Are You Leaving Money On The Table?
By Anita Anand, JD, Senior Manager
State and local governments offer various tax credits and incentives as a tool to stimulate certain activities, such as increase investment in specific sectors or geographical areas, create jobs, and encourage economic development. These incentives vary from state to state and can come in many forms: tax credits, deductions, exclusions from income, rebates, grants, sales/property tax exemptions, etc.
Incentive Programs Can Yield Significant Savings
Though each state offers different incentive programs, it is important to realize that state and local tax benefits can result in significant tax savings and also serve as a financing tool in certain cases. Despite the filing requirements and nuances that might be associated with state and local tax incentives, these benefits can potentially provide a substantial financial boost for businesses engaging in certain activities. Thus, both small and large businesses should be inquiring about what state and local tax incentives may be available to their business to ensure that they are not leaving money on the table.
As stated above, tax incentives differ among states; however, the more commonly used and popular state and local tax incentives are highlighted below:
- Job Creation: If your organization is hiring or has plans to hire employees, there may be a number of tax incentive programs related to job creation that you should know about. These incentives are usually in the form of tax credits and offer a specific tax credit amount for each new job created, assuming all the requirements to be eligible for the tax benefit are satisfied. These incentives can provide great value to existing businesses that are growing, and thus, increasing their employee base. These incentives can also be valuable for businesses that are relocating to a different state because in certain situations, all the relocated jobs may be treated as new jobs in the state in which the business is relocating, even though the business has not actually hired any additional employees.
- Manufacturing: Some states offer very lucrative tax incentives for businesses engaged in manufacturing. For example, a state may offer a tax credit to a manufacturing company based on its investment in certain property used as part of the manufacturing activity or process. Additionally, some state and local jurisdictions offer exemptions from state and/or local sales tax on the purchase of certain equipment to be used in the manufacturing facility. When the cost of manufacturing equipment is significant, even a sales tax exemption can result in sizable tax savings.
- Low-Income Housing/Historic Rehabilitation: Piggy-backing off the federal tax incentives available for low-income housing and historic rehabilitation projects, some states offer a similar state-level tax incentive to further encourage these kinds of projects in their state. Typically, the requirements to be eligible for the state-level tax benefit are similar to those established for purposes of the federal tax credit.
- Renewable Energy/Green Building: More and more states are beginning to offer tax incentives and benefits to encourage and stimulate investment in renewable energy, such as solar, wind, biomass, geothermal, etc. In most cases, in order to be eligible, the project will need to generate electricity. Tax benefits may vary depending on whether the project is used for residential, commercial, or industrial purposes.
These are only a few of the many state and local tax incentive programs out there. Identifying which incentives may be available to your business can be a challenging task. Some states are better than others about making these resources and information available to the general public. However, make sure you’re working with your tax advisor to ensure you’re tapping into all the state and local tax incentives available to you. Don’t leave any money on the table.
Contact Brady Ware
Anita Anand is a licensed attorney and a Senior Manager with Brady Ware & Co. She specializes in technical federal, state, and local tax research and consulting. You can contact Anita at 678-350-9504 or firstname.lastname@example.org.