NEW LAW CLOSES TAX CREDIT LOOPHOLE

A loophole in a state program that provides income tax credits for new and expanding businesses located in enterprise zones, was closed under a bill signed into law this week by Gov. John Ashcroft.

Under the old law, businesses could apply for the tax credits up to five years after the expansion and regardless of whether the investment led to additional jobs.

"The original concept of the tax credit was an incentive to create jobs, not a reward in retrospect for doing business in Missouri," said Rep. Joe Driskill, D-Poplar Bluff.

"I pushed it in the House and thought it was something we should have done a long time ago. It is not fair to give a subsidy to a business that will not use taxpayer-paid benefits to provide more jobs. I see the program as an incentive to provide jobs."

Driskill, who is chairman of the House Commerce Committee, said he feared negative public reaction that might jeopardize future tax credit and abatement programs for expanding jobs in Missouri.

"I felt it was important for me and my committee to close this loophole," said Driskill.

Bob Hendrix, president of the Cape Girardeau Chamber of Commerce, said he feels like closing the loophole is a positive step.

"The intent of the legislation was to stimulate new activity that would not be there without the tax credits," said Hendrix. "On the other hand, you can't blame businesses for taking advantage of the credits if it was legal to do so.

"The whole idea of the enterprise zone concept and tax credits is to provide an incentive for building or expanding, not as a reward for building or expanding."

Like Driskill, Hendrix said he feared a backlash could have developed that could have ended legitimate tax credits for expanding businesses.

Driskill said the Department of Economic Development had determined that more than $1 million in tax credits had been claimed from businesses after they had already made their improvements.

Hendrix pointed out that "it had become a big business of companies going around and finding the people that did all these improvements and convincing them to file for it for a percentage of the rebate."

Driskill said most of the opposition to the law change came from an Indianapolis-based company known as C.I.C. that was helping find businesses who had tax credits coming from previous years.

He noted that the company was collecting up to 50 percent of the tax credits as a fee. By the end of the legislative session, Driskill said the company had six lobbyists hired to oppose the bill.

The loophole measure was included as part of Senate Bill 661, which Driskill said became in omnibus economic development bill in the House as a variety of related matters were added to it.

Driskill said the other provisions of the bill should go a long way toward improving economic development opportunities in the state.

One provision requires the Department of Economic Development to sign contracts with all future recipients of state assistance for locating plants in the state, where they will have to pay back all benefits if they do not live up to the obligations of the contract.

"This is to insure that we are not just giving away taxpayers' money to a particular business but getting something out of it," declared Driskill.

Another section is designed to encourage people to invest in small businesses. The provision allows an investor to take up to a 30 percent tax credit for investing up to $50,000 in a small business that they would not be the majority owner of.

"This is an idea from the Department of Economic Development to create another pool of investment capital for small businesses, with 100 employees or less," said Driskill.

Another part of the bill is designed to strengthen the small business development center program. Centers are operating around the state, including one at Southeast Missouri State University and one operated by Three Rivers Community College in Poplar Bluff.

Driskill said the centers are important to small businesses in the state, but some institutions, like Southeast, have indicated they will not be able to fund the administrative costs after one more year. The bill provides for the centers to be funded through the Department of Economic Development, through a budget appropriation.

Another part of the bill expands the availability of new and expanding business and enterprise zone tax credits for the facilities related to truck, rail and barge operations. "This legislation could be very valuable to ports in the state," noted Driskill.

Some of the other parts of the bill would: aid in the diversification of defense and automobile industry jobs in Missouri; set up an exchange program for students to study the economy and business practices of other countries, using private funding but channeling the money through the state; and expanding the link deposit program to cover water pollution control projects and dairy farms.