Tax Credit for the Creation of Employment & Qualified Investments in Business Facilities (Blue Collar Job Act)

Statutory Basis

Title 30, Delaware Code, Chapter 20, Subchapters II-III, V (More specific statutory references are also noted below.)

Description

Generally, business taxpayers that: (1) are engaged in a qualified activity; (2) hire five or more qualified employees; and, (3) make an investment of at least $200,000 ($40,000 per qualified employee) in a qualified facility are entitled to tax credits against the corporation or personal income taxes, gross receipts tax, and public utility tax. To apply for the Delaware corporate income tax and gross receipts tax reduction, Form 402AP 9901, Application for New Business Facility Tax Credits, must be completed and returned to the Division of Revenue. The Division of Revenue will notify the applicant in writing if the application is approved or disapproved. Approval by the Division of Revenue must be granted before the corporation can claim these tax credits. A separate Form 402AP 9901 must be completed for each new or expanded facility.

Corporation and Personal Income Tax Credits

Eligible businesses receive credits of $500 for each qualified employee and $500 for each $100,000 invested. These credits may be taken during the tax year in which the qualified facility is placed in service and for any of the nine following years. The aggregate amount of credits claimed in any given year may not exceed fifty percent of the firm’s tax liability. Credits may be carried forward. Form 1100CR 9901, Worksheet for Credit for Approved New Business Facilities, must be completed and attached to the Delaware Corporate Income Tax return. Businesses that are not subject to the corporation income tax (e.g., pass through entities such as S-Corporations) are entitled to use the credits against the personal income tax. Form 700, Business Tax Credits, must be completed and attached to the Delaware Resident Personal Income Tax return of shareholders/partners/sole proprietors.

ELIGIBLE ACTIVITIES

Generally speaking, in order to qualify for tax credits, investment and employment must occur within a “qualified activity.” Another, less restrictive standard for investments made within targeted areas exists for “commercial and retail activities.”

QUALIFYING ACTIVITIES [3] (Activities eligible for the $500 Blue Collar Jobs credit in non-targeted areas and for a $650 credit in targeted areas.)

1. Manufacturing;
2. Wholesaling;
3. Scientific, agricultural or industrial research, development or testing;
4. Computer processing or data preparation or processing services;
5. Engineering services;
6. Consumer credit reporting services, including adjustment and collection services and credit reporting services;
7. Aviation services;
8. Non-custom computer software;
9. Telecommunications services;
10. Any combination of the activities described above; or,
11. The administration, management or support operations, including marketing, of any activity described above

COMMERCIAL RETAIL ACTIVITIES [4] (Additional activities eligible for a $500 credit within targeted census tracks)

Commercial Activity includes all services except: amusement conductor, amusement park operator, auctioneer, automobile race operator, bowling alley operator, circus exhibitor, entertainment agent, finance or small loan agency, floor show operator, health spa or health club, junk dealer, motion picture theater, outdoor music festival promoter, pawnbroker, pool table operator, public bath keeper, salvage yard operator, and self-service laundry or dry cleaner.

Retail Activity includes all retail trade except: eating and drinking places, automobile sales, or providing recreation or entertainment.

ALTERNATIVE INVESTMENT TAX CREDIT (No Employee Option) [5]

For qualified investments of at least $1 million (or 15% of the adjusted basis in the facility) in manufacturing, wholesaling, or aviation services, an alternative tax credit is available. The amount of the alternative investment credit is equal to 75% of the corresponding “regular” Blue Collar Jobs tax credit. (E.g., if it had qualified for an investment that would have earned a $500 regular BCJ credit, the alternative investment credit would be $300 [$500 x 0.75]).

Alternative Investment and Employment Requirements Required for Telecommunications Services [6] and Banking [7]

Instead of five employees and $40,000 of investment per employee, telecommunication service businesses are required to hire at least 50 qualified employees and make a minimum investment of $15,000 per qualified employee. Like other firms under the BCJ, telecommunication service businesses meeting these criteria are entitled to a $500 tax credit for each qualified employee hired and a $500 credit for each $100,000 in qualified investment made.

Tax credits earned by banks are used to reduce their liability under the bank franchise tax. Like telecommunication services, banks must also increase employment by a minimum of 50 employees and make a minimum investment of $15,000 per qualified employee. Unlike telecommunications services, however, there is no tax credit for each $100,000 of investment. Furthermore, only full-time employees receiving health insurance benefits are counted when calculating the $500 credit (per qualified employee).

Business and Occupational Gross Receipts Tax Reductions

Businesses meeting the regular Blue Collar Jobs employment and investment qualifications are entitled to a reduction in their gross receipts tax liability attributable to the operation of a qualified (new or expanded) facility. Tax liabilities resulting out of gross receipts derived from manufacturing, wholesaling, occupational [8] and general services, food processing, commercial feed sales, or the retail element of aviation services may be reduced according to the following schedules. [9] In order to take the gross receipts reduction, Form 402LTR 9901, Computation Schedule for Claiming License Tax Reduction for Approved New Business Facility Gross Receipts, must be completed and attached to the gross receipts tax return coupon.

As is the case with the corporate and personal income tax credits, businesses qualifying under the alternative investment standard (no employee option) are entitled to a gross receipts tax reduction equal to 75% of the amounts listed above. (E.g., if the “regular” gross receipts tax reduction was set at 60%, the amount under the alternative investment standard would be 45% [0.60 x 0.75]).

Public Utility Tax Rebates [10]

Any business that is eligible for tax credits by virtue of meeting the general BCJ employment and investment requirements is entitled to a 50% rebate of public utility taxes derived from utility consumption attributable to the qualified new or expanded facility. Eligible businesses are may claim the rebate for five years. To qualify, each Delaware business location must submit a completed Form 5507, Claim for Refund for Public Utility Tax, to the Division of Revenue, PO Box 2340, Wilmington, DE 19899-2340. If you have any questions regarding the qualifications, please contact Kathy Revel, (302) 577-8445.