Indiana’s 2022 legislative session started off strong. Hundreds of bills were introduced that promised big changes for Indiana businesses. Unfortunately, even with Republican supermajorities in both chambers, only a quarter of the bills that lawmakers introduced got signed by the time session adjourned in March.
Even though the final scorecard looks different than it did at the session’s outset, there are plenty of policy changes worthy of discussion. Media outlets have been focusing on the societal impacts of this year’s legislation, but there were plenty of law changes that will impact real estate holders, especially those who are planning new expansion and development projects in Indiana.
Of the new programs that were created in this year’s legislative session, the innovation development districts (IDD) program has the greatest potential to help the state land mega-deals from large, out-of-state corporations. The Indiana Economic Development Corp. (IEDC) can designate up to five IDDs across the state between now and July 2025. Once established, these development districts will capture nearly all incremental state and local taxes from that area and use those funds to offer grants and loans to out-of-state businesses that bring in economic development projects. While the IEDC administers the program, local governments can oversee how their tax dollars are invested. The flexibility inherent in this program means that Indiana can offer high-dollar incentives to reel in large investment projects, which could create thousands of new jobs and spur economic growth in the state.
The legislature also created an incentive program that benefits businesses already operating in Indiana. The Workforce Retention and Recruitment Program helps Indiana businesses find qualified workers for open positions in their community by awarding incentives to out-of-state workers and recent graduates who relocate to Indiana. What makes this program unique is that businesses or municipalities themselves can develop the recruitment strategy that works for them and meets their workers’ needs.
However, because this year was a short session, legislators focused most of their efforts on revamping existing programs, some of which include the Economic Development for a Growing Economy (EDGE) Credit, Venture Capital Investment (VCI) Tax Credit, and Redevelopment Tax Credit:
Maybe most importantly, legislators enacted a change that affects all IEDC-administered tax credits. This legislation implemented an annual cap on the credits the IEDC awards each year. Instead of setting caps on individual credit programs, the new law sets an annual $300 million collective cap on many of the IEDC’s tax credit programs, giving it latitude to allocate cash to these programs as needed.
Developers, brokers, and other real estate owners should walk away from this year’s session with one word in mind: flexibility. The new incentives and the changes made to existing programs provide local governments and municipalities with more flexibility in how they assign and use program funds, which can be great opportunities for in-state businesses to expand and for the state to land some high-dollar development projects. Just keep in mind, with this enhanced flexibility comes uncertainty. We have to ask ourselves: How will these law changes affect developers’ access to Indiana incentives programs? And how will out-of-state businesses respond to the new opportunities?
For more insight into how the 2022 legislative session will affect your business, peruse the legislative summaries below, and, when you’re ready, contact KSMLA for help determining how these changes affect your business.
This year’s legislative session addressed the attraction of “mega-deals.” SB 361 created a statewide innovation development district (IDD) fund to support development or expansion of industry in Indiana. It will be administered by the IEDC. The IEDC may provide grants, loans, or investments from this fund that can be used for some of the following items:
The IEDC has the ability to designate territory within a city, town, county – or in more than one city, town, or county – as an IDD after collaborating with and receiving approval from the executive (mayor, president, etc.) of the respective community. All incremental taxes that are earned by a business locating in an IDD go into this IDD fund. This means that incremental property taxes, state gross retail tax (sales and use tax), and income taxes will go into the fund. However, a minimum of 12% of the aggregate percentage of annual incremental property tax revenue must be transferred to the respective city, town, county, and school corporation on an annual basis.
Only five IDDs can be designated at this time through June 30, 2025, but they can stay in place up to 30 years for the area that has been designated. Any additional IDDs would need to have budget approval before moving forward.
Although a significant amount of reporting is required, IDDs could be an incredibly useful tool as they a) provide a funding source for companies interested in coming to Indiana, and b) provide a boost to local communities that have areas available for development.
For years, many companies have had difficulty finding qualified workers for open positions. To help remediate this issue, SB 361 passed the “Workforce Retention and Recruitment Program and Fund” legislation. This program allows a qualified nonprofit entity to be formed as a partnership between one or more units (county, city, or town), private businesses, or community/philanthropic organizations with the goal of developing and implementing a workforce retention and recruitment strategy.
The nonprofit entity develops and adopts its own rules and policies on how the program is administered in its area and can develop and implement its own marketing strategies to recruit and retain individuals.
Funding for this program comes from private grants or contributions along with appropriations in the unit’s budget. The entity is then allowed to provide incentives in the form of grants or loans to qualified workers. To qualify for a grant or loan from this program, a qualified worker is defined as:
Each year, the entity must provide details related to the activities from the previous year to the executive of their unit along with a copy provided to the Department of Local Government Finance.
This year, the Indiana legislature became one of the many states to create a tax credit focusing on companies in film and other related media production. Senate Bill 361 created the “Film and Media Production Tax Credit,” which is a non-refundable state income tax credit for a person or entity incurring expenses in Indiana in making:
The credit is discretionary but can be up to 30% of expenses incurred, and it is allowed to be passed through to shareholders, partners, or members if the entity is a pass-through entity. If the individual or entity does not have any tax liability in the year the credit is generated, it can be carried forward for nine years.
This program is set to expire July 1, 2027, but certainly could be renewed if this is something that is being successfully utilized going forward.
Senate Bill 361 sets limitations on the issuance of credits for the Indiana Economic Development Corp. (IEDC) to $300 million in each fiscal year for all taxpayers when awarding the Economic Development for a Growing Economy (EDGE) Tax Credit, Community Revitalization Enhancement District (CRED) Tax Credit, Hoosier Business Investment (HBI) Tax Credit, Headquarters Relocation Tax Credit, Redevelopment Tax Credit, and the Film and Media Production Tax Credit.
This legislation removes the limitations on each credit individually (if it had a statutory annual limitation) and gives the IEDC more decision-making power regarding the projects they want to target and what programs they believe will be the most useful in winning those projects.
Senate Bill 361 provided guidelines for a company applying for the EDGE credit without a physical location in Indiana. If a company applies for the EDGE credit and does not specify a physical location, the company must commit to creating at least 50 net new jobs and pay an average hourly wage of at least 150% of the state’s average wage in order to be eligible for incentives.
Companies that are operating remotely are largely start-ups and technology companies, so while this change is great to now allow incentives for companies without a physical location, it could be challenging for a start-up to commit to this goal.
Senate Bill 361 added specific language in the statute that memorializes that for pass-through entities, the credit can be refunded at the entity level or passed through to shareholders, partners, and members. In practice, the IEDC allowed the credit to be refunded for a pass-through entity, but the statute was vague on the specifics.
Other updates made to the EDGE program in Senate Bill 361 include:
In the 2021 legislative session, the VCI tax credit allowed an enhanced credit for qualified businesses that had the women-owned (WBE) and minority-owned (MBE) status. Senate Bill 361 added the veteran-owned status (VBE) to be qualified for the enhanced credit as well, which is the lesser of 30% of the investment made or $1.5 million (as opposed to the regular VCI credit which is the lesser of 25% or $1 million).
Senate Bill 361 redefined what a qualified redevelopment site is, which is a “vacant or an underutilized property in Indiana as determined by the IEDC,” appearing to give the IEDC much more decision-making authority over what they consider a redevelopment project.
Previously the “dino credit” provided a specific aging schedule: a property qualified for an increasing percentage of credit as the site/building aged. This schedule was rolled into the redevelopment tax credit when it was originally created. In Senate Bill 361, this aging schedule has now been removed and has been replaced with the language, “may not exceed 30%” of qualified investment.
This program is for eligible businesses relocating their headquarters to Indiana. For relocation costs incurred by a company, it allowed a credit against the taxpayer’s state tax liability. Previously to qualify for this credit, the statute required a company must employ at least 75 employees in Indiana or at least 10 employees in Indiana (depending on the size/stage of the company). This year, Senate Bill 361 removed the employee count thresholds, making it easier for companies to qualify for the program if they are moving their headquarters to Indiana and incurring relocation costs.
In Senate Bill 119, “new farm equipment” is now eligible to receive personal property tax abatement and “new agricultural improvements” are now eligible to receive real property tax abatement if negotiated with the local community for up to five years. Specific requirements must be met in order to apply for this type of abatement, but this gives additional opportunities for certain taxpayers.
Senate Bill 145 changes how retail commercial real property will be valued. For any structure at least 100,000 square feet that is used for retail purposes and occupied by a single retailer, the assessed value will be determined by applying the cost approach for the first five years after construction. The Department of Local Government Finance (DLGF) will establish the standard construction cost per square foot.
No longer can sales comparison or income capitalization approaches be used for the first five years for setting the value of this new structure. If the property was vacated by the original occupant for which the property was constructed within the first five years, the property does not have to be valued by this new cost approach. Additionally, if the same property is substantially and adversely impacted by a change in a roadway or traffic patterns, this new cost approach also does not apply.
Previously, taxpayers with less than $80,000 in taxable personal property assets have been exempt from taxation, but they were required to complete an annual personal property tax filing. Senate 382 added language that if a taxpayer qualifies for the less-than-$80,000 small business exemption, filed a business personal property tax return electing the exemption, and was approved the previous year, future years’ personal property tax return filings are no longer required unless their exempt status changes.
For more information about this new legislation and how it might impact your business, contact us.