Third Circuit Denies Rehearing in ‘Historic Boardwalk Hall' Tax Credit Case

The U.S. Court of Appeals for the Third Circuit Oct. 22 denied a petition for a rehearing en banc in the closely watched Historic Boardwalk Hall case in which the court held that an investor in a syndicated partnership that shared in federal historic rehabilitation tax credits was not a bona fide partner (Historic Boardwalk Hall LLC v. Commissioner, 3d Cir., No. 11-1832, filed 10/22/12).

HBH filed a petition for rehearing Oct. 10, arguing that the Third Circuit's decision was contrary to the U.S. Supreme Court's holding in Commissioner v. Culbertson, 337 U.S. 733 (1949), because it constituted “a holding that a partner who has no right to a return of its capital contribution either directly or indirectly from a partnership nonetheless has no risk with respect to its capital, and therefore is not a partner for federal income tax purposes.”

In 2011, the U.S. Tax Court had held that a partnership formed to allow Pitney Bowes to invest in the historic rehabilitation of the East Hall of the Atlantic City, N.J., convention center was entitled to claim historic rehabilitation tax credits because the partnership was not a sham lacking economic substance.

The Third Circuit reversed Aug. 27, 2012, holding that Pitney Bowes was a partner in form, not in substance, and could not claim the tax credits regardless of whether the transaction otherwise had economic substance.

New Public-Private Partnership to Support U.S. Manufacturing Innovation

The Obama Administration announced on August 16 the launch of a new public-private institute for manufacturing innovation. The new partnership, the National Additive Manufacturing Innovation Institute, was selected through a competitive process to receive an initial award of $30 million in federal funding, matched by $40 million from the winning consortium. The consortium includes manufacturing firms, universities, community colleges, and non-profit organizations from the Ohio-Pennsylvania-West Virginia "Tech Belt."

On March 9, 2012, President Obama announced his plan to invest $1 billion to catalyze a national network of up to 15 manufacturing innovation institutes around the country that would serve as regional hubs for manufacturing. The President called on Congress to act on this proposal and create the National Network of Manufacturing Innovation. Five federal agencies—the Departments of Defense, Energy, and Commerce, the National Science Foundation, and NASA—jointly committed to invest $45 million in a pilot institute on additive manufacturing. Additive manufacturing is a process of making three-dimensional solid objects from a digital model.

New York, NYC Biotechnology Credit Extended

L. 2012, S7462 (c. 429), effective 08/17/2012, extends the authorization for New York City to provide a biotechnology credit against the general corporation tax, unincorporated business tax, and banking corporation tax until January 1, 2016. Previously this credit was only authorized until January 1, 2013.

California Postpones Action on Technology Transfer Agreement Tax Rules

California's State Board of Equalization postpones issuance of regulations governing taxation of software technology transfer agreements from November to at least January 2013 due to universal opposition from the business community to the board's draft proposals so far. SBOE is working toward regulations on taxation of TTAs in the wake of a January 2011 state appellate court ruling in Nortel Networks Inc. v. SBOE. In that case, the court said SBOE exceeded its authority when it excluded all prewritten software from TTAs, which are exempt from sales tax. At an SBOE meeting, Tax Policy Division Chief Susan Buehler tells the five board members that a second interested-parties meeting is being moved from September to January to give board staff and interested parties more time to submit comments and work toward agreement. Formal regulations will be proposed after the next interested-parties meeting.

Mississippi, Tax Sale Record Fees

The Mississippi Attorney General issued an opinion stating that the $50 fee charged by the clerk of the Chancery Court for determination of the record owner of property sold at a property tax sale under Miss. Code Ann. § 27-43-3 may be charged at the time of redemption, whether that occurs before or after the start of the 180-day notice period preceding the expiration of the redemption period under Miss. Code Ann. § 27-43-1. Accrual of the fee is dependent upon redemption of the property, not on the notice period, and the statute does not prohibit the clerk of the Chancery Court from performing work to ascertain the record owner of the property before the 180-day notice period. (Attorney General Opinion, 2012-00135, 07/20/2012.)

USDA Funds Boost Renewable Energy Production

The U.S. Department of Agriculture (USDA) on August 14 announced that 106 projects in 29 states, Guam, and Puerto Rico have been selected to receive funding for the production of renewable energy and energy efficiency improvements. Funding comes through the USDA's Rural Energy for America Program (REAP).

One example of a selected project is in Washington County, Iowa, where a recipient is receiving a guaranteed loan to construct a 50 kilowatt (kW) wind turbine at his agricultural business. The turbine is expected to generate approximately 103,200 kilowatt-hours (kWh) of electricity annually, enough to meet the annual requirements of nine homes. WTE-Dallmann LLC in Calumet, Wisconsin, is another recipient of a REAP grant to help fund the installation of an anaerobic digester that will generate more than 4.8 million kWh of electricity, power for about 420 homes annually. The electricity will be sold to the local utility.

Economic Gardening

With economic uncertainty looming, progressive American regions have chosen to adopt new economic development approaches.   One innovative approach to the ever elusive hunt for jobs is simply to create your own.  Instead of directing precious financial resources towards carefully crafted plans that focus on recruiting new business from “outside-in,” economic gardening embraces a philosophy designed to generate new jobs from the existing base of businesses already located within the community.  Diversifying a community’s economic development portfolio to embrace an economic gardening model hinges upon providing targeted incentives such as a job creation tax credit, educational enhancements, and networking opportunities to innovative home-grown businesses operating in the region.  While the success of traditional economic development recruiting can bring about a great deal of publicity and create a large number of jobs, not all communities will be able to succeed at the game of landing the big projects.  Some communities will have difficulty producing the right amount of incentives to lure high-profile jobs; however, by using the long term “inside-out” economic gardening approach, the payoff in terms of job creation and economic growth for certain communities could be huge.

A prime example of the philosophical framework behind Economic Gardening is found in Littleton, Colorado. Not unlike many small towns in Mississippi, the community of Littleton consisted of roughly 40,000 and was attempting to recover from the layoff of several thousand employees by the town’s major employment anchor. In response, Littleton’s community leaders looked inward by focusing on its entrepreneurial economic development infrastructure instead of loading its lure with quick fix incentives in search of the big project.

The framework for economic gardening is both innovative and simple.  At its core, the philosophy suggests that a sustainable economic development policy must strike a balance between applying “outside-in” and “inside-out” growth strategies, subject to the unique attributes and resources of a given community.   Littleton’s policy was based on a simple belief: small local entrepreneurial firms would be the engine for the creation of sustainable wealth and new jobs, and the role of the city was to provide a nurturing environment within which these small firms could flourish.  As a testament to economic gardening’s vitality, other communities throughout the United States have also experienced success as a result of diversifying their economic development portfolio.

In Oakland, California, the city’s economic development office launched an economic gardening program that encouraged entrepreneurialism in connection with the abundance of venture capital firms throughout the region.  In Santa Fe, New Mexico, the Santa Fe Economic Development, Inc. crafted a plan using economic gardening principles to use conventional industry cluster development techniques to create jobs from existing local businesses.  In Madison, Wisconsin, the State of Wisconsin used economic gardening principles to establish the Wisconsin Entrepreneurs’ Network and Wisconsin PeerSpectives Network to enhance connectivity and exchange amongst business owners and community leaders.

One of the main goals of Economic Gardening is to create an environment where entrepreneurs can flourish. Of particular importance to this concept are intellectual stimulation, openness to new ideas, and the support of infrastructure like venture capital and local universities.  Embedded within this economic model is also the notion of Mississippi’s creative class – a development which contends that creative companies and creative entrepreneurs are responsible for a great deal of Mississippi’s new jobs and wealth. Thus, nurturing Mississippi’s creative environment is conducive to entrepreneurial activity and prosperity.  As noted by the Mississippi Arts Commission’s and Mississippi Development Authority’s joint study to explore the realization of the economic potential of creativity in Mississippi, communities in Mississippi stand poised to reap the rich benefits of their cultural and creative splendor. Moreover, economic development practitioners see Mississippi’s creative class as a vehicle for job creation and economic opportunity for communities throughout the state.

For cash strapped communities suffering from revenue shortfalls, economic development from a localized approach may be the key. In January 2011, the State of Mississippi, through the Mississippi Development Authority’s Pilot Entrepreneur Training Program, launched an effort to target small businesses and entrepreneurs in order to introduce them to business planning resources, the legal aspects of business and management, human resources and management principles, marketing research and analysis, financial statement resources, trade and exporting, government contracting and information on purchasing or expanding a business. Thus, the key to the puzzle is for communities to seek to generate added value from their rich cultural and historic heritage. Each community should seek to find its own economic development identity or form regional clusters to pool their resources with neighboring communities. In diversifying a community’s economic development portfolio, community leaders must be confident in the proposition that there is a light at the end of the tunnel because entrepreneurs ultimately drive the United States economy.