Idaho Incentives and Workforce Development Guide
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TAX REIMBURSEMENT INCENTIVE (TRI)
TRI is a new performance-based economic development incentive that provides a tax credit up to 30% for up to 15 years on new corporate income tax, sales tax, and payroll taxes paid as a result of a new qualifying project. To qualify, a new project must meet certain requirements for creating high-paying jobs in Idaho. The credit is refundable and is available to both existing and new companies. The tax credit percentage and project term is determined based upon the quality of jobs created, regional economic impact and return on investment for Idaho. All incentives will be approved by the Idaho Economic Advisory Council and will be governed by detailed agreements between the Department of Commerce and incented companies.
- Companies in rural areas must create 20 new jobs and those in urban areas must create 50
- New jobs must be full time and pay equal to or greater than the average county wage
- Requires a meaningful community contribution
- Company must prove its stability and a significant economic impact to the community and Idaho
- Company must prove that the incentive is a critical factor to its decision
The Idaho Opportunity Fund (IOF) is a discretionary grant program that was established in 2013 with the intent of serving as a “deal closing fund” to strengthen Idaho’s competitive ability to support expansion of existing Idaho businesses and recruit new companies to the state, ultimately creating new jobs and economic growth in Idaho. Beyond the requirements of other grant programs offered through the state of Idaho, the Idaho Opportunity Fund requires three key components:
Eligible Applicants: Idaho local governments (cities, counties, towns, etc.)
Eligible Projects: The Director of the Department of Commerce may, in his sole discretion, award Idaho Opportunity Fund grants to local governments for public costs incurred with the purpose to retain, expand or attract jobs to the State of Idaho. Eligible projects include:
- Construction of, or improvements to, new or existing water, sewer, gas or electric utility systems for new or existing buildings to be used for industrial or commercial operations.
- Construction, upgrade or renovation of other infrastructure related items including, but not limited to, railroads, broadband, parking lots, roads or other public costs that are directly related to specific job creation or expansion projects.
- Flood zone or environmental hazard mitigation.
Community Match: The local government must be able to provide allowable match in a negotiated amount that represents a material commitment from the local government that is commensurate with the local government’s financial condition. The Director of the Department of Commerce has the authority to approve alternate forms of match or waive local match requirements.
WORKFORCE DEVELOPMENT TRAINING FUND
The Workforce Development Training Fund (WDTF) can reimburse employee training costs to eligible companies that are bringing jobs to Idaho, adding jobs through expansion or upgrading skills of current workers who are at risk of being permanently laid off. The fund is financed by employers through an offset to the unemployment insurance tax.
- Your company produces a product or service that is mainly sold (more than 50 percent) outside the region where the business is located OR the company is in the health care industry
- The starting wage is $12 an hour or more for the new positions being created OR positions being retained
- The company provides employer assisted medical benefits
- The company is increasing its current workforce OR is retraining existing staff in order to avoid layoffs
Incentive Package. Businesses that invest a minimum of $500,000 in new facilities and create at least 10 new jobs averaging $40,000 annually plus benefits may qualify for a variety of incentives.
- The business must create at least 10 new jobs paying on average $40,000/year ($19.23/hour) plus benefits.
- The average wage of any additional new employee during project period must be $15.50/hour plus benefits
- The business must invest $500,000 in new facilities
- Project period ends when facilities put into service
- Investment Tax Credit of 3.75% – The credit is limited to 62.5% of the taxpayer’s tax or $750,000 whichever is less for the taxable year. Can be carried forward 14 years.
- Real Property Improvement Tax Credit of 2.5% – A nonrefundable credit against income taxes that is allowed on new plant and buildings and structural components that do not qualify for ITC. The credit cannot exceed $125,000 in any one taxable year and has a 14-year carry forward provision.
- New Jobs Income Tax Credit – This credit can be applied for new jobs according to the following scale:
- 24.04/hr to 28.85/hr = $1500/job
- 28.86/hr to 36.06/hr = $2000/job
- 36.07/hr to 43.27/hr = $2500/job
- 43.28/hr or more = $3000/job
Employee must work 9 months before credit applies.
- Sales and Use Tax Rebate – A 25% rebate is available on all sales and use tax that the taxpayer or its contractors actually paid for any property constructed, located or installed within the project site during the project period.
- Small Employer Growth Incentive Exemption – Local county commissions have the authority to exempt all or a part of the new investment value from property taxes for a determined period of time.
Project period – no earlier than January 1, 2006 ending December 31, 2020.
PROPERTY TAX EXEMPTION
Manufacturing Facilities Property Tax Exemption
Businesses that invest in new manufacturing facilities may receive partial or full property tax exemptions on new plants and building facilities and all personal property related thereto from local county commissioners.
- Businesses must invest a minimum of $3 million in new manufacturing facilities (Manufacturing defined as producing tangible personal property or intellectual property intended for ultimate sale at retail.)
- 80% of investment must be made at one location.
Note: Land is not included in the tax exemption.
$100,000 Personal Property Tax Exemption
Businesses are allowed a personal property tax exemption on the first $100,000 of personal property.
Business Inventory and Computer Software Tax Exemption
Tangible personal property is tax exempt. Computer software that is delivered electronically, remotely accessed, or delivered by the ‘load and leave’ method the vendor loads the software at the user’s location but does not transfer any tangible personal property containing the software to the user, is exempt from Idaho sales and use tax.
Large Business Property Tax Exemption
Businesses that invest a minimum of $1 billion in capital improvements will receive a property tax exemption on all property in excess of $400 million in value per year.
- The property must be located in a single Idaho county.
- The property must be eligible for the federal investment tax credit, as defined in sections 46 (c) and 48 of the Internal Revenue Code subject to the limitations provided for certain regulated companies in section 46 (f) of the Internal Revenue Code and is not a motor vehicle under eight thousand pounds gross weight.
- The improvements, acquisition or construction must be real or personal property related plant and building facilities.
Large Employer Property Tax Exemption
Businesses that employ at least 1,500 people within a single Idaho county may receive a property tax exemption on property values in excess of $800 million.
- The business must make a yearly capital investment of at least $25 million within that county.
Water or Air Pollution Control Tax Exemption
Property that is utilized to control or prevent water or air pollution is tax exempt.
Remediated Land Tax Exemption
Environmental remediation is the removal of pollution or contaminants from water (both ground water and surface water) and soil. Remediation restores brownfield sites either for redevelopment or to return them to their natural state. A partial tax exemption is available for remediated land.
Goods-In-Transit Tax Exemption
The state’s free port law provides that goods in-transit (goods purchased by a carrier in its business and delivered outside the state under a bill of lading for use by the carrier in its business) are exempt from taxation.
Motor Vehicle Tax Exemption
Motor vehicles are exempt from property tax.
SALES TAX EXEMPTION
Production Sales Tax Exemption
The production exemption eliminates sales tax on purchases of materials and supplies used directly in the production process by farmers, manufacturers and other producers. The exemption also applies to purchases of certain kinds of production equipment. The equipment must be “directly” (its function must be a direct part of the production process) and “primarily” (more than 50% of its use must be in the production process) used in the production process.
- The business or segment of a business (a division or branch with its own identity and separate accounting records) must spend the majority of its time producing products that will be resold.
- The business or segment of a business must be engaged in one of these activities:
- The business or segment of a business must be “primarily” devoted to producing a product for resale. This means that more than 50% of its activities must involve production.
- The business or segment of a business needs to own the goods being manufactured, processed, etc. The production exemption does not apply to the service-oriented businesses, with the exception of custom farming and contract mining.
Purchases that are exempt:
The production exemption allows tax-free purchases of:
- Raw materials that become part of a final product
- Chemicals and catalysts that affect a production by causing a physical change and removing impurities.
- Equipment or other tangible personal property which is “primarily” and “directly” used in the production process.
- Safety equipment and supplies that are used directly in the production process and used to meet required standards set by state and federal agencies.
Aircraft Sales Tax Exemption
Certain materials, parts and components installed on certain aircrafts are exempt from the sales and usage tax. These exemptions are as followed: Sale, lease, purchase, or use of aircraft primarily used to provide passenger or freight services for hire as a common carrier and air ambulance services.
- A Person operating the aircraft must obey Idaho, federal and foreign laws.
- Aircraft is used to provide services indiscriminately to the public.
- Aircraft itself transports the person or property from one location on the ground or water to another.
- Aircraft will be taken from the point of delivery to a point outside of Idaho.
- Aircraft will not be used in Idaho for more than ninety (90) days in any (12) month period.
- Repair and replacement materials and parts installed in or affixed or applied to, or sold, leased or purchased must adhere to industry standards and federal aviation administration (FAA) approved materials. Parts and components installed on non-resident privately owned aircraft by qualified employees of an FAA approved Idaho repair station are exempt.
(Tools and equipment used in remodeling, repair or maintenance are not exempt.)
Pollution Control Equipment Sales Tax Exemption
Businesses purchasing required pollution control equipment are exempt from sales tax on those purchases. Required pollution control facilities are exempt from property tax.
- Sale, use, or purchase of tangible personal property acquired and primarily used for the purpose of meeting air or water quality standards, rules or regulations of a state or federal agency having authority to regulate and set air or water quality emission standards are exempt from sale tax.
Purchases that are exempt:
The production exemption allows tax-free purchases of:
- Dry cleaning equipment to protect employees from exposure to (perchloroethylene). Dry cleaning machines meeting these standards are referred to as “dry to dry transfer systems.”
- Liner or reagent required to meet water quality standards.
- The sale, use, or purchase of tangible personal property that becomes a component, fixture or improvement to realty acquired and primary used for the purpose of meeting air or water quality emission standards, rules or regulations when purchased by manufacturing, mining or farming businesses that qualify for the exemption provided by section 63-3622D, Idaho Code. Does not apply to property used to treat drinking water or air that is not required for a production process.
- Contractors working for a manufacturing, mining or farming businesses that qualify for the exemption provided by section 63-3622D, Idaho Code.
Clean Room Sales Tax Exemption
Any tangible personal property that is used exclusively used in a clean room or to maintain the environment of a clean room, is exempt from sales tax.
Utility and Industrial Fuels Tax Exemption
Businesses are exempt from paying sales tax on utilities and industrial fuels. Examples include power, water, natural gas, and telephone.
INCOME TAX CREDIT
3% Investment Tax Credit
Businesses that make qualifying new investments may earn an income tax credit. This credit can offset up to 50% of a company’s state income tax liability and may be carried forward up to 14 years.
- Qualifying property is new or used depreciable property. Idaho adopted the definition of qualifying property found in Internal Revenue Code (IRC) Sections 46(c) and 48 in effect prior to 1986 for this credit.
- The depreciable life must be three years or more.
- Property not used in Idaho and vehicles under 8,000 pounds gross weights do not qualify.
Property used in a trade or business that does qualify includes:
- Tangible personal property-machinery and equipment.
- Other tangible property used as an integral part of manufacturing, production, extraction, furnishing, transportation, communications, utility services, or research facilities and bulk storage facilities used in connection with those businesses.
- Elevators and escalators.
- Single purpose agricultural or horticultural structures, such as a commercial greenhouse or a milking barn.
- Certain qualified timber property.
- Petroleum storage facilities.
Property that does not qualify includes:
- Buildings and their structural components.
- Property used primarily for lodging. This is an apartment house or other facility where sleeping accommodations are provided and rented. The rental period is normally more than 30 days. (Tangible personal property used in a facility that rents rooms for a period of less than 30 days does qualify.)
- Property expensed under Section 179, IRC.
- Property subject to 60-month amortization.
- Used property:
- not acquired by purchase; or
- in excess of $150,000; or
- acquired from a related person. This includes a person acquiring property they used prior to the acquisition.
- Property that is either non-depreciable or has a useful life of fewer than three years.
- The portion of property that is for personal use.
Qualified Investment Exemption:
- This exemption may be applied in lieu of the investment tax credit. A two-year exemption from property tax on qualified personal property is available only if a loss was incurred in the second preceding tax year in which the property is placed in service. The loss must have been computed without regard to any net operating loss carry over or carry back.
Broadband Income Tax Credit
Businesses that purchase qualified broadband equipment and infrastructure for the benefit of end users in Idaho may earn a 3% income tax credit up to $750,000. This credit is transferable and may be carried forward up to 14 years.
Net Operating Loss
Idaho offers a net operating loss income tax provision for losses up to $100,000 per tax year. Losses may be carried back for two years, or, if not absorbed in those two years, the remainder may be carried forward for up to 20 years.
5% Research and Development
Businesses conducting basic and qualified research may earn an income tax credit of 5% that may be carried forward up to 14 years.
COMMUNITY DEVELOPMENT BLOCK GRANT
Community Development Block Grants (CDBG) help cities, with a population of less than 50,000, with infrastructure improvements in support of business development in order to retain and create jobs. Eligible activities include, but are not limited to:
- Acquisition of real property which is deteriorated or underdeveloped
- Construction or rehabilitation of public facilities and other site improvements
Award amounts are limited to a maximum of $500,000.
RURAL COMMUNITY BLOCK GRANT
Rural Community Block Grants (RCBG) help rural communities, with a population of 25,000 or less, counties and Tribes with infrastructure improvements in support of business development in order to retain and create jobs. Eligible activities include, but are not limited to:
- Expand the capacity of infrastructure, usually water, sewer or streets, or other infrastructure utilities to a specific business expansion or new location, that will result in job creation
- Rehabilitate privately owned existing buildings or structures used for business, commercial, or industrial purposes
- Eliminate conditions which impair economic growth or present an economic liability to the area
Award amounts are limited to a maximum of $350,000.
The GEM grant helps small communities, with a population of 10,000 or less, fund community development projects for the purpose of:
- Improving the local economy
- Retaining or creating jobs
- Promoting the community for economic development and tourism
- Assisting business expansion and diversification
The maximum amount that can be awarded is $50,000. Communities must provide a minimum of 20% matching funds of either cash or in-kind donations for the total amount of GEM grant funds received. The GEM grant is a cost reimbursement program.
NEW MARKET TAX CREDIT
The New Markets Tax Credit Program (NMTC Program) was established by Congress in 2000 to spur new or increased investments into operating businesses and real estate projects located in distressed and low-income communities. The NMTC Program attracts investment capital to low-income communities by permitting individual and corporate investors to receive a tax credit against their Federal income tax return in exchange for making equity investments in specialized financial institutions called Community Development Entities (CDEs). The credit totals 39% of the original investment amount and is claimed over a period of seven years (five percent for each of the first three years, and six percent for each of the remaining four years). The investment in the CDE cannot be redeemed before the end of the seven-year period.
More information at the Community Development Financial Institutions Fund website.
To determine which communities have New Market Tax Credit zones, click this link.
INDUSTRIAL REVENUE BONDS
An Industrial Revenue Bond (IRB) differs from traditional government revenue bonds as the bonds are issued on behalf of a private sector business. IRBs are typically used to support a specific project, such as a new manufacturing facility.
The bond issue is created and organized by a sponsoring government, with the proceeds used by the private business. The business is responsible for bond repayment. The sponsoring government holds title to the underlying collateral until the bonds are paid in full. This arrangement provides tax exempt status to the bonds, and many times a property tax exemption on the collateral. The sponsoring government is not responsible for bond repayment and the bonds do not affect the government’s credit rating. IRBs are desired as the private business receives a lower interest rate (due to the bonds tax-exempt status), a property tax exemption, and a long-term, fixed rate financing package.
Bond proceeds may be used for a variety of purposes, including land acquisition, building construction, machinery and equipment, real estate development fees, and the cost of bond issuance.
In the United States IRBs are governed by IRS statute and include the following provisions:
- The maximum amount of bonds that may be issued or outstanding is $10 million.
- Total capital expenditures at the project site may not exceed $20 million total
- Total IRBs outstanding at the company in the U.S. may not exceed $40 million total