Incentives

The City of Fort Wayne’s “Enterprise Zone” designation is for a 3.99 square mile area located in the central part of the City. Enterprise Zone (EZ) designation provides tax benefits to business and individuals located within the zone.

As supported by State Enterprise Zone Policy, the UEA requires zone businesses to share a percentage of their tax savings with the UEA to fund projects sponsored by the association.

Registration with Enterprise Zone Board

The Indiana General Assembly requires each zone business to register with the Indiana Economic Development Corporation (IEDC) on a yearly basis. This registration provides the information needed to ensure business eligibility.

Each enterprise zone business claiming a credit or exemption must register with the IEDC by June 1 of each year. For any business whose total tax savings are greater than $1,000, a registration fee equal to one percent of that savings will be due with that registration. Failure to return the registration form by June 1 of each year will result in disqualification from zone benefits.

Eligibility Restrictions

In general, where a business “substantially” reduces its operations or ceases operation at other locations in Indiana in order to relocate in an Indiana Enterprise Zone, the business is not eligible for zone benefits. A “substantial” reduction is a reduction of 25 percent of the average number of goods manufactured, or in the value of services provided, or in the amount of gross income in the year preceding relocation in the EZ and the year following relocation in the EZ, or the lower of a reduction in the average number of employees by 100 or 25 percent, or a 10 percent reduction in the value of stored inventory. For purposes of the substantial reduction test, the 12 month period prior to locating in the EZ should be compared to the 12 month period after locating in the EZ.

EXCEPTIONS: A business may still be eligible for zone benefits if relocation was necessitated by a loss of lease, the unavailability of space to accommodate planned expansion, destruction of the building, or certification that the building is uninhabitable. A business would also qualify for zone benefits if renovation and construction costs at the non-zone location are one and one-half times the cost of purchase, renovation and construction of a facility in an enterprise zone.

Wages Tax Credit

Employers are allowed an annual credit (after application of all other Indiana creditors) against their enterprise zone state tax liability (either gross income tax or adjusted gross income tax arising from enterprise zone activities) for the lesser of: 10% of the increase in wages paid to “qualified employees” during the tax year over the base period (1/1/83-12/21/83) or $1,500 times the number of “qualified employees.”

A “qualified employee” is one who lives in the EZ, works at least 50% of the time within the EZ, and at least 90% of the employee’s services are directly related to the company’s facility located in the EZ.

OBSERVATION: Any excess credit may be carried back and/or carried forward and applied against their enterprise zone state tax liability. An incentive exists to hire employees living within the enterprise zone since their wages result in a wage tax credit as well as provide an Indiana income tax benefit to the employees.

Individual Wage Exemption

A qualified employee’s wages will be exempt from Indiana individual income tax, limited to the lesser of one-half of the employee’s adjusted gross income earned as a qualified employee, or $7,500.

OBSERVATION: This could result in an annual tax savings of $255 to the qualified employees. A qualified employee’s earnings within the EZ must equal or exceed $15,000 to receive the maximum tax savings.

The Enterprise Zone Investment Deduction [IC 6-1.1-45]

1. Establishes a deduction for certain qualified investments made within an existing enterprise zone.
2. Deduction is first available for 2006 pay 2007, and can be claimed for up to 10 years.
3. "Qualified investment" is defined as any of the following expenditures relating to an enterprise zone location on which a taxpayer's zone business is located:
1. The purchase of a building.
2. The purchase of new manufacturing or production equipment.
3. Costs associated with the repair, rehabilitation, or modernization of an existing building and related improvements.
4. Onsite infrastructure improvements.
5. The construction of a new building.
6. Costs associated with retooling existing machinery.
4. The amount of the deduction:

   The total AV of all of taxpayer's real and personal property at the EZ location on the assessment date.

   MINUS

   The "base assessed value," defined as the total AV of all of taxpayer's real and personal property at the EZ location on the immediately preceding assessment date.

   EQUALS

   The amount of the deduction. This appears to capture 100% of the increase in AV resulting from the qualified investment.

5. To claim the deduction, taxpayer must file a certified application with the county auditor on or before May 10 of each year.
6. The County auditor reviews the application to determine eligibility and is required to notify the applicant of their determination to accept or deny by August 15 of the assessment year.
7. If the application is denied, the taxpayer may appeal to a circuit or superior court within 45 days.
8. The EZ business is required to reinvest a portion of its tax savings in the zone per IC 5-28-15.

EXAMPLE:

A company located in an enterprise zone has $100,000 in assessed value of real and personal property on March 1, 2005. On July 1, 2005, the company constructs a new building at a reproduction cost of $10,000 within the zone location. This construction would qualify for the enterprise zone investment deduction. The deduction amount would be: March 1, 2006 AV ($100,000 + $10,000 new construction) - March 1, 2005 AV ($100,000) = amount of deduction ($10,000).

Investment Credit

Individuals or trusts purchasing an ownership interest in a business located in the enterprise zone may be eligible for an investment credit (up to 30% of the purchase price) against their state tax liability.

To qualify for the credit, a taxpayer must request the Department of Commerce to determine whether a purchase of an ownership in a business located in an enterprise zone is a qualified investment; and the credit percentage to be allowed. The request must be made before a purchase is made.

Lender Interest Income Credit

A taxpayer (person, corporation, partnerships, etc.) will receive a tax credit against its state tax liability (includes bank, savings and loan, and insurance premium taxes as well as corporate and individual taxes) equal to five percent of the amount of interest income received on a qualified loan. A qualified loan is a loan to an entity that uses the proceeds for a purpose directly related to an enterprise zone business or for an improvement that increases the assessed value of enterprise zone real property. This credit can be carried over.

EXAMPLE: Taxpayer loans $2,500,000 to Company A located in the EZ in January 1994 so they can add to their warehouse located in the enterprise zone. Company A pays taxpayer $300,000 interest in 1994. Since the loan proceeds were used for a qualified purpose, taxpayer receives a credit of $15,000.