Jobs Bill Repeal Effort Takes Next Step
Governor's Jobs Bill
South Dakota has a very reasonable tax structure for businesses with one exception - the taxes on capital investments needed to build and equip facilities are higher than most other states. Businesses in South Dakota pay sales/use tax (4% state & 2% local) on construction materials PLUS a Contractor’s Excise Tax that adds an additional 2% on the entire contractors’ bill including labor costs and materials, including the taxes already paid on that material.
To offset these higher taxes on projects that require very large investments, a program was developed to refund some of those taxes. These refunds have always been considered an investment to assure that projects would be viable and would be built in South Dakota. In turn, these projects would create jobs and pay taxes to schools, local governments and the state for many years. During the 2010 legislative session Governor Rounds sponsored a bill to narrow the criteria for refunds and restructured formula by reducing the levels of refunds from six to two; 45% for projects larger than $10 million but smaller than $40 million and 55% for projects larger than $40 million up to $250 million. There would be no refunds for projects that exceeded $250 million dollars (this limit did not apply to wind energy projects).
During the 2011 legislative session Governor Daugaard sponsored a drastic change in the approach for large projects. HB 1230 created a fund that could be used to issue grants to offset the higher taxes on capital investment. The investment threshold to qualify for these grants was reduced from $10 million to $5 million. To provide for public accountability, all grants from the fund need approval from the Economic Development Board which approves REDI fund loans.
The most significant impact in shifting from a refund policy to a development fund/grant concept is how the program is to get money. Refunds have their own source of money, the taxes are paid first and refunds are sent later. HB 1230 would dedicate that 22% of the Contractor's Excise Tax collections be placed in the fund. This amount was chosen because it is a similar amount of money that is expected to be paid out in refunds so the new proposal would have the same fiscal impact as the previous refund policy.
DEMOCRATS SEEK REPEAL. On April 6th Ben Nesselhuf, a former state Senator and Democrat nominee for Secretary of State (2010 election), acting in his official position as head of the state’s Democrat party, filed a petition seeking to have HB 1230 placed on the 2012 general election ballot. Claiming that the money should be spent on schools and that incentives are not needed to achieve economic development, the effort was organized to gather approximately 16,000 signatures.
On the deadline of June 27th the Secretary of State’s office received approximately 22,900 signatures. It was determined that the required number of signatures had been secured (and exceeded by some 2,510). HB 1230 has been certified for the general election in November of 2012.
NOW WHAT? There are a number of things that could affect the ultimate outcome of the referral. The committee that filed the paperwork for the referral can withdraw the measure from the ballot until the printing deadline next fall. Since former Senator Nesselhuf filed the petition by himself, this decision would be his alone. The legislature could prepare and adopt a similar bill or could agree to some compromises with those seeking repeal of HB 1230, which could pass and would become law unless it too were referred.
Some facts before the fog of the campaign. Did the refund policy create jobs or grow tax revenues? Critics suggest they did not. Here are some facts regarding the past use of the refunds:
- Since 1996, refunds have been made totaling $69 million dollars (average of $4 million/yr but increasing in recent years).
- Ethanol has received nearly 70% of the total refunds.
- The ethanol industry had their own refund formula which refunded 100% of all sales/use and CET taxes on expenses exceeding $4 million dollars (without any limit). The ethanol industry was clear that refunds were essential to establishing the industry.
- Wind energy is the next largest recipient of refunds. This includes refunds to wind turbines and to a turbine blade manufacturing facility in Aberdeen.
- Refunds were critical to the expansion of a 3M plant and to the location of an Xcel generation facility – a total of 46 projects have been encouraged by refunds.
- The pipelines have received about $4 million in refunds. Transcanada’s pipeline is paying hundreds of thousands of dollars in taxes to a number of to rural school districts that have little hope of seeing more taxpayers in their areas in the future.
CONCLUSION. The Chamber is disappointed that the Governor’s Jobs Bill has been placed on the ballot and offers the following thoughts about why this is regrettable:
- The action to place the Governor’s Jobs Bill on the 2012 ballot is devastating for job creation in South Dakota.
- This repeal effort ends programs for creating jobs, yet offers no replacement.
- The higher taxes on initial investments in South Dakota are still being assessed, making South Dakota less competitive for the most significant expansions and startup companies.
- The refund program has helped local industries expand and was essential in creating the ethanol and wind energy industries in South Dakota.
- If South Dakota isn’t going to compete for jobs from expansions of our manufacturers, it’s a sure bet that other states are going to be offering them very attractive deals.
- The Governor’s Jobs Bill includes projects with costs starting at $5 million rather the $10 million which will help more communities.
- Grants awarded from the Project Fund can be used to target expansions and jobs that other states will be competing for and keep South Dakota’s position strong.
The South Dakota Chamber of Commerce and Industry supports the Governor’s Jobs Bill (HB 1230), and will support the effort to have voters approve this law on the ballot.
Welcome New Members
The following businesses are the newest members of the South Dakota Chamber of Commerce and Industry:
- Black Hills IP
- Credit Union Association of the Dakotas
- Face It! Sioux Falls
- GCC Dacotah
- Gregory/Dallas Chamber of Commerce
- MSH Architects
Follow this link for more information: http://www.sdchamber.biz/membership/newmembers/
Please help us welcome and thank each new member for their support of the organization.
SAVE THE DATE!
State Chamber's Economic Outlook Seminar
The 2011 Economic Outlook Seminar is set for Tuesday, November 8th at the Holiday Inn City Centre in Downtown Sioux Falls. This year's speaker roster includes Dr. Ralph Brown, providing a review of the South Dakota and local economies; Dr. Sid Goss, with a look at 2010 census figures and the resulting changes to South Dakota's workforce; and keynote luncheon speaker, Narayana Kocherlakota, President of the Federal Reserve Bank of Minneapolis.
The Seminar is brought to you by the South Dakota Chamber of Commerce and Industry. Our corporate sponsors are Avera Health/Avera McKennan Hospital, Forward Sioux Falls, First Premier Bank and Sanford Health, all of Sioux Falls. The event is hosted locally by the Sioux Falls Area Chamber of Commerce.
Youth Business Adventure
Youth Business Adventure celebrated its 32nd year this June with sessions at Black Hills State University and the University of South Dakota. Between the two campuses, 197 students, 20 educators and 16 business executives participated.
Students enjoyed guest speakers, a business simulation game and numerous business-oriented competitions. In addition to the educational portion of YBA, sstudents socialized with a dance, ice cream social and bowling. Eight $500 scholarships were awarded to YBA students, with ten South Dakota post secondary institutions that have committed to matching these scholarships.
Pictured above, YBA students present their logos to judges at the USD session.
YBA has begun planning for the 33rd annual sessions for next June. Campuses will again be held at the Black Hills State and the University of South Dakota.
Business Day at the Legislature
The 2012 Business Day at the Legislature has been set for Thursday, February 23 in Pierre. Events of the day include President David Owen's annual legislative update, our business luncheon and young professionals luncheon, the Eighth Annual Business Caucus, time at the Capitol viewing the legislative process, Economic Developer's Reception with Manufacturers' Showcase and the Business Day Banquet with guest speaker former Montana Governor Judy Martz. Martz is also a former member of the U.S. World Speed Skating and the U.S. Olympic Speed Skating Teams. She is currently a motivational speaker.
U.S. Chamber of Commerce
New Programs and Opportunities
Business Steps Up: Hiring Our Heroes
On March 24, 2010, the U.S. Chamber of Commerce launched its Hiring our Heroes program, a year-long nationwide effort to help veterans and their spouses find meaningful employment. The Chamber started the program in partnership with the Department of Labor Veterans Employment and Training Service (DOL VETS), to improve public-private sector coordination in local communities, where veterans and their families are returning every day. Working with an extensive network of state and local chambers, DOL VETS, the Employer Support of the Guard and Reserve (ESGR) and other strategic partners the U.S. Chamber will do a better job of matching veteran talent with career opportunities in the private sector.
In the coming year, the U.S. Chamber will host 100 hiring fairs with local chambers of commerce across the country with the only measure of success being jobs for the one million unemployed veterans in America. For more information, visit http://www.uschamber.com/veterans
IRS Announces First Round of Revocations for
Nonprofits That Failed to File Form 990
by Audra J. Heagney, Esq. and Kristalyn J. Loson, Esq.
On June 10, 2011, the Internal Revenue Service (“IRS”) released the complete list of approximately 275,000 nonprofit organizations that have lost their tax-exempt status for failure to file Form 990, Form 990-N, Form 990-EZ, or Form 990-PF for three consecutive years. The list of revoked entities is available on the IRS website (see www.irs.gov/charities/article/0,,id=240099,00.html). The list includes the organization’s name, Employer Identification Number, last known address, and effective date of revocation of exempt status; it will be updated monthly. In its announcement, the IRS indicated that it believes most of these organizations are likely defunct, however, it has issued guidance regarding the steps such organizations must take to apply for reinstatement of their tax-exempt status.
This is the first group of revocations resulting from the passage and implementation of the Federal Pension Protection Act (the “Act”), passed by Congress in 2006. The Act mandated annual filing requirements for virtually all tax-exempt organizations, including tax-exempt organizations with gross receipts of $25,000 or less that were not previously required to file an annual return with the IRS. The Act also provided for the automatic revocation of any tax-exempt organization that does not file the required returns or notices for three consecutive years, and requires the IRS to publish and maintain a list of all such organizations that are so revoked.
In conjunction with its recent publication of the names of the first wave of organizations with revoked tax-exempt status, the IRS also issued guidance regarding the impact that the revocations have on charitable contributions to revoked organizations, and the manner in which organizations may seek reinstatement of tax-exempt status, including retroactive reinstatement. The IRS also announced transition relief for certain small tax-exempt organizations.
In connection with the announcement and publication of revocations of exempt status, the IRS issued the following guidance:
Revenue Procedure 2011-33 (www.irs.gov/pub/irs-drop/rp-11-33.pdf) (Contributions to Revoked Organizations) states that where an organization listed in Publication 78 ceases to qualify as an organization to which contributions are deductible under Section 170 of the Internal Revenue Code (the “Code”), as a result of loss of exempt status due to failure to file annual reports for three consecutive years, grants and contributions made to the organization by persons unaware of the change in the status of the organization generally will be considered allowable if made on or before the date of publication of the list of revoked organizations. The IRS may disallow a deduction for any contribution made after revocation of exempt status but prior to the published notice of the revocation where the grantor had knowledge of the revocation prior to publication, was aware that revocation was imminent, or was, in part, responsible for the revocation. Publication on the list of organizations whose tax-exempt status has been revoked is intended to serve as a notice to donors and others that they may no longer rely on a prior listing in Publication 78.
Revenue Procedure 2011-36 (www.irs.gov/pub/irs-drop/rp-11-36.pdf) (Reduced Fee for Reinstatement) reduces to $100 the user fee charged for the reinstatement of exempt status of small exempt organizations that normally have annual gross receipts of not more than $50,000 whose exemption was automatically revoked pursuant to Code Section 6033(j).
Notice 2011-43 (www.irs.gov/pub/irs-drop/n-11-43.pdf) (Transitional Relief) provides transitional relief for small organizations that had their exempt status revoked because they failed to file a required annual electronic notice for the last three consecutive years. An organization with annual gross receipts of less than $50,000 that qualifies for transitional relief pursuant to the criteria set forth in this Notice, and applies for reinstatement of exempt status by December 31, 2012, will be treated as having established reasonable cause for failure to file annual returns and exempt status will be reinstated retroactive to the date it was revoked.
Notice 2011-44 (www.irs.gov/pub/irs-drop/n-11-44.pdf) (Process for Reinstatement) sets forth the steps that an organization must take to apply for reinstatement of exempt status and request retroactive reinstatement after an organization's tax-exempt status was automatically revoked under Code Section 6033(j). An organization must use the same form filed by other applications for recognition of tax exemption to seek reinstatement, and must pay the applicable user fee. If an organization is seeking retroactive reinstatement, it must submit information demonstrating reasonable cause for failure to file an annual report, among other supporting materials.
The Treasury Department and the IRS intend to issue regulations under Section 6033(j) of the Internal Revenue Code, implementing rules regarding the application for reinstatement of tax-exempt status and the request for retroactive reinstatement. Comments are currently being solicited on the materials and issues addressed in Notice 2011-44. Comments are due August 19, 2011.