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183

CHANGES IN A CHANGING WORLD:REVITALIZING NEW HAMPSHIRES

DOWNTOWNS THROUGH THEECONOMIC REVITALIZATION ZONE TAX

CREDIT

REBECCA PERKINS*

New Hampshire recently passed a community reinvestment tax, commonly known as the

Economic Revitalization Zone Tax Credit, to counter the declining rate of economic

growth in the state. The EZ Tax credit replaces the old tax credit law, the CROP zone

legislation. However, the new legislation may not have its desired effect, This Note

argues that the EZ Tax Credit legislation does not ultimately address some critical

problems raised by its original CROP Zone legislation. After a comparison of New

Hampshire and other states programs, the author provides some ideas with which New

Hampshire may improve its tool for economic revitalization.

I. BACKGROUND ............................................................................................184II. NEW HAMPSHIRES ECONOMIC HISTORY ...............................................185III. CHANGES IN THE ECONOMY SINCE 2003 STATISTICS...........................186IV. ROLE OF THE CROP ZONE .....................................................................188V. CROP ZONE LEGISLATION OF 2003........................................................191VI. STATUTORY LANGUAGE: RSA 162-N:8................................................191VII. EZ TAX ZONE LEGISLATION .................................................................194VIII. STATUTORY LANGUAGE ......................................................................195IX. LEGISLATION IN OTHER STATES ............................................................196X. IMPLEMENTATION ....................................................................................200XI. COMPARISON OF CROP ZONE TO EZ TAX LEGISLATION ....................202XII. IMPLEMENTATION PROBLEMS OF THE EZ TAX ...................................203XIII. HOW NEW HAMPSHIRE CAN LEARN FROM OTHER STATES

PROGRAMS..........................................................................................204XIV. CONCLUSION ........................................................................................206

In 2006, New Hampshire passed a community reinvestment tax,

commonly known as the Economic Revitalization Zone Tax Credit (EZ

Tax), in order to enhance downtowns and town centers with respect to

*Rebecca Perkins is a J.D. / LL.M. candidate at Cornell Law School, where she is a General

Editor for the Journal of Law and Public Policy. She received her B.A. from Dartmouth Collegein 2004. Rebecca is a founding member of the Dartmouth Law Journal. She is currently Vice

President of Fund Development at the International Humanitarian Foundation.

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184 THE DARTMOUTH LAW JOURNAL Vol. VII:2

economic activity, cultural and historic character, sense of community, and

in-town residential uses that contribute to economic and social vitality.1

This is not the first iteration of the tax, as this replaces the previous

Community Reinvestment and Opportunity Zones Tax Credit (CROPZones) and makes some changes to the definition of business activity.

With tourism as its major industry, New Hampshire has always focused on

how land use is intimately related to community character.2 Now, as the

state transforms from an economy based on textile mills into a base for

high-technology growth sectors, New Hampshire is, like many states,

attempting to provide the business incentives, job training programs, and

land conservation initiatives that must accompany such a transition. The EZ

Tax zone credit is just one of many programs that are creating these

incentives.

This Note will demonstrate that New Hampshires new EZ Zone Tax

Credit legislation, while crucial to New Hampshires transition to a modern

economy, does not address many of the problems raised by its originalCROP Zone legislation, including the lack of objective criteria to form the

basis of the Commissioners decisions and the ambiguity in many of the

terms used. Ultimately, the combination of incentives that exist in New

Hampshire is not aggressive enough or written clearly enough to create a

large impact. Part I will provide some basic background information about

New Hampshire. Part II will explain the EZ Tax Credit program in detail,

as well as explain other states solutions to these same problems. Part III

will elaborate on the thesis above, including how New Hampshires EZ

Zone Tax Credit will likely face implementation problems in terms of its

competitiveness with similar taxes in other states, avenues of appeal for

decisions on qualifying property, and interpretation problems due to its

language. Part IV will conclude with some suggestions for the future.

I. BACKGROUND

New Hampshire is home to the famous live free or die motto. Its

culture is inherently anti-tax, and in fact libertarian by nature, meaning that

smaller government is considered better government, as it is leaner and

more efficient.3 The state does not levy an income tax, a condition that has

1 N.H. Rev. Stat. 79-E:1(I) (2006).2 Town of Newmarket, New Hampshire Master Plan: Chapter 3, Land Use,

http://www.newmarketnh.gov/content/view/293/254/.3 New Hampshire's state motto, Live free or die, represents the state's Puritan minded

roots that exemplify independence, frugality, and industry. Freedom is the essence of economic

independence and New Hampshire is the best state in the U.S. to keep this independence andgrow your company. The Most Livable State, Healthiest State and Safest State annual awards are

designated by Morgan Quitno Press, which bases its awards on extensive statistical data. New

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Summer 2009 CHANGES IN A CHANGING WORLD 185

resulted in creative tax structures and solutions that are a constant media

topic.4 Individuals staunchly oppose high taxes and are uniquely positioned

to resist them. To add to this complex fiscal situation, the state isconstitutionally mandated to provide an adequate education to all of its

children, a standard promulgated in response to a school funding crisis that

was litigated in the Supreme Court of New Hampshire.5

States commonly face challenges to the procedural elements of tax

credits, as statutes rarely provide avenues for appeal.6 This leads to

numerous suits interpreting the terms in the statute in order to provide

adequate relief for the citizens of the state.7 New Hampshires EZ Tax

Credit statute seems destined to repeat the same cycle, since its statutory

language grants the Commissioner of Economic Resources and

Development nearly unilateral power to grant or deny tax relief. 8 This

statutory language is sure to provide ambiguities in implementation similar

to those experienced by other states, including the basis on which theCommissioner makes his/her decisions and the amount of the credit

granted.9 There are not as of yet any cases pending.

II. NEW HAMPSHIRES ECONOMIC HISTORY

In 1998, New Hampshire was considered to have a strong economy.10

From 1980 to 1996, New Hampshires economic output grew by 45.6%,

outpacing national and regional growth in several areas including

employment growth, low unemployment rate and poverty, family income,

and median hourly wage.11 Within the state, however, prosperity varies by

region and demographic group. The North Countrys economy has grown

by only 13.6% in the same 16 year period. Single-parent families, youngworkers lacking higher education, and minorities are especially vulnerable

Hampshire Business Resource Center,Incentives,

http://www.nheconomy.com/recruitment/incentives.aspx.4 New Hampshire Department of Revenue Administration, Does NH have an Income Tax

or Sales Tax?, http://www.nh.gov/revenue/faq/gti-rev.htm.5 NHcafe, New Hampshire Communities for Adequate Funding of Education,

http://www.nhcafe.org.6 See Section IIIc., later in the Note.7 Id.8 N.H. Rev. Stat. 79-E:5(IV) (2006).9 See Section IIb. Later in the Note.

10 Judith Elliott, The Status of Working New Hampshire: A Review Of New Hampshire DataFrom State Of Working America, New Hampshire Center for Public Policy Studies in

association with the Institute for Policy and Social Science Research, University of New

Hampshire, sponsored by the Economic Policy Institute, Washington, D. C., Sep. 1998,http://www.nhpolicy.org/reports/workingnh.html.

11 Id.

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annual loss of 1% - 1.7% in manufacturing employment.19 Manufacturing

jobs grew at an annual rate of 1.5% over the last five years (2002 to

2007).20

Part of the distress in New Hampshires economy is attributed tothe decline in the attractiveness of the state to young adults, due to its

high cost of housing, lack of diversity, and small number of jobs.21 New

Hampshire has the seventh most business-friendly tax climate in the

country, according to the 2008 State Business Tax Climate Index Ranking

from the Tax Foundation.22 Venture capital investment in New Hampshire

high technology companies doubled in 2007, compared to 2006, reaching

$160 million.23 New Hampshire is now ranked eighth among the states in

terms of its concentration of high technology employment.24

However, in late 2007, business confidence in the Granite State

declined to its lowest point in four years. A survey sponsored by the

Business and Industry Association found that 38% of business leaders

expected New Hampshires economic conditions to worsen in 2008, while29% felt they would stay the same and 25% thought things would

improve.25 Jobs losses at the end of 2007 hit the confidence of New

Hampshire residents hard, as small communities felt the loss of jobs at

some of their bigger factories or plants.26 The number of houses sold

dropped sharply, with 25% fewer homes sold in the first quarter of 2008,

compared to the first quarter of 2007. The median price of those homes has

fallen by 7.8% as well.27 Year to date through October 2007, commercial

construction was down by 24% from 2006 levels, while residential

19 New Hampshire's Economic Outlook - May 2008, New Hampshire Center for Public Policy

Studies, p. 1, http://www.nhpolicy.org/report.php?report=175; In presenting todays forecast,

NEEP economists called for private service producing employment in New Hampshire to growby 2.1 percent annually in the forecast period 2006 to 2011. Professional and business services

will post the highest annual job growth at 2.9 percent, followed by educational and health

services at 2.5 percent. A moderate annual job loss of about one percent per year is forecast forthe states manufacturing employment.Id. at 8.

20 New Hampshire Center for Public Policy Studies, supra note 10, at 3.21 New England Economic Partnership, supra note 17, at 2.22 Curtis Dubay and Chris Atkins, 2008 State Business Tax Climate Index, Tax Foundation,

Number 57, Oct. 2007, http://www.governorbarbour.com/documents/

2008StateBusinessTaxClimateIndex.pdf.23 New Hampshire Center for Public Policy Studies, supra note 10, at 2.24 Id. at 2.25 Id. at 2.26 Just before Christmas Day 2007 Customized Structures, a manufacturing company located

in Claremont, notified its 122 workers that it would be closing. At the same time Rivco, a

manufacturer of windows, doors, kitchens and related millwork, abruptly laid off 36 workersfrom its Penacook operation. Both Rivco and Customized Structures said the job actions were the

result of declining sales due to a slow housing market. Newmarket-based Russound, which

specializes in creating multi-room sound systems, announced it would cut its workforce by 18percent. On the existing staff of 150, that amounts to a loss of about 30 jobs. Id. at 2.

27 Id. at 4.

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incentives will each be discussed in detail later, but include programs such

as the Job Training Fund,38 the Low-Interest Loan Program,39 and the

Energy Efficiency Loan Program,40

as well as other business services, suchas import and export assistance and research work.41 With such incentives

and many more, New Hampshire aims to attract biotechnology, high-tech

manufacturing, and financial service industries to the state.42

Some other specific incentives include the following. First, New

Hampshire has created a Research and Development Credit, which

allocates to a business a 10% tax credit of qualified manufacturing research

and development expenditures43 up to a maximum of $50,000.44 The state

38 Examples include the Community Development Block Grant, a matching Grant programfor training or retraining current employees,. New Hampshire Business Resource Center, supra

Note 9.; New Hampshire Business Resource Center, supra note 3; Welcome to the New

Hampshire Job Training Fund, New Hampshire Job Training Fund,http://www.nhjobtrainingfund.org.

39 Provides loans at 5.5% of $40,000 for every new job. New Hampshire Business Resource

Center, supra note 3; Official Website, State of New Hampshire Economic Development Online,http://www.egov.nh.gov/jobbank/info/default.htm.

40 Loans at 1% below prime for purchase of energy efficient equipment, New Hampshire

Business Resource Center, supra note 3;Energy Efficiency Programs, New Hampshire BusinessResource Center, http://www.nheconomy.com/business-services/energy-efficiency-

programs.aspx. Other programs include: the Research and Development Credit, a tax credit for

qualified manufacturing research and development, New Hampshire Business Resource Center,supra note 3; More Information About the Research & Development Credit, Department of

Revenue Administration, http://www.nh.gov/revenue/faq/dra_165.htm; the Coos County Job

Creation Tax Credit, New Hampshire Business Resource Center, supra note 3; A SpecialMessage from

Governor John Lynch, Office of the Governor, John Lynch, http://www.nheconomy.com/

uploads/FAQ%20CCJCTCA.pdf; Industrial Revenue Bonds, a program for manufacturers'companies which manufacture or produce tangible personal property. At least 75% of bond

proceeds must be spent on core manufacturing space and equipment, New Hampshire Business

Resource Center, supra note 341 New Hampshire Business Resource Center, supra note 3; These services also include the

International Trade Resource Center, which are not necessarily targeted at attracting new

businesses to New Hampshire but are at least focused on expansion of established businesses. NH International Trade Resource Center, New Hampshire Business Resource Center,

http://www.nheconomy.com/international-trade; NH House, International Trade Resource Center,

http://www.exportnh.org/nh-house/.42 Business Facilities, supra note 10, http://www.businessfacilities.com/newhampshire.php.43 1470-2nd: Credits and Incentives: Missouri Through Oklahoma: 1470.10. New

Hampshire, Tax Management, Inc., BNA Tax Management Portfolios, State Series: Credits andIncentives, 2008, quoting N.H. Rev. Stat. Ann. 77-A:5.XIII(a)(2)(A), as enacted by 2007 S.B.

134. See N.H. Dept. of Rev. Admin., TIR No. 2007-007 (Nov. 13, 2007) (explaining the R&D

development credit), http://www.nh.gov/revenue/laws/documents/2007_007.doc.44 The credit can be used to offset the taxpayer's tax liability within the subsequent five years.

Tax Management, supra note 42, quoting N.H. Rev. Stat. Ann. 77-A:5.XIII(a)(2); The term

qualified manufacturing research and development expenditures' is defined as any wages paid orincurred to an employee of the business for services rendered by the employee within New

Hampshire.Id.

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has also created the Jobs Grant Program, which allows a business in a

qualifying zone to receive up to $20,000 for each new job that the business

creates.45 A qualifying zone is defined as a town or city in Coos or

Sullivan counties, two of the most economically depressed counties in thestate, which has a median household income of less than $40,500 according

to the most recent federal decennial census.46 The amount of the grant is

determined on a per job basis.47

Yet another incentive is the Community Development Finance

Authority Investment Credit.48 Under this program, a taxpayer is entitled to

a tax credit equal to 75% of the contribution made to the Community

Development Finance Authority.49 The credit may be applied to the

business profits tax, insurance premiums tax, or the business enterprise tax

individually or in any combination. Unused credits may be carried forward

for five years but cannot exceed $1 million in any tax year, which is a large

incentive that allows businesses to be creative in their tax planning.50

Lastly, New Hampshire has created the Community RevitalizationTax Relief Incentive. Effective Apr. 1, 2006, any city or town may adopt

the Community Revitalization Tax Incentive program to encourage the

rehabilitation of underutilized structures in downtowns and town centers.51

If a governing body grants tax relief to a property, it would be for a period

of up to five years, beginning with the completion of the rehabilitation.52

This tax incentive differs from the EZ Tax Zone Credit, the subject of this

Note to be discussed in detail later, because two years of additional tax

relief may be granted if the project results in new residential units, and up

to four years for a project that includes affordable housing.53 A qualifying

structure is defined as a building located in a district that has been

officially designated or identified by the governing body as a downtown,

town center, central business district, or village center.54 The term

substantial rehabilitation refers to the rehabilitation of a qualifying

structure. This structure must cost the lesser of 15% of the assessed value

before rehabilitation or $75,000.55 Lastly, there is the Coos County Job

45 Tax Management, supra note 42, quoting N.H. Rev. Stat. Ann. 162-O:1 through 162-

O:4 (2007); N.H. Code Admin. R. Res. 2601-07 (2007).46 Tax Management, supra note 42, quoting N.H. Rev. Stat. Ann. 162-O:1.II (2007); N.H.

Code Admin. R. Res. 2602.01 (2007).47 Tax Management, supra note 42.48 Effective July 1, 1999.49 Form BET must be filed to claim the credit. Tax Management, supra note 42, quoting N.H.

Rev. Stat. Ann. 162-L:10.I (2007); N.H. Code Admin. R. Rev. 2406.03 (2007).

50 Tax Management, supra note 42, quoting N.H. Rev. Stat. Ann. 162-L:10.III (2007).51 Tax Management, supra note 42, quoting N.H. Rev. Stat. Ann. 79-E:1-:14 (2007).52 Tax Management, supra note 42, quoting N.H. Rev. Stat. Ann. 79-E:5 (2007).53 Id.54 Tax Management, supra note 42, quoting N.H. Rev. Stat. Ann. 79-E:2 (2007).55 Id.

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investments used to complete the project.71 If the investor fails to complete

a project, s/he only forfeits the remaining tax credits that were part of the

original agreement.72

Generally, the CROP zone credit equals the amount of compensation

the business pays employees newly hired as a result of the CROP Zone

project.73 The amount of tax credit is the eligible interest plus eligible

compensation multiplied by the Business Profits Tax or the Business

Enterprise Tax, whichever is applicable, the former of which taxes business

income from activity in the state and the latter of which taxes compensation

paid in the state.74Projects meeting the criteria set forth by Res. 2500 shall

be eligible for a tax credit to be used against the Business Profits Tax and

Business Enterprise Tax for up to 100% of the investment,75 but there are

maximums for the credits: $100 million per fiscal year for compensation

credits and $10 million for interest credits.76 The amount of eligible

compensation allowed will be the lesser of the maximum credit inagreement, the increase in compensation in New Hampshire,77 or the total

compensation of all employees.78 The amount of eligible interest allowed

is the total interest paid or accrued by the taxpayer, or the amount in the

agreement.79

Information on the CROP Zone Program is provided by the New

Hampshire Business Resource Center,80 a public group that offer[s]

resources to enhance the economic activities of the state through business

attraction outreach, in-state business expansion efforts, and facilitation of

government and international sales,81 [a separate department]82 within

71 The form includes information on the project as a whole, as well as what specific jobs arebeing created. New Hampshire Business Resource Center, supra note 56.

72 Id.73 Id.74 CCH Tax and Accounting, supra note 66, at 1013-4.75 N.H. Code Admin. R. Res. 2501.02 (2004).76 CCH Tax and Accounting, supra note 66, at 1014.77 Determined by subtracting one year from the next year.78 [I]ncluding bonuses et al. CCH Tax and Accounting, supra note 66, at 1013.79 Id.80 For additional information, contact me at the Division of Economic Development at (603)

271-2341 or via email [email protected]. New Hampshire Business Resource Center,

supra note 61.81 The Division of Economic Development, under the direction of State Economic

Development Director Michael Vlacich, oversees this array of activities. The mission of the

Business Resource Center (BRC) is twofold: 1) to retain and help expand existing NewHampshire businesses. 2) to attract new companies to our great state. About us, New

Hampshire Business Resource Center, http://www.nheconomy.com/about-us.aspx.82 As evidenced by their separate listing and staffing; Division of Economic Development

Team: Phone (603) 271-2341;Michael Vlacich, Director; Business Resource Center Team: (603)

271-2591.Id.

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the larger department of the New Hampshire Department of Resources and

Economic Development.83

Following certification of a project tax credit, it is the responsibility of

the taxpayer to guarantee that all elements of the project are completed.84

Ifa taxpayer fails to complete a project, the taxpayer shall forfeit remaining

credits which were part of the project tax credit certified by the

Commissioner.85 A final report shall be filed by the taxpayer within 90

days of the completion of the project detailing their activities, including the

total of all investments used to complete the project.86

To implement the credit, the taxpayer enters into written agreement

with the Commissioner of Resources and Economic Development.87 The

agreement shall contain provisions as the Commissioner determines to be

in the public interest, such as the quality and quantity of the jobs to be

created, the duration of the taxpayers commitment, the amount of the

taxpayers investment, a precise definition of the area eligible for the credit,

the maximum amounts of the credit and its interest, and the provisions forrecapture in the event of breach.88

VII. EZ TAX ZONE LEGISLATION

The EZ Tax Zone legislation makes several changes to the basic

concept of the CROP Zone tax credit.89 The primary change is in the

definition of Business Profits Tax, 90 adding the economic revitalization

zone definition and tax credit, as computed in RSA 162-N:6, the applicable

state law.91 The economic revitalization zone tax credit shall be applied

against the business profits tax under RSA 77-A, a much larger tax, and

any unused portion thereof may be applied against the business enterprise

tax under RSA 77-E.92

83 Economic Development plays its role alongside Travel and Tourism, Parks and

Recreation, and Forest and Lands in protecting and enhancing the many resources our state

offers.Id.84 Following certification of a project tax credit, it shall be the responsibility of the taxpayer

to guarantee that all elements of the project are completed. N.H. Code Admin. R. Res. 2506.01(a)

(2004).85 N.H. Code Admin. R. Res. 2506.01(b) (2004).86 N.H. Code Admin. R. Res. 2507.01 (2004).87 N.H. Rev. Stat. Ann. 162-N:4.88 Id.89 These changes (carrying forward) were primarily sponsored by representatives from

Merrimack 2. H.B. 185 list as its sponsors: Rep. Ryan, Merr 2; Rep. Webb, Merr 2; Rep. Reed,Merr 2; Rep. Arsenault, Belk 4; Rep. Reever, Belk 4; Sen. Burling, Dist 5; Sen. Sgambati, Dist 4.

H.B. 185, 2007 Leg., Reg. Sess. (Nh. 2007).90 N.H. Rev. Stat. Ann. 162-N:7 (2004).91 N.H. Rev. Stat. Ann. 77-A:5, XII (2004).92 N.H. Rev. Stat. Ann. 162-N:7 (2004).

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VIII. STATUTORY LANGUAGE93

Economic revitalization zone means a zone designated by theCommissioner of Resources and Economic Development as an economic

revitalization zone94 in accordance with N.H. Rev. Stat. 162-N:1.95

According to the statute, an economic revitalization zone [i]s a zone

with a single continuous boundary, comprised of [sic] one or more

contiguous census tracts or blocks or smaller recognizable physical areas,

designated in accordance with the rules adopted under RSA 162-N:8, and

certified by the Commissioner of Resources and Economic Development96

as being a Brownfield site as defined under RSA 147-F, or having at least

one of [four] characteristics.97No economic revitalization zone tax credits

shall be granted to any taxpayer unless the taxpayers project receives

written certification from the Commissioner of Resources and Economic

Development that it will expand the commercial or industrial base in adesignated economic revitalization zone and will create new jobs in the

state.98

The zone must be part of a municipality that meets one of the

following conditions. It has a population that decreased during the 20 years

prior to the most recent census; it has a median household income of less

than $40,500 in the census tract or tracts in which the zone is located;99 at

least 20% of households in the census tract or tracts in which the zone is

located have a median income below the federal poverty level; the zone

contains either unused or underutilized industrial parks or vacant land or

structures previously used for industrial, commercial, or retail purposes but

currently not so used due to demolition, age, obsolescence, deterioration,

relocation of the former occupants operations, or cessation of operationresulting from unfavorable economic conditions; the certification of the

zone as an economic revitalization zone would likely result in the reduction

of the rate of vacant or demolished structures or the rate of tax delinquency

93 H.B. 185, 2007 Leg., Reg. Sess. (N.H. 2007).94 II. Economic revitalization zones shall be designated by the commissioner of resources

and economic development only upon petition by the local governing body, as defined by RSA

672:6, or the town council. The commissioner of resources and economic development shall

certify that the economic revitalization zone meets the criteria required in paragraph I. N.H. Rev.Stat. Ann. 162-N:2

95 N.H. Rev. Stat. Ann. 162-N:1.

96 The commissioner of revenue administration shall adopt rules, under RSA 541-A, relativeto documentation of the credits claimed under this chapter. N.H. Rev. Stat. Ann. 162-N:8.

97 These characteristics differ from the characteristics of the CROP Zone in the first and

fourth element. N.H. Rev. Stat. Ann. 162-N:2 (2004).98 N.H. Rev. Stat. Ann. 162-N:3 (2004).99 According to the most recent federal decennial census.

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in the zone.100

The agreement that the taxpayer and the Commissioner enter into is

essentially the same as the contract described under the CROP Program. 101

The amount of the tax credit is part of this agreement, and the amount is thelesser of either the amount stated in the agreement or the sum of 4 to 6% of

the salary of each new job created,102 added to 4% of the lesser of either the

actual costs incurred in creating a new facility or renovating an existing

facility and expenditures for machinery, equipment, or other materials,

except inventory, or $20,000 for each new job created in the fiscal year.103

Any tax credit which exceeds the maximum of $40,000 per fiscal year shall

be carried forward up to the total limit of $825,000, and the economic

revitalization zone credit shall consider the taxes paid. These procedures

became effective July 1, 2008.104

IX. LEGISLATION IN OTHER STATES

Most other states legislation strongly resembles New Hampshires

legislation, with variations.105 For example,Arizona has Enterprise Zones

focused on creating new jobs where taxpayers get a dollar for dollar

reduction on income or premium taxes for each net new quality job created,

a difference from New Hampshires credit for 4% of that salary. 106

However, under Arizonas program a business can earn up to $3,000 in

reductions, significantly less than New Hampshires $40,000 per year. New

Hampshires legislation has resulted in twenty-one EZ Tax Zones, 107

whereas Colorado has nineteen Enterprise Zones with ten different

Enterprise Zone Tax Credits, including the Investment Tax Credit, the New

Business Facility Credit, and the Vacant Building Rehabilitation Tax

Credit, all of which are included under New Hampshires single

100 N.H. Rev. Stat. Ann. 162-N:2 (a)-(d) (2004).101 N.H. Rev. Stat. Ann. 162-N:4 (2004).102 In the fiscal year. 4% when the wage is less than or equal to 1.75 times the then current

state minimum wage, and 5% when the wage is greater than 1.75 times the then current state

minimum wage and less than or equal to 2.5 times the then current state minimum wage, and 6%if the wage is greater than 2.5 times the then current state minimum wage.103 N.H. Rev. Stat. Ann. 162-N:6 (2004).104 N.H. Rev. Stat. Ann. 162-N:5 (2004).105 The Alabama Enterprise Zone Act (87-573) was passed by the legislature of the State of

Alabama on May 26, 1987, and signed into law on July 22, 1987. Ala. Admin. Code r. 305-5-3-

.09 (1987).106 Income or Premium Tax Credits Enterprise Zone (EZ) Program, Arizona Department of

Commerce, http://www.azcommerce.com/BusAsst/Incentives/EZ+tax+credits.htm.107 Approved Economic Revitalization Zone Listings, New Hampshire Business Resource

Center, http://www.nheconomy.com/business-services/business-assistance-programs/incentive-

programs.aspx.

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program.108 Alabama developed its program in 1987, for the same

purposes,109 through a partnership with a similar department.110

Floridas Enterprise Zones,111

specified geographic area[s] targetedfor economic revitalization, like New Hampshires EZ tax zones, are

certified by the Governors Office of Tourism, Trade, and Economic

Development (OTTED),112 a procedural difference that perhaps makes the

designation more political than New Hampshires system does.Floridas

system also differs from New Hampshires in that the focus in New

Hampshire is on the state legislation, whereas Floridas program focuses on

the intertwining of federal and state programs that offer full support to the

program, unlike New Hampshires more administrative program.113

Although OTTED is responsible for overseeing the activities of the local

enterprise zones at the state level and providing them with technical

assistance and information, organizations like Enterprise Florida114 work

with OTTED in developing zone approval guidelines and determiningwhich communities qualify for a zone designation. At the local level, an

enterprise zone is governed by an Enterprise Zone Development Agency,

which oversees the implementation of the strategic plan.115

Utah s program116 differs from New Hampshires in that the credit

can only be used to incentivize projects in specific, targeted industries in

urban areas and projects of companies with wages above the county

median.117 If the project is not in an urban area, then only 30% may be

rebated to the company over the life of the project, and the company may

108 Enterprise Zone (EZ), Colorado Office of Economic Development and International

Trade, http://www.colorado.gov/cs/Satellite/OEDIT/OEDIT/1167928191402.

109 The purpose of the legislation is to stimulate business and industrial growth in depressedareas of the state, both urban and rural, by the relaxation of certain governmental controls, by

providing assistance to businesses and industries, and by providing state and local tax and non-tax

incentives in these areas. Ala. Admin. Code r. 305-5-3-.09 (1987).110 The program is designed to be a partnership with the local governing authorities and the

Department of Economic and Community Affairs working together with private sector employers

to accomplish the goals of the program. Ala. Admin. Code r. 305-5-3 Manual (1987).111 Enterprise zones encourage economic growth and investment in distressed areas by

offering tax advantages and incentives to businesses locating within the zone boundaries. The

intent is to help private business and provide jobs. City of Hollywood CommunityRedevelopment Agency v. 1843, LLC, 980 So.2d 1138 (Fla. App. 4 Dist. 2008).112 The Okaloosa-Crestview Enterprise Zone, Economic Development Council of Okaloosa

County Florida, http://www.florida-edc.org/enterpriseZone.html.113 Id.114 Enterprise Florida Inc. (EFI) is a public-private partnership serving as Floridas primary

organization devoted to statewide economic development. About Us, Enterprise Florida,http://www.eflorida.com/ContentSubpage.aspx?id=206.115 Economic Development Council of Oklahoma, supra note 116.116 Economic Development Zone, State of Utah,

http://goed.utah.gov/incentives/documents/EconDevZonePolicy.pdf.117 Id.

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not receive a rebate of more than 50% of the total state revenue generated

in any one year. The credits may be carried forward for no more than 10

years, though a minimum of a five year project is encouraged in order to

not incentivize retail distribution projects.118

California has four different types of enterprise zones, which are

called Economic Development Areas.119 The types of zones that resemble

traditional enterprise zones are Enterprise Zones (EZs),120 Manufacturing

Enhancement Areas (MEAs),121 and Targeted Tax Areas (TTAs).122 In

California a business can earn up to $31,544 or more in tax credits for each

employee, as well as other tax benefits. These benefits include Net

Operating Loss carry-forward, sales tax credits, up front expensing of

depreciable property, and preference points on state contracts.123 This

program is both more comprehensive and more expansive than New

Hampshires.

Pennsylvanias comparable program is its Keystone Opportunity

Zones (KOZ), which is designed to create new jobs and produce capitalinvestment in real estate.124 However, Pennsylvania also has an Enterprise

Zone program.125 The Local Economic Revitalization Tax Assistance

Act126 authorizes the legislature to establish standards and qualifications

by which local taxing authorities may make uniform special tax provisions

applicable to a taxpayer for a limited period of time, to encourage

improvement of deteriorating property or areas by an individual,

association, or corporation,127 if such property is located in a deteriorating

area as determined by a municipal governing body.128 In the KOZs,

depending on the situation, the tax burdens may be reduced to zero through

exemptions, deductions, abatements, and credits.129 The KOZ designation is

118 Id.119 Economic Development Areas, Department of Housing and Community Development,

http://www.hcd.ca.gov/fa/cdbg/ez/.120 Department of Housing and Community Development, supra note 123.121 Manufacturing Enhancement Areas, Department of Housing and Community

Development, http://www.hcd.ca.gov/fa/cdbg/ez/manufac_enhance/.122 Targeted Tax Area, Department of Housing and Community Development,

http://www.hcd.ca.gov/fa/cdbg/ez/tax_area/.123 Department of Housing and Community Development, supra note 123.124 Keystone Opportunity Zone, NewPA.com, http://www.newpa.com/find-and-apply-for-

funding/keystone-opportunity-zone/index.aspx.125 Enterprise zones in PA are grants to encourage PPPs in municipalities. Enterprise Zone

Program, NewPA.com, http://www.newpa.com/find-and-apply-for-funding/funding-and-

program-finder/funding-detail/index.aspx?progId=76.

126 Kmart Corp. v. Washington County BAA, 950

A.2d 1089 (Pa. 2008).127 Guidelines for the Administration of the Local Economic Revitalization Tax Assistant Law,

p. 2, http://www.exeloncorp.com/NR/rdonlyres/37E92949-3BCB-479D-BEEC-E7856BD458D1/

3591/LERTAGuidelines.pdf.128 The statute goes on to define a deteriorating area.Id. at p. 2.129 NewPA.com, supra note 129.

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expected to attract development where little or no economic activity existed

before, because a major deterrent to improving the deteriorating business

property has been the higher property value resulting from improving theproperty,130 which in turn results in higher local property taxes. 131 This

activity will, in the future, likely produce spin-off taxable activity outside

the designated zone.132 There is a Research and Development Tax Credit

that is administered separately.133

The District of Columbia has a slightly different version of the

credit134 that was established in 1997 by the federal government to

stimulate economic growth and job development in the nations capital.135

The program is more focused on relieving the current cost of doing

business than attracting new businesses.136 DC census tracts with poverty

rates of 20% or higher are eligible for all the EZ incentives. Census tracts

with poverty rates between 10% and 20% comprise the second tier of the

EZ and are eligible for the federal capital gains tax exemption and personalproperty tax exemption.137 According to the programs webpage

[b]usinesses that operate within the EZ are eligible for EZ incentives, 138

making the designation process completely objective once the poverty rate

requirement is met. Businesses eligible for the credit may claim an

additional $20,000 expensing allowance if business equipment and

depreciable property were purchased.139

Illinois program has attracted $3.9 billion in investment, created

21,322 jobs, and retained 29,085 jobs in 2006 alone.140 The state has eight

programs including the Jobs Tax Credit and the Enterprise Zone

130 Kmart Corp. supra note 130, at 1089.

131 Available at http://www.exeloncorp.com/NR/rdonlyres/37E92949-3BCB-479D-BEEC-E7856BD458D1/3591/LERTAGuidelines.pdf132 NewPA.com, supra note 129.133 10% tax credit of companys increased research and development expenses over a base

period (prorated to not exceed $15 million annual cap for all businesses. NewPA.com, supra note

129.134 The District's two-tiered Enterprise Zone covers approximately half of the District's

developable land.135 Enterprise Zone Incentives, Washington, DC, Economic Partnerships,

http://www.wdcep.com/index1.php?pageId=81.136 Each QEZB may claim a tax credit of up to $3,000 for each DC resident employee at the

EZ facility. Businesses may claim the lesser of $3,000 or 20% of the first $15,000 in qualified

wages for each qualified employee during each of the five tax years ending December 31, 2005.The tax credit is applicable to both existing and new employees, as well as full-time and part-time

employees. Economic Partnerships, supra note 139.

137 Id.138 Id.139 Id.140 According to the overseeing department. Illinois Enterprise Zone Program, Illinois

Enterprise Zone Program Association, http://www.ieza.org/about-us/about-us/illinois-enterprise-

zone-program.html.

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However, New Hampshire remains competitive and hopeful that its low tax

burden and high quality of living will continue to attract new business. 162

The type of growth New Hampshire is experiencing is more likely to build

a sustainable economy for the future than retain the manufacturing base itis losing now. There are also concerns over who benefits from business

incentives, as well as the effectiveness of any tax credit programs. 163

XI. COMPARISON OF CROP ZONE TO EZ TAX LEGISLATION

The new Economic Revitalization Zone Program went into effect on

July 1, 2007. As stated earlier, the main difference between the old and

new legislations is that the new one changes the definition of the business

profits tax and the maximum amount of the credit. The new legislation is

more precise and alleviates some of the political problems of the CROP

Program by limiting the total amount of the credit. After Democrats gained

control the New Hampshire legislature in 2006, they made the CROPZones a political target, as they were viewed as excessively pro-business in

a state already grappling with budget constraints.164

The EZ Zone Tax Credit is first applied against the Business Profits

Tax, and any unused portion can be applied against the business enterprise

tax,165 as opposed to the CROP Zone Tax which can be applied against

either. The CROP zone credit can be up to 100% of an investment in a

qualified project,166 whose credit was generally equal to the amount of

compensation the business pays new employees.167In contrast, the EZ Tax

Zone is a compilation of more complex calculations, such as the 4 to 6%

provision for the salary of new jobs only.168

Id. at 2.162 Five Osram Sylvania jobs were cut in mid-March at their plant in Manchester, and shifted

to Juarez, Mexico. The lighting manufacturer more than offset the jobs lost to Mexico with a $40to $50 million upgrade to the Manchester plant for a new ceramic metal halide lamp production

line that was announced last year. Fifty to 100 new jobs are expected within two years, with many

of those jobs going to highly paid professionals, such as engineers, technicians and managers.Id.at 3.163 Concerned that a low-interest loan involved in a PPP would benefit one business owner

only, residents seemed paralyzed by how to resolve this issue. A survey of local business ownersshowed that most did not even know they lived in an Enterprise Zone in Maryland. Our Great

Legacy, Granola Park, http://www.takoma.com/granola/2006/06.164 An annual source of controversy is how to fund the states schools, since there is no

income tax from which to draw. Many residents describe the resulting tax solutions as a nickel

and dime plan.

165 Tax Management, supra note 42, quoting N.H. Rev. Stat. Ann. 162-N:7, as enacted by2007 H.B. 2; N.H. Code Admin. R. Rev. 2406.04.166 Id.167 Id.168 In the fiscal year. 4% when the wage is less than or equal to 1.75 times the then current

state minimum wage, and 5% when the wage is greater than 1.75 times the then current state

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XII. IMPLEMENTATION PROBLEMS OF THE EZ TAX

The EZ Tax Zone legislation fails to address some of the key elementsof the tax credit legislation that are likely to be problems in New

Hampshire, as they have been in other states.169 One of the initial problems

that may cause problems is determining which jobs are new in existing

firms in a state where many jobs are transitioning from the industry to

service sector. Firms are likely to push for as broad a definition of new as

possible, basing the definition on skills used or changed salary, whereas the

state may just want to use a definition based on number of people

employed by the firm. Another issue in the language of the legislation is

likely to be whether the area applying for designation will expand the base

of the economy. A project that adds minimally to the economic activity of a

town could conceivably qualify for this tax credit, but that is clearly not the

intention of a legislation that allows for $40,000 per year in credit. Thequestion is against what base that expansion should meaningfully be

measuredthe state, the town, or the county. Another question is what

counts as rehabilitation in the definition of the project. The definition

could vary from simple reuse to complete renovation for activity, or even

containing an environmentally sustainable element. The process for

approving the zones is not transparent, and allows the Commissioner of

Economic Resources and Development a lot of discretion, which could

create problems if s/he arbitrarily refuses some applications and admits

others, as has happened in other states.170 No recourse is mentioned in the

statutes for appeal of the Commissioners decisions, so they are likely to be

litigated, as they have been in other states.171 These provisions could be put

into the private agreements, but it is also difficult to see what bargainingpower the taxpayer has in their dealings with the Commissioner, since no

appeal is available to them, short of the costly process of litigating. Given

that lack of bargaining power, the legislation leaves the taxpayer without

meaningful remedy besides litigation.

Of more consequence, once the agreement is in force, then the

taxpayer can be held in breach of the agreement and be made to repay the

tax credit. However, there are no provisions in the legislation over how a

breach is determined or what powers of enforcement the state has to collect

this penalty.172 This is a costly process that could result in the

minimum wage and less than or equal to 2.5 times the then current state minimum wage, and 6%if the wage is greater than 2.5 times the then current state minimum wage.169 West v. Triple B Services, LLP, 2008 WL 4335079 (Tex. App. 14 Dist. 2008).170 Id.171 Id.172 For example, how the amount of damages is determined and whether attachment provisions

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underutilization of the tax credit, and therefore underinvestment in areas

that desperately need it. However, it could also serve to streamline the

process if the Commissioner treats his/her role as largely administrative

and sets out clear guidelines for these terms, as his/her definition will thenbe authoritative. Also of great importance is the amount of the credit,

which touches on some of the issues mentioned earlier. For example, which

jobs will count towards the credit and which category will they fall into?

Do the salaries include benefits in order to be measured again the minimum

wage? Is it an hourly comparison or an annual one, which are likely to

differ substantially if benefits are included? Lastly, the credit is determined

on the basis of what the eligible interest and eligible compensation of

the business are. There could easily be a dispute over which compensation

is eligible, drastically increasing the transaction costs of using the program.

These issues could easily have been avoided by a more extensive

elaboration of these terms, especially where other states have faced some of

the same problems. The problem could even have been avoided by makingmore terms objective, perhaps numerical or quantitative.173 Most

importantly, they draw into question whether the EZ Zone Tax Credit

legislation will accomplish its ultimate goal.

XIII. HOW NEW HAMPSHIRE CAN LEARN FROM OTHER STATES

PROGRAMS

Some of these issues could be easily addressed in the language of the

EZ Zone Tax Credit Program by drawing from the legislation of other state

programs mentioned earlier. For example, Arizonas program allowing

dollar-for-dollar tax credits on salaries simplifies determining the amount

of the credit or which salaries were in which category.174 California simply

allows for a certain amount of credit per employee,175 also more simplified

than New Hampshires program. Utah uses targeted industries176 and

salaries,177 rather than geographic zones, to define qualified projects, which

are allowed.173 Some terms are qualitative and some are quantitative, as an example from the legislation

demonstrates: A qualifying structure' is defined as a building located in a district that has been

officially designated as a downtown, town center, central business district, or village center, or if

not so designated it has been identified by the governing body as a downtown, town center,central business district, or village center. The term substantial rehabilitation' is defined as

rehabilitation of a qualifying structure which costs at least 15 percent of the pre-rehabilitation

assessed valuation or at least $75,000, whichever is less. N.H. Rev. Stat. Ann. 79-E:2.174 Income or Premium Tax Credits Enterprise Zone (EZ) Program, Arizona Department of

Commerce, http://www.azcommerce.com/BusAsst/Incentives/EZ+tax+credits.htm.175 Department of Housing and Community Development, supra note 123.176 State of Utah, supra note 120.177 Id.

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may be more effective in ensuring that EZ Zones resulted in overall growth

for the state by creating more higher-paying jobs. In California, the zones

are defined only by geography,178

which also would simplify the process ofqualifying for the credits. Pennsylvania has Keystone Opportunity Zones

(KOZ), 179 which forego current taxes,180 allowing for as low as a zero tax

base,181 in favor of likely future taxes from the resulting activities. On the

other hand, Illinois just offers a straight 0.5% reduction in the tax rate for

qualified businesses, which does not add layers of complexity to tax

calculation.182 This would also allow for business to face a simplified start

up procedure that encourages utilization of the program. However, in

Pennsylvania, KOZs are only one of eight ways a business can utilize tax

relief programs,183 whose complexity may more than compensate for the

simplicity of this one procedure. New Hampshires local oversight, is likely

to be most efficient for communities, but may not be the most fair, as

evaluation may be different across districts.However, New Hampshire did get some things right as compared to

other states programs. New Hampshires one tax credit program, though

combined with other incentives, envelopes most of what California needed

four programs for,184 Illinois eight,185 Pennsylvania eight,186 and Colorado

ten.187 For example, New Hampshires program has resulted in more

districts per capita at 0.0000121 versus Colorados 0.000004.188 Florida

provides for similarly defined zones189 and unilateral decision process on

178 The website qualifies this criterion by saying: These enterprise zone street ranges areprovided as a general guide and do not have the power of law. Final determination of eligibility

rests with the Department of Housing and Community Development. Department of Housing

and Community Development, supra note 123.179 NewPA.com, supra note 129.180 Id.181 Id.182 Illinois Enterprise Zone Program, Illinois Enterprise Zone Program Association,

http://www.ieza.org/about-us/about-us/illinois-enterprise-zone-program.html.183 NewPA.com, supra note 129.184 Department of Housing and Community Development, supra Note 123.185 Illinois Enterprise Zone Program Association, supra note 144.186 NewPA.com, supra note 129.187 Based US Census of Colorados estimated 2006 population of 4,753,377 and New

Hampshires estimated population of 1,314,895. New Hampshire, New Hampshire QuickFacts

from the US Census Bureau, U.S. Census Bureau: State and County QuickFacts, (May 5, 2009),http://quickfacts.census.gov/qfd/states/33000.html; Enterprise Zone (EZ), Office of Economic

Development & International Trade,

http://www.colorado.gov/cs/Satellite/OEDIT/OEDIT/1167928191402.188 Id.189 Enterprise zones encourage economic growth and investment in distressed areas by

offering tax advantages and incentives to businesses locating within the zone boundaries. Theintent is to help private business and provide jobs. City of Hollywood Community

Redevelopment Agency v. 1843, LLC, 980 So.2d 1138 (Fla. App. 4 Dist. 2008).

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whether applying zones qualify.190 The District of Columbias two-tiered

program is admittedly more complicated, where it defines the amount of

the credit based on the district poverty rate, and the credit is $3,000 per

employee, but only up to certain very low amounts,191

making the programpotentially worthless to large investors. However, eligibility in the District

is determined simply by geography, as in California.192 In Arizona,

businesses can only earn a maximum of $3,000 per year, rendering the

program significantly less useful than New Hampshires $40,000 annual

maximum.193 In addition, the 4 to 6% allowed per worker is likely always

significantly more than the mere $500 allowed by Illinois,194 but

significantly less than the $31,544 allowed by California.195 It is also

arguably better for the state to encourage the growth of new business as

opposed to merely focusing on existing business, as the District of

Columbia does.196

XIV. CONCLUSION

This Note has demonstrated that New Hampshires new EZ Zone Tax

Credit legislation does not address many of the problems raised by the

original CROP Zone legislation. This type of legislation, including the EZ

Zone Tax Credit legislation and other measures designed to incentivize

businesses, are crucial to maintaining New Hampshires economic growth.

To keep New Hampshires young adults in the state and thereby create the

foundation for the next generations growth, New Hampshire must get

serious about attracting and retaining businesses that create significant jobs

and generate tax revenue for the state. If New Hampshire wishes to remain

the state of Live Free of Die, then it must find an aggressive,

comprehensive fiscal program to provide incentives for businesses but also

to pay for the schools, roads, and programs that its citizens need.

Looking forward, efforts are already being made to amend the most

recent legislation. The New Hampshire Business and Industry

Associations (BIA) agenda for the 2009 legislative session includes

190 Economic Development Council of Okaloosa, supra note 116.191 Only $3000 per employee, but up to the limit of the lesser of $3,000 or 20% of the first

$15,000 in qualified wages for each qualified employee during each of the five tax years, and

only $20K for equipment. Economic Partnerships, supra note 139.192 Id.193 Arizona Department of Commerce, supra note 181.

194 Illinois Enterprise Zone Program Association, supra note 144.195 The website qualifies this criterion by saying: These enterprise zone street ranges are

provided as a general guide and do not have the power of law. Final determination of eligibility

rests with the Department of Housing and Community Development. Department of Housingand Community Development, supra Note 123.196 Economic Partnerships, supra note 139.

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supporting efforts to improve net operating loss carry-forward provisions,

passing a constitutional amendment to provide targeted education aid,

supporting affordable workforce housing, mitigating the cost of energy, andeducating the public of the effect of New Hampshires constricting

workforce.197 Additionally, the BIA supports economic development

initiatives that promote New Hampshires strong business climate and help

businesses stay profitable and competitive in the regional, national and

global economies.198 The Association does this by supporting economic

development incentives, smart growth and land use, and transportation

regulation.199 Local counties are also creatively using combinations of these

incentives to create their own unique incentive packages.200

New Hampshire should consider creating a much lower tax rate on

businesses, and focus on businesses that will establish themselves in New

Hampshire. As it stands now, a Business Profits Tax rate of 8.5% on

corporate income is extremely high on top of the 15% federal rate. Thestates additional 0.75% tax on payrolls adds an additional costs to business

looking to locate in the state, and the tax incentives for businesses, while

moves in the right direction, can effectively render themselves trivial if the

terms of the credit are so ambiguous or subjective as to require significant

legal costs to take advantage of them. Therefore, the state should consider

looking to other states tax practices to find a way to tax a broader base at a

lower rate, thereby attracting more business to the state and ultimately

earning the same amount of revenue in a healthier and more sustainable

way. These high tax rates will choke business growth in the state, costing

us our jobs, our young adults, and our way of life. But given everything

else New Hampshire has going for it, including its desirability as a place to

live, its incredible natural beauty, and its uniquely small government, thestate should take aggressive measures quickly to transform its future from

one of stagnation to one of growth.

197 Public Policy Priorities, Business and Industry Association - New Hampshire's StateChamber of Commerce, http://www.nhbia.org/index.php?page=proactive-business-agenda.198 Economic Development, Business and Industry Association - New Hampshire's State

Chamber of Commerce, http://www.nhbia.org/index.php?page=economic-development.199 Id.200 Grafton County Economic Development Council, supra note 151.

Documents

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