §71.28(1dx), and §71.47(1dx).
Job creation allocations will be based on projected jobs to be created over three years. Businesses will earn job creation tax credits over three years and must maintain those jobs for five years, commencing on the Certification Date established by WEDC. Businesses will earn job retention tax credits over five years and must maintain those jobs the entire five-year period, commencing on the Certification Date. Job retention tax credits are available only for positions that would not be retained without the tax credits.
Credits may be earned according to the pay grade of job being created or retained.
- FTE paying at least 150% of the federal minimum wage: up to $6,000 per job
- FTE paying at least 150% of the federal minimum wage and employing a member of a targeted group: up to $8,000 per job
Award amounts within a given tier will be made with consideration of unemployment rates, recent layoffs, health benefits, regional poverty rates, distressed county status, 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.
To be eligible for a DOZ award, the applicant must offer the employees filling the Full-Time Jobs to be attracted, created or retained as part of the project at least 50% of the health insurance benefit costs to the employees or other equivalent health insurance benefits that are acceptable to WEDC. Recipients will be expected to continue to offer all Eligible Employees retirement, health and other benefits.
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 50 percent of the use of the equipment, machinery, real property or depreciable tangible personal property shall be for the certified business’s operations in Wisconsin.
The equipment, machinery, real property or depreciable tangible personal property may not be previously owned. “Previously owned” means equipment, machinery, real property or depreciable tangible personal property that the Certified Business or a related person owned during the two years prior to submitting an application for the tax credits. “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 percent of the Certified Business; or any corporation which is part of the same controlled group of corporations.
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.
Businesses whose primary activity includes such things as retail, commercial development, recreation, entertainment or direct health care in nature are not eligible to earn tax credits through capital investment.
Allocation of capital investment tax credits will be limited to up to 3 percent of the eligible 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 on the basis of the actual eligible capital investment taking place during the preceding year.
A business is not eligible for tax benefits for environmental remediation under Wis. Stat. §71.07(2dx)(b)1, §71.28(1dx)(b)1, §71.47(1dx)(b)1, or §76.636 based on job creation or job retention. Credits may only be earned under this activity for eligible remediation activity. Tax benefits for environmental remediation are determined as 50 percent of eligible costs.
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.
Incentives and Available Funding (FY17): $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.
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 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.