Best practices for obtaining and evaluating credits and incentives.

Over the past several decades, more and more states have been offering tax credits and incentives to encourage economic development in their jurisdictions. Accordingly, a business should prepare an incentives analysis every time it considers making a capital investment or growing jobs. This applies to every material capital outlay in any type of real estate, machinery or equipment. That is, the business should investigate and evaluate whether the federal, state and local governments where the investment will be located (or could be located) will partner with them by providing financial and other incentives to encourage the businesses to locate (or relocate) within their boundaries. Oftentimes, businesses can overlook these opportunities because the proposed acquisition has to be kept confidential, or time is of the essence and there is not sufficient leeway to negotiate incentives. Even so, factoring the potential for obtaining financial assistance from state and local governments could prove worth the time and trouble.

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Colorado Enterprise Zone Certifications for 2011 and Prior Years

Just a friendly reminder after 12/31/2012 taxpayers will not be able to get certified for activities that were performed prior to 2012 that earned an Enterprise Zone business tax credit.

Included is a copy of the statute:

39-30-103(7)(a) Beginning on January 1, 2012, before a taxpayer engages in any activity for which the taxpayer intends to claim an income tax credit pursuant to section 39-30-104, 39-30-105, 39-30-105.5, or 39-30-105.6, an authorized company official of the taxpayer’s business or the taxpayer who is the owner of the business shall submit a pre-certification form to the enterprise zone administrator as specified in this subsection (7). A taxpayer that completes an activity prior to January 1, 2012, for which the taxpayer intends to claim an income tax credit pursuant to this article shall submit to the zone administrator on or before December 31, 2012, any information related to such completed activity that is necessary to receive certification from the zone administrator that the taxpayer’s business is located in the enterprise zone. Nothing in this subsection (7) shall be construed to require a taxpayer to submit a pre-certification form to the zone administrator for activities completed prior to January 1, 2012. In connection with the pre-certification, the taxpayer shall be required to:

(I) Obtain verification from the enterprise zone administrator that the taxpayer’s business is located in an enterprise zone;

(II) Certify that the taxpayer is aware of the enterprise zone income tax credits allowed pursuant to this article;

(III) Certify that the enterprise zone income tax credits allowed pursuant to this article are a contributing factor to the start-up, expansion, or relocation of the taxpayer’s business in the enterprise zone; and

(IV) Certify that the taxpayer acknowledges that the pre-certification required pursuant to this section is for activities that shall commence after the date that the pre-certification form is executed by the enterprise zone administrator through the end of the business’s then-current income tax year.

C.R.S. 39-30-103

Michigan Corporate Income Tax

On May 25, 2011, the Michigan Corporate Income Tax (CIT) was signed into law, imposing a 6% corporate income tax on C corporations and taxpayers taxed as corporations for federal income tax purposes.  The CIT allows only one credit, the small business alternative credit, offering an alternative tax rate of 1.8% of adjusted business income.

The CIT replaces the Michigan Business Tax (MBT) for most taxpayers and is effective January 1, 2012.  Taxpayers with less than $350,000 in allocated or apportioned gross receipts and/or less than or equal to $100 in annual liability are not required to file or pay the CIT.  The gross receipts threshold does not apply to financial institutions or insurance companies.

A CIT taxpayer’s tax year is the calendar year, or the fiscal year ending during the calendar year.  Fiscal year taxpayers must file a final MBT return for the year ending on December 31, 2011.  A taxpayer that is subject to the MBT and the CIT for fractional parts of the same fiscal year must use the same method to compute the MBT as used to compute the CIT for the other portion of the tax year.

Fiscal year taxpayers will be granted an automatic extension for their 2012 fiscal year annual CIT return.  Fiscal year returns ending in 2012 will be due the same date as 2012 calendar year returns, April 30, 2013.  An extension request form is not needed unless the taxpayer is required to transmit payment of any tax that would be due with the annual return.

Calendar year taxpayers must file a Michigan Application for Extension of Time to File by the due date of the CIT annual return, together with payment of estimated tax.  CIT annual returns for calendar year taxpayers is April 30th.

Annual returns will be finalized and posted to the Michigan website by the time the legislature adjourns for the year in December 2012.  It is anticipated that paper forms and instructions will be available for distribution in January 2013.

Individuals and flow-through entities, including partnerships, S corporations, and trusts are not subject to the CIT.

Flow-through entities may be subject to withholding.  A flow-through entity with business activity in Michigan that has more than $200,000 of business income after allocation or apportionment is required to withhold a tax on the distributive share of business income of each corporation or flow-through member of the flow-through entity in an amount computed pursuant to MCL 200.623.

Insurance companies are subject to tax equal to 1.25% of gross direct premiums written on property or risk located or residing in Michigan.

Financial institutions are subject to tax equal to 0.29% of their apportioned net capital.

Additional information may be obtained on the Michigan Department of Treasury website at:  http://www.michigan.gov/taxes/0,4676,7-238-59553—,00.html