Put JOBZ to Work for You
Date of Publication: July 2004
If you have dreamed of operating your business in a world free of state and local taxes, your dream could become a reality. Heralded by Governor Pawlenty as one of the most significant economic development initiatives in Minnesota history, the recently enacted job opportunity building zone (JOBZ) legislation is the latest and greatest attempt to stimulate economic activity and job creation in Greater Minnesota.
JOBZ (pronounced “job-z”) allows qualified businesses to operate virtually free of state and local taxes in designated areas located throughout the State of Minnesota. The state, through the Department of Employment and Economic Development (“DEED”), has divided the designated areas into ten regional JOBZones. The Northeast Minnesota JOBZone, which is administered by the Arrowhead Regional Development Commission and the Iron Range Resources and Rehabilitation Agency, includes more than 4,000 acres of designated JOBZ sites, or “subzones,” in 46 communities located throughout Koochiching, Itasca, Aitkin, Carlton, St. Louis, Lake and Cook counties.
Who qualifies for JOBZ benefits?
Any person carrying on a trade or business at a place of business located in a designated subzone potentially qualifies for JOBZ benefits. An exception exists for businesses relocating to designated subzones from non-designated sites within the state. In order to qualify for benefits, such a relocating business must either (a) increase its full-time employment in the first full year of operations in the subzone by at least 20% and maintain the increase throughout the duration of the subzone or (b) make a capital investment in the subzone equal to at least 10% of the gross revenues of its relocated operations during the year immediately preceding relocation.
In addition, businesses must meet local business subsidy requirements to qualify for benefits. Although JOBZ is a statewide program, it is largely local in application. Subzone communities have wide latitude in establishing policies and criteria for awarding JOBZ benefits within their respective designated subzones. For example, many subzone communities have required that businesses operating within their respective subzones create a certain number of jobs at a minimum pay rate for every so many thousand dollars of JOBZ benefits. Once a business meets the established local business subsidy criteria, however, the business is entitled to all JOBZ benefits. JOBZ is an all or nothing program, and communities may not pick and choose among the JOBZ benefits awarded to qualified businesses.
What benefits are available?
Qualified businesses operating in designated subzones, individuals who operate and invest in those businesses and property used by such businesses qualify for an array of tax benefits, including the following:
• exemption from individual income taxes (including taxes on capital gains and rental income derived from real or tangible personal property used by a qualified business);
• exemption from corporate franchise taxes attributable to operations in a subzone;
• exemption from state sales and use taxes on purchases of construction materials and supplies used in the conduct of a qualified business and on personal property or taxable services primarily used or consumed within a subzone;
• exemption from state sales and use taxes on motor vehicles principally garaged in a subzone and primarily used in direct support of the operations of a qualified business within a subzone;
• exemption from property taxes on improvements to real property occupied by a qualified business and on certain personal property;
• exemption from wind energy production taxes; and
• tax credits for the creation of higher-paying jobs.
For example, an individual who constructs a building within a subzone and leases the building to a qualified business is eligible for a sales tax exemption on the materials used to construct the building, a property tax exemption on the improvements to the land, and an income tax exemption on rents received from the qualified business. The qualified business leasing the building is eligible for a corporate franchise tax exemption, a sales and use tax exemption on personal property or taxable services primarily used within the subzone, tax credits for the creation of higher-paying jobs, and more. Finally, investors in the qualified business are eligible for exemptions from individual income and capital gains taxes.
JOBZ benefits are not without limits: the benefits do not extend to land, to property subject to a general obligation bond levy or a school bond referendum approved by voters prior to zone designation or to property not owned or occupied by a qualified business.
How does a business qualify for benefits?
Businesses and investors interested in JOBZ should contact DEED or their local economic development agency to determine their eligibility for JOBZ benefits. If a business meets all statutory and subzone community criteria, the business must enter into a business subsidy agreement with the subzone community or its designated agent. Business subsidy agreements typically require that a business (i) meet certain job and wage goals within a specified period of time, (ii) pay a penalty for failing to meet those goals, (iii) report on its progress toward meeting the goals, and (iv) continue operations in the subzone for a specified period of time. In most cases, a subzone community may not execute a business subsidy agreement involving JOBZ benefits until it has held a public hearing on the business subsidy. In addition to a business subsidy agreement, a business relocating from a non-designated site within the state must enter into a relocation agreement with DEED, promising to meet the 10% capital investment requirement or to meet and maintain the 20% job creation requirement. Finally, all businesses receiving JOBZ benefits must complete DEED’s confidential JOBZ Business Survey.
How long does a business qualify for benefits?
Generally speaking, businesses are eligible for JOBZ benefits until December 31, 2015. Businesses that relocate from non-designated sites and qualify for benefits by increasing employment cease to qualify for benefits if they do not maintain the increased employment. In addition, businesses cease to be eligible for JOBZ benefits if they fail to comply with their obligations under their business subsidy agreements. In some cases, businesses that cease operations in a subzone or otherwise lose their qualified-business status before the end of a subzone term may need to repay all JOBZ benefits received during their last two years of operation in the subzone.
Do similar programs exist in Wisconsin?
Although Wisconsin has not enacted equivalent legislation, the state offers a variety of business incentive programs designed to stimulate economic development and job creation in Greater Wisconsin. For example, Wisconsin’s Enterprise Development Zone Program promotes business start-up or expansion in areas of the state that suffer from high unemployment and other indicators of economic distress by providing tax credits for job creation and environmental remediation. Other incentive programs include the Community Development Block Grant Economic Development program and tax increment financing. Contact your local community or economic development agency for more information.
For more information on JOBZ , please call 218-722-0861.
The information in this article is not intended as, and does not constitute either legal advice or a solicitation of any particular prospective client. The reader should not rely on any information contained herein regarding your specific situation until you have consulted with a qualified attorney.
Circular 230 Disclaimer - Advice, articles and commentary included herein do not constitute an opinion and are not intended or written to be used, and they cannot be used, by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer.
