Recycling Market Development Zone Tax Credit

A prospective CDE applies to the state to be authorized to raise their respective portion of the total $50 million. Once approved by the state, the CDE raises its authorized amount by issuing 58% income tax credits provided by the state to the investors who invest in each CDE’s respective funds.

The tax credits are funded through the premium tax collected on all insurance premiums in the state, and the credit is claimed against premium taxes owed to the state. Once each CDE has raised its authorized portion of the $50 million, it must invest 85% of the funds raised into eligible small businesses throughout the state with no one business receiving more than $4 million in investments.

To be considered eligible, a company must: — Be located in a distressed or severely distressed census tract according to the 2010 census — Fit the Small Business Association’s (SBA) definition of a small business

— Not derive more than 15% of its profits from the sale of real estate

Each CDE must invest the funds it raises within 12 months. The investments are monitored by the state for the next seven years to ensure compliance and track the success of each investment. Additionally, the statute requires that each CDE reinvest portions of the interest or dividends earned from the investments made into additional qualified small businesses in the state, resulting in 150% of the original allocation amount awarded to each CDE being invested by the end of seven years.

Advantage Capital, Enhanced Capital and Stonehenge Capital each received authorization in 2014 to raise one-third of the $50 million total award. The three CDEs had until December 2015 to invest at least 85% of their respective funds (or $14.2 million) with a six month cure period if they do not meet this deadline.

Moreover, each CDE will be required to reinvest 50% more of this allocation amount (or an additional $8.3 million) into other qualified small businesses by the end of the seven-year program.

As of the end of CY 2018, the three participating CDEs had made investments into 25 small businesses in Utah totaling $49,729,529. The office issued $6,000,000 in tax credits in CY 2018 pursuant to the statutory requirements.

U.C.A. 63N-2-401

The Recycling Market Development Zone (RMDZ) is designed to attract business growth to Utah’s industrial and manufacturing industries, it incentivizes businesses to remove recyclable materials from solid waste streams or to use recyclable material to create new marketable products. Participating companies receive tax credits on purchases of equipment and/or labor and materials used in the establishing and operating recycling technology.

Initiatives

Cities and counties continue to look to the benefits of Recycling Zone tax credits for businesses involved in renewables manufacturing and recycling. Some have reapplied for the zone area designation not only as an incentive to local businesses but also as part of their waste management master plans. The key initiative is to inform city and county governments of the benefits of recycling and to offer tax incentives to businesses within the recycling industry for making capital investments in equipment and operations.

Challenges and Achievements

Many large recycling companies rely upon the tax credit from year to year as they make significant expensive capital purchases to maintain operations and to divert recyclables from the regular waste stream. The challenges include updating map records for the Compliance Department and designing a system for easier claims. The Office of Rural Development will continue to review the renewal of RMDZ applications as cities and counties submit them until the program sunset date in 2021.

Outcomes

In CY 2018, eight tax credit claims totaling $161,931 of credits were issued for $2,918,611 of private capital purchases and operational expenses of $16,325,364.

Recycling Zone CY 2017 CY 2018*

Number Issued

11 8

Amount $451,121 $161,931 Private Capital & Expenditure $13,165,778 $19,243,976

* Information as of September 10, 2019.