An entrepreneur's guide to state policies taking effect at the start of 2006.
Solar energy rebates
The state is now offering a 25% tax credit (up to $1,000) to individuals and businesses installing solar panels and other systems that enable them to produce their own juice. A few utilities, like Tucson Electric Power, will cover an additional 30% of the cost.
Tax credits on office space
Under the Small Employer Incentive Act, businesses may qualify for income and property tax credits when they invest up to $125,000 in any one year in headquarters or administrative buildings. Fast-growing businesses can also apply for a separate set of tax credits, which reward companies for creating at least 500 jobs.
New funds for R&D
In order to boost the tech sector (and with it, the state's GDP), the legislature has boosted funding for R&D from the current $40 million to $120 million in 2010. Some of the money is earmarked for seed capital for tech firms.
Tax exemption on machinery
The purchase, lease, rental, and repair of manufacturing machinery and equipment is now exempt from the state sales tax.
Across-the-board tax reform
Starting in 2006, personal income tax rates will be scaled back over five years, with the top rate dropping to 6% from 7.5%. The corporate franchise tax will be replaced by a commercial activity tax, which amounts to a flat 0.26% tax on corporate gross receipts. The state will begin phasing out the personal property tax on machinery, furniture, and inventory. The plan was devised to stem manufacturing job losses, which have topped 200,000 since 2000.
Lower corporate income tax
This high-tax state is dropping its corporate income tax brackets, saving businesses an estimated $4.8 million annually. The top rate falls to 6% from the current 9.5%.
Lower sales tax on food
The tax on consumer food products drops to 5% from 6%. The category includes soft drinks, candy, and dietary supplements. The old 6% rate is still assessed on sales of alcohol and tobacco products, however.
Tax exemption on energy costs
Fuel and electricity bills for manufacturing companies are now tax-exempt. The exemption improves upon a tax credit system that was implemented in 2004.
Crackdown on "pay-to-play"
Politically active business owners who do business with the Garden State may face added scrutiny this year. Governor-elect Jon Corzine has vowed to make good on a campaign promise to put an end to "pay-to-play" relationships between lawmakers and campaign contributors who sell products or services to state agencies.
America's toughest smoking ban
Considered the broadest law of its kind in the nation, the measure outlaws smoking in all workplaces, public buildings, and even private clubs. Outdoors, smokers need to stand 25 feet from any door, window, or vent of a public building. Most tavern owners and restaurateurs worry that the ban will hurt business. But studies examining the impact of smoking bans in New York and Oregon have found that they actually helped some businesses draw new customers.
Energy costs rise sharply
State regulators are allowing Florida Power & Light, the state's largest power company, to enact its heftiest rate hike ever. Business owners can expect to see their utility bills rise by 30% to 41% this year.
Retroactive capital gains tax
The state's department of revenue is notifying 48,000 taxpayers that they owe retroactive capital gains taxes. The past-due bills stem from a disputed midyear rate increase enacted in 2002. Half of the new taxes will affect just 278 individuals, who owe, on average, $281,000 each.
The era of tiny government is over
In November, voters rejected part of the 13-year-old Taxpayer's Bill of Rights, which means that the state can spend $3.7 billion on roads, schools, and hospitals rather than refunding it to taxpayers. Though companies will miss the refunds, the investment in infrastructure was long overdue.
Deferring a big loan payment
Last November, the Labor Department accepted the state's plan to repay the $238 million it borrowed beginning in 2003 to finance its unemployment benefit fund. If the Feds had rejected the plan, businesses would have forfeited federal tax credits of up to $50 million. Still, Missouri will have to apply for a tax reprieve again this year, and for as long as it owes money to the Feds.
Changes to the tax code
Joy over a new tax exemption for farm machinery and irrigation equipment has muted concerns over an increase in the sales tax to 4% from 3%.
Last updated: Jan 1, 2006
DARREN DAHL is a contributing editor at Inc. Magazine, which he has written for since 2004. He also works as a collaborative writer and editor and has partnered with several high-profile authors. Dahl lives in Asheville, NC.