By Holly Hoynacki and Lynne Westaway
Here at HRH, we’ve seen a dramatic increase in businesses investing for growth and scale. With growth comes the need to invest in real estate improvements for additional offices, manufacturing or other business-related space. Recently, we’ve helped clients take advantage of a little known but extremely valuable NH business tax credit which has provided significant tax benefits. It’s called the Economic Revitalization Zone Credit (ERZ).
The ERZ Credit is a business tax credit awarded to taxpayers for projects that both improve infrastructure and create jobs in designated areas of a municipality. For example, we’ve had clients invest in leasehold improvements in Manchester’s millyard area that have successfully claimed this credit and been awarded tens of thousands of dollars in credits.
The credit can be applied against the New Hampshire Business Enterprise Tax (BET) or Business Profits Tax (BPT), and any unused credit may be carried forward for five years. New Hampshire caps the total issued credits at $825,000 each year, with eligible taxpayers each receiving up to $240,000. However, a maximum of $40,000 may be utilized each year with the remainder carrying forward.
There are two critical planning areas to note when evaluating the ERZ credit:
- The investment and the job creation must take place in the same calendar year.
- The ERZ credit offsets BPT first. This may require careful tax planning to ensure the ERZ credit is utilized, because many small/medium sized businesses have a plethora of BET credits which also offset BPT but which aren’t fully utilized. To maximize the realization of the ERZ credit, it may be critical to minimize NH taxable business income during the years of ERZ credit utilization.
To take advantage of the credit, the project must be performed in an ERZ which is a zone containing either unused or underutilized industrial parks, or vacant land or structures previously used for industrial, commercial, or retail purposes, but currently not so used. The commissioner of resources and economic development designates areas as economic revitalization zones and each zone is reevaluated every five years to see if it continues to meet the statutory criteria. As of April 2017, there are 200 zones in 66 municipalities. A list of approved zones can be found on New Hampshire’s Economic Development website.
To qualify for the ERZ credit, a business must create at least one new job in the state and meet the following criteria:
- The business must be physically located in the approved ERZ;
- Investment in plant or equipment must be made directly by the business applying for the ERZ tax credit;
- Jobs created must be full-time, direct employees and not be contracted jobs;
- The investment and the job creation must take place within one calendar year.
Taxpayers are required to enter into a written ERZ tax credit agreement with the commissioner of resources and economic development prior to being awarded any tax credit. Businesses must apply for the tax credits by filling out Form ERZ-2 by February 10 of the year following the applicant’s tax year.
The actual credit calculation is quite complex, as it is based on a sliding percentage of salary for each new job created and the lesser of either a percentage of the actual cost incurred for the project or a maximum credit for each new full-time job created in the fiscal year.
Businesses interested in taking advantage of the ERZ tax credit should contact an HRH team member for more information about qualifying for the credit and details on how to apply.