Utah businesses are offered tax breaks worth millions to create jobs. What if they lay off workers instead?

One bad year doesn’t nullify a company’s contract with the state, but it can reduce their tax rebate.

Pluralsight laid off employees for the third time in eight months in July, despite having a contract with the state worth up to $21 million in tax credits for creating more than 2,000 jobs over 10 years.

The layoffs will likely affect the company’s ability to claim those credits, said Jim Grover, director of grants and incentives for the Governor’s Office of Economic Opportunity.

The deals offered by the state are pass/fail each year, he explained: Companies that can’t prove net growth don’t get a tax credit for that year.

The state’s incentive program, called Economic Development Tax Increment Finance (EDTIF), offers tax credits to companies who move to or expand in Utah. The idea is that more jobs create more tax revenue, and businesses who foster that growth should get an incentive.

The program has benefited big-name businesses like Adobe, Meta and Procter & Gamble, according to the program’s website. Its primary target, though, is local entrepreneurs, the office has said, and two-thirds of the credit’s recipients are Utah-based companies.

How does the credit work, and what happens for companies who fail to meet their end of the bargain?

How does the program work?

EDTIF is a tax credit awarded to companies “post-performance.” That means the state doesn’t award anything until a business has filed its taxes and the state can verify growth.

“If a company performs, they get a rebate,” Grover said.

The first step for an interested company is to apply. Certain businesses looking to move to or expand in Utah request this type of financial support through the Governor’s Office of Economic Opportunity. The office will look at a company’s financials and its proposed goals.

“We want companies that either come to Utah or stay in Utah to be successful,” Grover said. “We don’t want to provide an incentive for a group that doesn’t have the means to do what they’re planning on doing.”

Approved applicants sign a contract with the state that can last as few as five years or as many as 20, but companies have to prove their growth each year.

“It’s year-by-year, pass/fail,” Grover said. “It’s really important for these incented companies to know: when there’s a reduction in their Utah workforce, there’s already a mechanism in place where they will receive less incentive. And it might go away completely.”

What must companies show to get their rebate?

The office looks at these companies’ tax filings every year to determine whether their Utah staffing has grown, and by how much.

Yearly growth goals are laid out in the company’s application, Grover said, based on how much the company expects to grow over the duration of the contract. So, a company in a 10-year contract could forecast 100 new jobs total, split up by 10 per year.

Whether it meets that goal will be reflected in its tax filings, Grover said. The state will measure their tax filings against the growth projections in the company’s application to determine if the total number of jobs increased, and if the new jobs were high-paying.

It is possible for a company to fall short of its goal and still claim a rebate if its tax filings indicate net growth. But that rebate will be smaller and it will have more work to do the next year to make up for it, Grover said.

Economic development officials have three ways to measure growth; the first is state income tax withholdings. By checking the amount of money withheld from employees’ paychecks for state income taxes, they can determine whether that total grew over the last year.

“If they hired 50 new employees, we’ll be able to see that increased withholding tax,” Grover said.

The state also measures any increased sales tax or corporate tax revenue generated by a company’s expansion.

Can any business apply?

No. The state changed its parameters in 2022 based on geography and population. In urban counties on the Wasatch Front — Weber, Davis, Salt Lake and Utah — plus Washington County, the credit only applies to companies in “high-paying” industries, Grover said. High-paying industries, according to the state, include aerospace and defense, advanced manufacturing, financial services, life science and health care, and technology.

Urban businesses have a higher growth threshold, too, Grover said. Wasatch Front companies have to create at least 50 new jobs over the years of the contract, and those jobs need to pay at least 110% of the county average wage.

Businesses in rural counties don’t have a growth rate benchmark, nor do they have to be in a “high-paying” industry. They do, however, have to create new jobs that pay at least 100% of the average county wage.

“Off the Wasatch Front in rural Utah, every dollar matters,” Grover said.

What if a company falls short of its goals?

Simple, Grover said: They lose the incentive for that year, or get a smaller tax rebate.

“If there’s not a net increase, they don’t receive a rebate at all,” Grover said.

One bad year doesn’t nullify a company’s contract with the state. It can try again the following year, but the benchmark will be higher, because the state measures based on the company’s starting numbers.

So, Grover said, if a hypothetical business had 500 employees at the start of its contract, it has to have at least 550 employees by the end of the first year to qualify.

“Let’s say they hire 25 people in July, but come November and December, they lay off 300,” Grover said. “Not only do they not qualify, but in year two, they now have to rehire those 300 people.”

Grover said he could not talk about the specifics of Pluralsight’s contract with the state, or say whether the company will qualify for a rebate this year despite laying off employees. The state keeps secret both the details of the contracts — such as a company’s specific annual growth goals — and the results — whether or not a company obtained a rebate, or how much, in a given year.

Some states with similar tax credits are more transparent. Massachusetts, for example, publishes an annual report that details exactly how many jobs each company created and how much tax reward they claimed.

Utah’s office approved Pluralsight’s incentive application in 2017, according to state records. The company projected more than 2,000 jobs and $86 million in increased tax revenue over 10 years.

Utah does release percentage ranges for how much a company has received of its total possible rebate. As of April, Pluralsight had qualified for zero to 25% of its initially possible $86 million tax credit.

“If [Pluralsight] does qualify, they will receive a significant amount less than they would have,” Grover said. “And if they were to continue the downward trend, they very likely wouldn’t receive an incentive into years seven through 10.”

What happens to unclaimed tax credits?

Companies don’t always claim their tax credits. Roughly 30% to 40% of qualifying companies don’t claim their credit each year, the office said in 2022 — not necessarily because they are doing poorly, but sometimes because they are doing well enough not to need it.

That’s just “money left in the state’s coffers,” Grover said.

And if a business doesn’t qualify for a credit one year and therefore doesn’t claim it, the state still considers it a net gain.

“If a company comes to Utah, it’s putting money into the Utah economy,” Grover said. “They’re not getting their percentage back, so it’s a net increase.”