Enterprise Zone Tax Credits
The goal of the Enterprise Zone (EZ) Program is to incent projects involving expansion of existing Wisconsin businesses or relocation of major business operations from other states to Wisconsin.
This program primarily supports the following WEDC Strategic Pillar and Focus Area:
Business Development: Business and Investment Attraction
The program supports job creation, job retention, capital investment, training and Wisconsin supply chain investment by providing companies with refundable tax credits that can help to reduce their Wisconsin state income tax liability or provide a refund, thereby helping to enhance their cash flow to either expand the expansion project’s scope, accelerate the timing of the project or enhance payroll.
Enterprise Zone Tax Credit projects must meet the requirements in Wis. Stat. §238.399, §71.07(3w), §71.28(3w) and §71.47(3w). Among other things, these statutes cover applicable definitions, eligibility for tax benefits, and limits on the tax benefits.
The following definitions supplement those in Wis. Stat. §238.399, §71.07(3w), §71.28(3w) and §71.47(3w).
- “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’s 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.
- “Eligible Training Cost” means (1) the cost of the trainer; (2) the cost of the training materials; (3) the wages of the trainee while in a classroom setting; or (4) the costs of the trainer and the wages of the trainee while in an on-the-job or job shadowing setting. Eligible training costs do not include travel expenses, food or lodging.
- A “Full-Time Employee” means an individual who is employed in a regular, nonseasonal job and who, as a condition of employment, is required to work at least 2,080 hours per year, including paid leave and holidays. -OR- “Full-Time Employee” means an individual who is employed in a regular, nonseasonal job for which the annual pay 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. 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 loan companies
- Telemarketing, other than inbound call centers
- Pawn shops
- Media outlets
- Primary care medical facilities
- Financial institutions
- Businesses in the hospitality industry
- “Significant capital expenditure” means a capital investment in a WEDC-designated EZ, beyond a Certified Business’s normal capital expenditures, that is needed to achieve a special purpose agreed to by WEDC.
- “Significant capital investment” means a capital investment in excess of $10 million in a WEDC-designated EZ, beyond a Certified Business’s normal capital expenditures, that is needed to achieve a specific purpose agreed to by WEDC.
- “Significant supply chain” means a manufacturer that has a supply chain in the state which is designated by WEDC as significant. In determining whether the chain is significant, WEDC may consider any of the following factors:
- The number of employees throughout the supply chain
- The number of suppliers in the supply chain
- The total cost of the components purchased from the supply chain
- The number of units purchased from the supply chain
- “Tax Credits” means the EZ Tax Credits authorized pursuant to Wis. Stat. §238.399, §71.07(3w), §71.28(3w), and §71.47(3w).
- “Tier I county or municipality” and “Tier II county or municipality” means a county or municipality so designated by WEDC. In designating either a Tier I county or municipality or a Tier II county or municipality, WEDC will consider the most current data available for the area and state using the following indicators:
- Unemployment rate – from the Department of Workforce Development.
- Percentage of families with incomes below the poverty line established under 42 USC 9902 (2) – from the U.S. Census Bureau.
- Median family income – median household income from the U.S. Census Bureau.
- Median per capita income – from the Department of Workforce Development.
- Average annual wage – from the Department of Workforce Development.
- Manufacturing assessment values, by county – from the Department of Revenue.
- Other significant or irregular indicators of economic distress – such as a natural disaster, or plant closings and layoffs – from the Department of Workforce Development.
In determining a distressed county (Tier 1), each category above will annually be assigned a value between 1 and 72, with 72 being the highest distress ranking, and an aggregate score for each county considering the seven factors. The counties are ranked by their aggregate score with the highest-ranked one-third of counties (24 counties) considered distressed. Additionally, any county with two top-ten distress rankings in any given category will also be considered distressed.
Businesses located in or relocating to Wisconsin may be eligible for EZ Tax Credits. A Certified Business may qualify for tax credits only for eligible activities that occur after an eligibility date established by WEDC. Positions that are created as a result of the tax credits verified by WEDC shall be maintained for at least five years after the Certification Date established by WEDC or the duration of the EZ, whichever is longer. Tax credits can be earned over a period of up to 12 years.
A business may be eligible for certification in an EZ if:
- It begins operation within an EZ;
- It relocates into an EZ from outside Wisconsin, as long as wages and benefits are at least as favorable as those offered from the previous location;
- It expands in an EZ by increasing personnel by at least 10% or making a capital investment at or above 10% of its previous year’s gross revenues, among other statutory requirements for contracting;
- It retains jobs in the EZ, as long as the business makes a significant capital investment in property located in the zone and, unless in an area under Wis. Stat. §238.399(3)(d), the business is an original equipment manufacturer with a significant supply chain in the state and the business employs at least 500 full-time employees; or
- It is located in the EZ if the businesses purchases tangible personal property, items, property or goods under Wis. Stat. §77.52(1)(b), (c) or (d),or services from Wisconsin vendors as approved by WEDC.
In determining whether to designate an EZ, WEDC will evaluate factors including the following:
- Whether the project might not occur without the allocation of tax credits
- The extent to which the project will increase employment in this state
- The extent to which the project will contribute to the economic growth of this state
- The extent to which the project will increase geographic diversity of available tax credits throughout this state
- The financial soundness of the business
- Any previous financial assistance that the business received from the Department of Commerce or WEDC
- The relevant geographic area’s economic need, which may include an evaluation of the data regarding household income, average wages, the condition of property, housing values, population decline, job losses, infrastructure and energy support, the rate of business development, and the existing resources available to the area.
- The effect of an EZ designation on other initiatives and programs to promote economic and community development in the area, including job retention, job creation, job training, and creating high-paying jobs.
To be eligible for an EZ 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 health insurance benefits that are acceptable to WEDC. Recipients will be expected to continue to offer all Eligible Employees retirement, health and other benefits.
Generally, EZs are subject to the following limitations:
- WEDC may designate up to 30 EZs.
- Three EZs must be designated in areas with populations totaling less than 5,000, and two of the EZs must be designated in areas with populations totaling at least 5,000 but less than 30,000. In designating these EZs, WEDC may consider indicators of an area’s economic need and the effect of the designation on other economic development activities.
- Each EZ may exist for up to 12 years.
- WEDC is required to give preference, to the extent possible, to areas with the greatest economic need.
- WEDC may cap the award and/or limit the number of years in which credits may be claimed by a Certified Business within the EZ. There is no statutory cap on allocated tax credits per award amounts, or on the overall program.
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 refundable. If the amount of Tax Credits approved for a tax year exceeds the amount of tax due for the tax year, the excess credit amount will be refunded to the Certified Business. The Tax Credits are non-transferable, and must be claimed by the Certified Business that is conducting the eligible activities.
Incentives and Available Funding (FY17):
8 standard and 3 rural (<5,000) EZ designations
As of June 30, 2016, 11 of 30 EZ designations are still available for use.
The incentives under this program are refundable tax credits according to the following stipulations:
Enterprise Zone Job Creation Credit: A tax credit equal to no more than 7 percent of the net increase in EZ payroll from base in a Tier I county or municipality, less 150% of the Federal Minimum Wage, per new Full-Time Employee and up to $100,000 per employee, or a 7 percent tax credit against the lesser of the net increase in state payroll and EZ payroll from base in a Tier ll county or municipality, less $30,000 per new Full-Time Employee and up to $100,000 per employee. Calculations are relative to a base year which is fixed as the year before the EZ takes effect. This benefit may be awarded for up to 12 years.
Enterprise Zone Job Retention Credit: A tax credit equal to no more than 7 percent of the taxpayer’s EZ payroll in a Tier I county or municipality that is paid to full-time employees who earn more than 150% of the Federal Minimum Wage, but less than $100,000, in annual wages, less the amount paid to new full-time employees, or no more than 7 percent of the taxpayer’s EZ payroll in a Tier II county or municipality that is paid to full-time employees who earn more than $30,000, but less than $100,000, in annual wages, less the amount paid to new full-time employees. This benefit may be awarded for up to five years.
Training Credit: The amount of tax credits for training for a Certified Business may equal up to 100 percent of the total eligible training costs:
- Amount paid to upgrade or improve skills of full-time employees
- Amount paid to train any full-time employees on new technology
- Amount paid to train full-time employees who are in their first full-time job
Investment Credit: The business may also claim up to 10 percent of its significant capital expenditures.
Wisconsin Supply Chain Credit: The business may also claim up to 1 percent of the amount it paid to purchase tangible personal property, items, property, goods or services from Wisconsin vendors. Businesses may not claim the Wisconsin Supply Chain Credit and the Investment Credit for the same expenditures.
Activities and Expected Outcomes:
Assist 3 businesses to support the creation of 1,500 jobs and the retention of 1,000 jobs and achieve a 5:1 leverage of other investment.
Recipients will be required to annually submit a performance report documenting 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 the EZ Program 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.