20140924-IR-045140374NRA Information Bulletin #66 Income Tax August 2014 (Replaces Information Bulletin #66, dated January 2003) Effective Date: Upon Publication

DEPARTMENT OF STATE REVENUE

Information Bulletin #66 Income Tax August 2014 (Replaces Information Bulletin #66, dated January 2003) Effective Date: Upon Publication

SUBJECT: Enterprise Zones

REFERENCES: IC 6-3-2-7; IC 6-3-3-10; IC 6-3.1-7; IC 6-3.1-10

DISCLAIMER: Information bulletins are intended to provide nontechnical assistance to the general public. Every attempt is made to provide information that is consistent with the appropriate statutes, rules, and court decisions. Any information that is inconsistent with the law, regulations, or court decisions is not binding on either the department or the taxpayer. Therefore, the information provided in this bulletin should only serve as a foundation for further investigation and study of the current law and procedures related to its subject matter.

SUMMARY OF CHANGES

Aside from nonsubstantive, technical changes, this bulletin eliminates references to the department of commerce and replaces them with the Indiana Economic Development Corporation.

INTRODUCTION

An enterprise zone is an area within a city where there is a significant amount of unemployment and several business facilities that are not being used to their maximum. An enterprise zone created is in effect for 10 years with the potential for two 5-year renewals. There are currently 23 areas that have been designated as enterprise zones. There are 4 state tax incentives and 1 local property tax incentive to encourage businesses to locate in a zone.

The state income tax incentives that are available include:

• The employee tax deduction;

• The employment expense credit;

• The loan interest credit; and

• The investment cost credit.

I. EMPLOYEE INCOME TAX DEDUCTION (IC 6-3-2-8)

An income tax deduction is available for qualified employees of an enterprise zone business. The qualified employee is an individual who is employed by a taxpayer or a pass-through entity and whose principal place of residence is in the enterprise zone where the employee is employed. Qualified employees include employees of a financial institution, an insurance company, and an international banking facility. Also included are employees of a nonprofit entity, the state, a political subdivision, or the United States government. The employee must perform services for the employer, at least 90% percent of which are directly related to the conduct of the taxpayer's business that is located in the enterprise zone. The employee must perform at least 50% of his service for the taxpayer during the taxable year in the enterprise zone.

The qualified employee is entitled to a deduction from his adjusted gross income equal to the lesser of:

1. 50% of his adjusted gross income for the taxable year that he earns as a qualified employee; or

2. $7,500.

II. EMPLOYMENT EXPENSE CREDIT (IC 6-3-3-10)

An income tax credit is available for employers that hire qualified employees. A qualified employee is one who lives in the enterprise zone; works 50% of his time in the enterprise zone; and performs services for the taxpayer, 90% of which are directly related to the conduct of the taxpayer's trade or business that is located in the enterprise zone.

The credit is the lesser of 10% multiplied by the qualified increased employment expenditures of the taxpayer for the taxable year or $1,500 multiplied by the number of qualified employees employed by the taxpayer during the taxable year.

The tax credit can be carried forward for 10 years or carried back for 3 years. Pass-through entities' partners or shareholders are eligible for the credit in the same proportion as the distributive income to which the shareholder or partner is entitled.

III. LOAN INTEREST CREDIT (IC 6-3.1-7)

A qualified loan is a loan to an entity that uses the loan proceeds for:

(1) A purpose that is directly related to a business located in an enterprise zone;

(2) An improvement that increases the assessed value of real property located in an enterprise zone; or

(3) Rehabilitation, repair, or improvement of a residence.

A taxpayer is entitled to a credit against the adjusted gross income tax, the financial institution tax, or the insurance premium tax for a taxable year if taxpayer receives interest on a qualified loan in that taxable year. The amount of the credit to which the taxpayer is entitled is 5% multiplied by the amount of interest received by the taxpayer during the taxable year from the qualified loans. The credit can be carried forward for 10 years.

The department is required to report annually to the Indiana Economic Development Corporation (IEDC) the number of tax credits claimed for returns processed during the preceding fiscal year, the total dollar amount of claims, and for each enterprise zone the number and dollar amount of claims attributable to loans made to businesses located in the enterprise zone.

IV. ENTERPRISE ZONE INVESTMENT COST CREDIT (IC 6-3.1-10)

A taxpayer may make a qualified investment, which means the purchase of an ownership interest in a business located in an enterprise zone, if the purchase is approved by the IEDC.

The amount of the credit to which a taxpayer is entitled is the percentage determined by the IEDC multiplied by the price of the qualified investment made by the taxpayer in the taxable year.

If the IEDC finds that a purchase is a qualified investment, the department shall certify the percentage credit based upon the following:

(1) A percentage credit of 10% may be allowed based upon the need of the business for equity financing, as demonstrated by the inability of the business to obtain debt financing.

(2) A percentage credit of 2% may be allowed for business operations in the retail, professional, or warehouse/distribution codes of the NAICS Manual.

(3) A percentage credit of 5% may be allowed for business operations in the manufacturing codes of the NAICS Manual.

(4) A percentage credit of 5% may be allowed for high technology business operations.

(5) A percentage credit may be allowed for jobs created during the 12-month period following the purchase of an ownership interest in the zone business, as determined in the following table:

	JOBS CREATED	PERCENTAGE
	Less than 11 jobs	1%
	11 to 25 jobs	2%
	26 to 40 jobs	3%
	41 to 75 jobs	4%
	More than 75 jobs	5%

(6) A percentage credit of 5% may be allowed if 50% or more of the jobs created in the 12-month period following the purchase of an ownership interest in the zone business will be reserved for zone residents.

(7) A percentage credit may be allowed for investments made in real or depreciable personal property, as determined in the following table:

	AMOUNT OF INVESTMENT	PERCENTAGE
	Less than $25,001	1%
	$25,001 to $50,000	2%
	$50,001 to $100,000	3%
	$100,001 to $200,000	4%
	More than $200,000	5%

The total percentage credit may not exceed 30%. The credit can be carried forward from one taxable year to the next; however, there is no carryback or refund of any unused credit.

Enterprise zone income tax questions:	Other questions:
Indiana Department of Revenue	Indiana Economic Development Corporation
Tax Policy Division	One North Capitol, Suite 700
100 N. Senate, Room N248	Indianapolis, IN 46204
Indianapolis, IN 46204	[phone]
[phone]	[e-mail]

____________________________

Michael J. Alley

Commissioner

Posted: 09/24/2014 by Legislative Services Agency

DIN: 20140924-IR-045140374NRA

Composed: Nov 01,2016 1:54:22AM EDT

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