Consider Tax Incentives With Your Next Capital or Workforce Investment | NAWBO

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Consider Tax Incentives With Your Next Capital or Workforce Investment

By Julie Ashmore, JD, President, Ashmore Consulting LLC

As companies consider capital and workforce investments that can conceivably take place at a variety of domestic and international locations, they often consider the significant tax and non-tax incentives that localities, states and countries are willing to provide in order to attract these investments. State and local governments cumulatively set aside billions of dollars annually to secure new capital investments, as well as the jobs that may be created or retained with these investments. Within the tax arena, business incentives include reductions in income/franchise tax, sales and use tax, real and personal property tax and employment taxes.  Non-tax benefits include job creation grants and training grants, enterprise zone benefits, infrastructure grants, utility discounts and low-cost financing.

One of the first tasks considered as part of this process is optimizing site selection. Site selection is based on a set of complex decision-making factors. Critical qualitative factors include business climate, availability of skilled labor, proximity to customers and suppliers, infrastructure capacity and available transportation. Quantitative factors include facility start-up costs, such as new construction, land and equipment, as well as operating costs, such as utility expenses, payroll and employee benefits expenses, training expenses and state and local taxes. 

The difference in tax costs associated with potential locations can be very significant. For example, a recent client analysis conducted by professional services firm Ashmore Consulting LLC compared the tax expenses of locating a medium-sized company in eight Southeastern states. Over a 10-year period, the non-federal tax cost ranged from a few thousand to several million. Because some site selection comparisons consider only pre-tax costs, the analysis is incomplete and fails to consider other factors that impact the ultimate price in selecting one location over another.

Because tax and financial incentives are not the only consideration in site selection, many businesses do not seek to fully identify and secure incentives. Often benefits packages are either not maximized or are overlooked. Some incentive packages can result in savings of as much as 50 percent of the total costs incurred for a project. These figures can apply to a project that may include as little as $1 million in capital expenditures and 10 new jobs.

While incentives serve to attract businesses and help fund expansion and investment in communities, they generally include “clawback” or recapture provisions. These provisions protect government’s investment in these companies by allowing for the recovery of incentives if the company fails to meet its capital investment commitments. These commitments generally involve a required level capital investment, job creation and/or retention, utility consumption, and/or employee wage levels. Many jurisdictions require evidence that the incentives to be offered will be justified by both direct and indirect tax and fiscal benefits created by the project, and that the company delivers on its promised investment. 

Any company that is considering a future investment in its current location or considering various sites to locate its capital or workforce investment should closely examine the incentives available, as well as other qualitative and quantitative factors that are part of every decision-making process.

A few significant updates occurring recently:

  • Rural Jobs Tax Credit:

Tennessee restructured the way counties are rated and qualified, making it easier for businesses in rural counties to seek job tax credits. It reduces the number of jobs that must be created to receive tax credits. This lowers the threshold for a potential increase in companies that are eligible for jobs tax credits. Previously, to qualify, enterprises had to create at least 25 jobs within the planned investment period (three to five years from the time a business plan is filed).

  • Business Employment Incentive Program:

New Jersey enacted legislation, which converts grants to refundable tax credits, and under the program, New Jersey awarded qualifying businesses with cash grants for hiring new employees in the state for a term of up to 10 years. This conversion is aimed at providing relief to those businesses that have been awarded grants but have not yet received grant payments.

  • Research and Development Credits:

Florida increased funding from $9 million to $20 million for eligible businesses that have certain qualified research expenses. Additionally, the state has increased investment in FloridaFlex, a $30 million initiative that will provide Florida businesses that are seeking to train employees in science, technology, engineering and math (STEM) careers, and other high-skill/high-wage occupations, the opportunity to receive the training they need.

  • Employment Training Panel (ETP):

California’s ETP funding capacity for employment training programs increased to $90 million and individual employers may receive grants of up to $750,000.