By Kevin Umberger, CPA, Senior Manager and Erin Waltman, CPA, Senior Staff at Blue & Co.
Continued growth and expansion of your business can be supported by a variety of credits and incentives offered through state and local government programs. Typically, growing businesses are moving too fast to capture these opportunities or are simply unaware they exist.
By becoming informed now, you will be ready to recognize the activities which could create a sizeable benefit for your organization when you enter your next growth phase.
Economic development incentives are tools used by state and local government to promote business growth in a particular location. These tools, which are typically tied to one form of tax or another, encourage businesses to locate in a specific area or encourage expansion decisions which in turn will increase the local tax base.
The results of these programs benefit both the company receiving the benefit of the incentive, and the local economy in which the business operates.
Credits and Incentives can benefit companies of all sizes and industries. Growth activities that can garner incentives include building, buying, or leasing a new facility, relocation, workforce expansion, and significant real estate development.
By approaching the appropriate state or local governments you can leverage upcoming activities into meaningful incentives which can subsidize the cost of your growth and help support the long-term success of expansion.
Below are some typical incentives which are tied to each of the growth activities mentioned above:
- Job Creation: Expanding your workforce, especially in high wage jobs.
- Common incentives tied to the expansion of your workforce include, refundable or non-refundable state income tax credits, payroll tax credits, and training grants.
- Investment: Expansion/relocation of facility and/or equipment.
- Typical incentives tied to this form of growth include, property tax abatements, sales tax exemptions, and income tax credits.
- Development: Developing or re-development previously underutilized or dilapidated real estate.
- Commonly supported through tax increment financing, waiver of fees, and other real estate abatements and exemption offerings.
Since each state and local government has the autonomy to offer and negotiate incentives, incentives can come in a variety of formats depending on the jurisdiction of the governing body and the type of growth activity involved. While the activities included above are some of the most common we see, other incentives may exist in your state or local community.
Identifying the incentive offerings and navigating the local governments on a mutually beneficial arrangement are key to the process of securing the incentive benefits.
Capturing the Opportunity
Keep in mind this is not a stated benefit for executing a growth plan. Incentives are not a benefit written into the tax code. Meaning, each opportunity to capture an incentive benefit must be negotiated with the local authorities prior to making the investment. For this reason, timing, location, industry, and investment are all key factors to maximizing the opportunity.
Finally, once the incentive agreement is in place, compliance and reporting are crucial to seeing the benefit realized. Far too often the incentive benefit is procured and then falls out of compliance due to a lack of understanding and miscommunication between the taxpayer and the local government.
If you see growth and expansion on the horizon for your company, contact your local Blue & Co. advisor about pursuing an incentive offering. Our team can assist with procurement and compliance for various types of state and local incentive benefits.