The competition among states to secure important industrial, technical, and corporate headquarters employers along with their valuable jobs continues unabated. Although articles abound on the pros and cons of giving tax incentives to businesses, one thing is certain: States and localities see the value of well-paying jobs in their jurisdictions and in keeping their residents employed.
A Variety of Tax Credits
Many states, particularly those in the South, offer a wide variety of tax credits and incentives that vary based on the amount of investment being made, the number of new jobs created, where the investment is being made (with greater credits made available to economically distressed areas), or other criteria. States also make tax credits available for specific industries, such as film tax credits available to production companies.
A few examples of tax credits for businesses from the many available are listed in the table:
Popular Tax Credits in Three Southern States
|Employer’s Jobs Tax Credit||Industrial Machinery Credit||New Jobs Credit|
|Manufacturer’s Investment Tax Credit||Job Tax Credit||Corporate Headquarters Credit|
|Headquarters Tax Credit||Qualified Production Credit||Capital Investment Credit|
|Film Tax Credit||Brownfield Property Credit||Motion Picture Credit|
|Quality Jobs Credit||
Financial Institution Credits
|Brownfield Cleanup Credit|
Business tax credits and incentives are valuable tools for economic expansion; however, a cost-benefit analysis is always necessary to assess the value and feasibility of pursuing the credit. Depending on the size of the project being considered, for example, a company may have to engage with multiple state or local government agencies, review the applicable statutes and regulations that explain the credit, determine the level of hiring that is anticipated both at the start and in the intermediate term, determine the anticipated investment in plant and equipment, and other factors.
The following is a list of some of the agencies that may be involved in securing the credit, depending on the type of project:
- State Department of Revenue
- State Department of Economic and Community Development
- State Department of Environment & Conservation (for brownfield or green energy-type credits)
- Local Chamber of Commerce
- Local County/City Commission
- Local Industrial Development Board
Many tax credits involve an application process. Because some are limited by state legislators to a certain dollar amount available for taxpayers each year, late application for the credit could be fruitless. The dollars allocated for the credit could be gone.
The ability to hire the needed personnel in a jurisdiction and to maintain agreed-upon hiring levels should be considered. Failure to maintain the required level of hiring could result in clawbacks of the tax incentive. Additionally, all information and required calculations for the application, post-approval annual reporting requirements, the availability of tax credit carryforwards (or lack of them), and the company’s ability to use those carryforwards against future income and/or franchise tax liabilities should be considered.
Tax credits are a valuable tool for many businesses. If your company is considering new operations or expansion, one of our executive contacts will be happy to assist you in developing a tax credit strategy. You may contact them at the emails below or by calling (800) 270-9629.