Can a buyer of the Waterville Hathaway plant qualify for Maine E-TIF benefits by rehiring the existing workforce?

Plain-English summary

Maine's Employment Tax Increment Financing Act (E-TIF), enacted in 1995, reimburses qualified businesses for a portion of state income withholding taxes paid on behalf of a defined set of new high-quality jobs. The point of the program is to encourage employers to create net new jobs, not to subsidize routine business transitions. Senator Richard Carey asked Attorney General Andrew Ketterer whether a prospective buyer of the Hathaway plant in Waterville could qualify for E-TIF benefits by hiring the existing workforce upon taking over the operation.

The AG concluded the buyer would not qualify. The technical reason is a definitional chain in the E-TIF statute, but the underlying intent is straightforward: Maine did not want to pay incentives for jobs that already existed.

Surface qualification. On a surface read, the buyer could appear to qualify. A "qualified business" is one that adds 15 or more "qualified employees" above its base level of employment within a 2-year period commencing on or after January 1, 1996. 36 M.R.S.A. § 6753(11). The buyer would have a base level of zero (it did not previously exist as a Maine employer in this plant). Hiring 15+ of the Hathaway workforce would look like adding qualified employees from zero.

The affiliated-business adjustment. But § 6757 requires the State Tax Assessor to subtract, from the gross employment tax increment, the revenues attributable to business activity shifted from "affiliated businesses." § 6753(1) defines "affiliated businesses" as two or more businesses where one owns 50% or more of the other's stock or a controlling interest, or where 50% or more of the stock or a controlling interest is acquired by common owners, "whether by acquisition of substantially all of the assets, 50% or more of the stock or through a merger, consolidation or reorganization." The AG read the phrase "acquisition of substantially all of the assets" to bring a buyer and seller of a plant into the affiliated-business definition for E-TIF purposes, even though the buyer and seller would not normally be considered "affiliated" in ordinary corporate-law terms.

Worked example. The AG ran the numbers. Suppose Hathaway (H) paid $1 million in Maine withholding taxes in 1995 and $500,000 in the first half of 1996. The buyer (M) takes over and the same employees pay $500,000 in withholding taxes in the second half of 1996. M's "gross employment tax increment" for 1996 is $500,000 (the increase from M's zero in 1995). But after the § 6757 affiliated-business adjustment, the combined withholding by H and M ($500,000 + $500,000 = $1,000,000) shows no growth over H's 1995 total of $1,000,000. So the affiliated-group growth is zero. M's gross employment tax increment ($500,000) minus the difference between M's growth and the affiliated-group growth ($500,000) equals zero. No E-TIF benefit.

Legislative-history backstop. Even if the statutory text were ambiguous, the AG pointed to clear legislative intent. The task force that recommended E-TIF wrote that "[t]he proposed law would contain protection against benefits being awarded for ... jobs created through purchases of ... other Maine businesses. The test is whether the new quality jobs are net new jobs on a state-wide basis." The Act's declared public purpose (§ 6752) confirms the focus on "net new quality jobs."

So the structural protection in § 6757 was deliberate. A successor employer simply continuing the predecessor's operation does not get E-TIF benefits.

Currency note

This opinion was issued in 1996. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Common questions

What is E-TIF?

The Maine Employment Tax Increment Financing Act (36 M.R.S.A. § 6751 et seq.), enacted in 1995. It reimburses qualifying employers for a portion of state income withholding taxes attributable to a defined set of new high-quality jobs. The program was designed to encourage net new job creation, not to subsidize ordinary employer transitions.

Why does the AG treat the buyer and seller as "affiliated"?

The E-TIF statute's definition of "affiliated businesses" (§ 6753(1)) is broader than the corporate-law usage. It expressly captures an "acquisition of substantially all of the assets" of one business by another, even where the buyer and seller are otherwise unrelated. The AG read this language as a deliberate widening of the term to prevent E-TIF gamings.

What would the buyer have to do to get E-TIF benefits?

Add 15+ "qualified employees" above the affiliated-group's base level on a net basis. In the Hathaway scenario, that means the buyer would have to grow the workforce beyond the level Hathaway was previously employing, and the additional jobs would have to meet the "qualified employee" criteria (above the labor market's average per capita income, with retirement and group health coverage).

Does this mean every plant-purchase scenario is excluded from E-TIF?

Not exactly. A buyer who genuinely grows the business beyond the prior level, generates net new high-quality jobs above the affiliated-group's base, and meets the other criteria, can still benefit (on the marginal new jobs, not on the preserved ones). The opinion's point is that a one-for-one retention of the predecessor's workforce produces zero E-TIF benefit after the § 6757 adjustment.

Does this opinion bind the State Tax Assessor?

AG opinions are persuasive, not binding precedent. The State Tax Assessor's actual administrative determinations would apply the statute (and the AG's reading) in specific cases.

Background and statutory framework

E-TIF was enacted as P.L. 1995, ch. 669, § 5, in 1995. Codified at 36 M.R.S.A. § 6751 et seq. Key definitions: § 6753(1) ("affiliated businesses"); § 6753(7) ("employment tax increment"); § 6753(9) ("gross employment tax increment"); § 6753(11) ("qualified business," requiring 15+ qualified employees above the base level); § 6753(12) ("qualified employees," requiring above-average wages plus retirement and health coverage). Substantive provisions: § 6754 (reimbursement up to 10 years); § 6757 (adjustment for affiliated-business shifts). Purpose declared in § 6752.

Legislative-history source: Task Force on Tax Increment Financing, Final Report to 117th Legislature (Jan. 31, 1996), which preceded enactment via L.D. 1797.

Citations

• 36 M.R.S.A. § 6751 et seq. (Maine Employment Tax Increment Financing Act)
• 36 M.R.S.A. § 6752 ("net new quality jobs" public purpose declaration)
• 36 M.R.S.A. § 6753(1) ("affiliated businesses" definition)
• 36 M.R.S.A. § 6753(7) ("employment tax increment" definition)
• 36 M.R.S.A. § 6753(9) ("gross employment tax increment" definition)
• 36 M.R.S.A. § 6753(11) ("qualified business" definition)
• 36 M.R.S.A. § 6753(12) ("qualified employees" definition)
• 36 M.R.S.A. § 6754 (reimbursement, up to 10 years)
• 36 M.R.S.A. § 6757 (affiliated-business adjustment)
• P.L. 1995, ch. 669, § 5 (enacting E-TIF)
• L.D. 1797 (predecessor bill)
• Task Force on Tax Increment Financing, Final Report to 117th Legislature (Jan. 31, 1996)

Source

• Landing page: https://www.maine.gov/legis/lawlib/lldl/agops/agops.htm
• Original PDF: https://lldc.mainelegislature.org/Open/AG/Opinions/1996/ag_19960708.pdf

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain, the linked PDF is authoritative.

96-7

ANDREW KETTERER
ATTORNEY GENERAL

STATE OF MAINE
DEPARTMENT OF THE ATTORNEY GENERAL
6 STATE HOUSE STATION
AUGUSTA, MAINE 04333-0006

July 8, 1996

The Honorable Richard Carey
P.O. Box 474
Belgrade, ME 04917

Dear Senator Carey:

In your request of June 4, 1996, you inquire whether a potential purchaser of the Hathaway plant in Waterville could qualify for reimbursement under the newly-enacted Maine Employment Tax Increment Financing Act (P.L. 1995, c. 669, § 5, enacting 36 M.R.S.A. § 6751 et seq.) by employing persons currently employed at that plant, thereby effectively continuing their employment. For the reasons described below, this Department concludes that such an arrangement would not qualify for E-TIF benefits.

The Act provides that qualified businesses may receive partial reimbursement of state income withholding taxes for qualified employers for up to 10 years. 36 M.R.S.A. § 6754. 36 M.R.S.A. § 6753(11), insofar as relevant, defines "qualified business" as

... any for-profit business in this State ... that adds 15 or more qualified employees above its base level of employment in this State within any 2-year period commencing on or after January 1, 1996 and that meets one of the following criteria [relating to whether the business engages in retailing and, if so, the nature of the retail operation].

Section 6753(12), in turn, defines "qualified employees," insofar as relevant, as

... new, full-time employees hired in this State by a qualified business and for whom a retirement program ... and group health insurance are provided, and whose income, calculated on a calendar year basis is greater than the average annual per capita income in the labor market area in which the qualified employee is employed and whose state income withholding taxes are subject to reimbursement to the qualified business under [the Act]....

The relevant base level of employment appears to be that of the prospective employer in the case you present. In addition, "new ... employees hired ... by a qualified business" is reasonably read to mean employees new to that prospective employer.

However, the "employment tax increment," upon which the reimbursement depends, calls for adjustment of incremental state income withholding taxes to account for shifts in employment by "affiliated businesses." 36 M.R.S.A. § 6757. Thus, it is necessary to determine whether the current owner of the Hathaway plant and its hypothetical successor in operating that plant fall within the definition of "affiliated businesses." 36 M.R.S.A. § 6753(1) provides that

"[a]ffiliated businesses" means 2 or more businesses exhibiting either of the following relationships:

A. One business owns 50% or more of the stock of the other business or owns a controlling interest in the other; or

B. Fifty percent or more of the stock or a controlling interest is directly or indirectly owned or acquired by a common owner or owners following approval by the commissioner, whether by acquisition of substantially all of the assets, 50% or more of the stock or through a merger, consolidation or reorganization.

Although the terms "affiliated businesses" and "controlling interest" do not ordinarily apply to corporations that are not related through common ownership, the definition in section 6753(1) appears to contemplate that the concept of a "controlling interest" includes the purchase of substantially all (or presumably all) the assets of one corporation by another corporation. At the very least, therefore, this language creates an ambiguity as to whether a corporation that buys the assets of another corporation and the corporation selling those assets must be treated as "affiliated businesses" for purposes of the Act.

Since the definition of "affiliated businesses" is arguably ambiguous, recourse to legislative history of the Act is appropriate. That history makes it clear that a successor corporation such as you have described was not intended to benefit from the E-TIF program. The program originated with Legislative Document 1797, "An Act to Implement the Recommendations of the Task Force on Tax Increment Financing." The final report of that task force stated that "[t]he proposed law would contain protection against benefits being awarded for ... jobs created through purchases of ... other Maine businesses. The test is whether the new quality jobs are net new jobs on a state-wide basis." (emphasis in original). Task Force on Tax Increment Financing, Final Report to 117th Legislature at 3 (Jan. 31, 1996). This goal of "net new quality jobs" (emphasis added) is also stated in Section 6752, the declaration of the Act's public purpose.

In the view of this Department, the present and prospective owners of the Hathaway plant constitute "affiliated businesses," whether by the plain language of Section 6753(1) or by reference to legislative history to clarify a perceived ambiguity. Therefore, Section 6757 must be applied to adjust the "employment tax increment." Section 6757 provides, insofar as relevant:

The State Tax Assessor shall calculate the employment tax increment for a particular program by removing from the gross employment tax increment the revenues attributed to business activity shifted from affiliated businesses to the applicant. This adjustment is calculated by comparing the current year's income withholding tax revenues for the applicant business that is a member of an affiliated group with revenues for the group as a whole. ... If the growth in income withholding tax revenue for the affiliated group is less than the growth in income withholding tax revenue for the applicant, the difference is presumed to have been shifted from affiliated businesses to the applicant and the gross employment tax increment for the applicant business is reduced by the difference....

When this adjustment is made, there is no "employment tax increment" in the scenario you describe. For example, if the employees of H (the current owner) paid $1 million in Maine withholding taxes in 1995 and $500,000 in the first half of 1996 and those same individuals paid $500,000 in Maine withholding taxes for the second half of 1996 as employees of M (the prospective buyer), M would have a "gross employment tax increment" of $500,000 for 1996 ($500,000 for 1996 as compared to zero for 1995). However, when the Section 6757 adjustment is made, M would have no "employment tax increment." The $1 million withholding of taxes by the affiliated businesses in 1996 ($500,000 by H and $500,000 by M) represents no growth over the amount of taxes withheld in 1995 ($1 million by H). Therefore, the difference between M's growth of $500,000 in 1996 and the affiliated businesses' growth of zero must be deducted from M's gross employment tax increment, thereby reducing M's employment tax increment in 1996 to zero. Accordingly, this Department concludes that the prospective owner you describe is not entitled to E-TIF benefits.

I hope the foregoing answers your question. Please feel free to reinquire if further clarification is necessary.

Sincerely,

ANDREW KETTERER
Attorney General

AK/dab