Lawsuit challenging Idaho’s tax reimbursement incentive dismissed
A lawsuit filed by an Idaho company challenging the state’s tax-reimbursement incentive program – because it was awarded to a new competitor – has been dismissed. Fourth District Judge Samuel Hoagland, in a ruling issued Monday, wrote that claims by the company, Employers Resource Management Corp., that the state tax incentive for competitor Paylocity is forcing it to increase salaries and benefits to avoid losing workers to the new firm and made it buy “competitive software” to compete weren’t evidence that the state incentive program injured the Idaho firm.
“In short, ERMC has no protectable, legal interest that has been directly damaged by the Act; the claim of injury is ill-defined, fuzzy, and speculative, essentially self-inflicted in mere anticipation and expectation of what may happen,” the judge wrote.
ERMC didn’t apply for the state tax incentive; it sued because Paylocity got it. The company, whose co-founder and CEO is George Gersema, has complained bitterly since Paylocity got the incentive last year; its cause has been championed by the Idaho Freedom Foundation. Christ Troupis represented the firm in the lawsuit.
Hoagland dismissed the case for lack of standing, ruling that the company didn’t articulate any injury from the government program. “Fundamentally, courts avoid wading into political issues which are better left for the other two branches of the government which are better equipped to address,” the judge wrote. Standing, he wrote, is among mechanisms “established to make sure that courts stay within their roles to decide actual live controversies between parties.”
The lawsuit charged that the tax incentive was "rewarding cannibalization of existing Idaho businesses by new entrants into the Idaho business market."
The Tax Reimbursement Incentive program, enacted by the state Legislature two years ago at the urging of then-state Commerce Director Jeff Sayer, offers qualifying companies a tax credit of up to 30 percent of their income, payroll and sales taxes paid for up to 15 years, if they create specified numbers of new full-time jobs with salaries equal to or higher than the average in the county. In rural areas, companies must create 20 new jobs to qualify; in urban areas, it’s 50 new jobs. The incentive is an after-the-fact reimbursement of the taxes paid; companies must prove each year that they meet the requirements to receive it.
Applications are accepted by the state commerce director and reviewed for approval by the Idaho Economic Advisory Council. Both existing companies and companies new to Idaho are eligible; Idaho has awarded the incentive to 30 projects so far.
The Employers Resource lawsuit was filed against current state Commerce Director Megan Ronk. “We are very pleased with the ruling,” Ronk said in a statement today. “Since its inception, the TRI has provided a substantial return on the investment by spurring more than $2 billion in new payroll to Idaho and we’re excited about future opportunities. Most importantly, the Idaho businesses that drive our economy have equal access to this incentive so they can continue to expand and grow.”
The award to Paylocity, estimated at $6.5 million, covers 28 percent of the company’s specified taxes paid for 15 years, in return for the company creating 551 jobs at an average salary of $46,200 and making a capital investment of $5 million in the Boise/Meridian area. It was one of 16 awards in 2015, and was the largest; 11 of the 2015 awards were for less than $1 million. You can see all of Idaho's approved awards online here, and read the judge's full ruling here.
