Tax Reform: An Opportunity for State Tax Credit and Incentives; Make sure you don't leave valuable benefits on the table.

AuthorCalafell, Robert
PositionSTATE TAX

On December 22, 2017, President Donald Trump signed the most comprehensive federal tax reform package in three decades. (1) Whereas media reports focused mostly on how tax reform would affect businesses and individuals, to tax professionals it quickly became apparent that reform would spur increased state and local tax credits and incentives activity. Due to a number of changes to federal tax provisions, such as lower rates, expensing, depreciation, a favorable pass-through deduction, and repatriation, many companies are projected to have more money in their coffers to expand and grow their businesses. With this growth potential, businesses in industries of all shapes and sizes have new opportunities to seize countless state tax credits and incentives specifically aimed at encouraging growth and expansion. (2) Accordingly, it is imperative that businesses understand the depth and breadth of credits and incentives available in a given jurisdiction--and break the habit of leaving valuable benefits on the table. A business that successfully obtains these benefits will have identified the best practices and pitfalls. This article addresses a generic process for obtaining incentives, but requirements and procedures can vary greatly from state to state.

Understand Your Project

When you consider state and local incentives, your first step is to understand the "project"--that is, what assistance does your business need? Incentives are available for all types of projects. Is the business considering a large capital investment? Retrofitting existing equipment? A new plant or facility? Hiring or training new employees? A new headquarters? Essentially, a business must first understand how it wants to grow and then look for an incentive opportunity that matches that intent.

Incentives can take many forms, including but not limited to financial assistance, workforce assistance, and logistical and infrastructure assistance. Additionally, nonfinancial drivers can often make a project more feasible or advantageous for your business. For example, nonfinancial benefits may include infrastructure support such as traffic lights or road enhancements to ensure that your employees can travel safely to and from the office as well as providing delivery and supply vehicles with necessary access (such as roads that accommodate heavy vehicles). These nonfinancial incentives may make the difference in deciding whether or not to proceed with a project. Ultimately, a business needs to consider both financial and nonfinancial benefits in which the jurisdiction can support their investment.

Once the purpose of the tax incentive request has been identified, you should consider several questions. How will the tax credit and incentive be monetized for the business? Are there specific locations within the states being considered that offer increased tax credits and incentives? Are there any training tax credits and incentives in the desired area? How can the business negotiate with a jurisdiction to customize any tax credits and incentives? Carefully considering questions like these early on can help you step into a meeting with state or jurisdiction representatives prepared to secure the best incentive package for your company.

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