State Credits and Incentives: Post-Pandemic and Remote Workforce Considerations

Credits and incentives are a great way for governments to spark economic growth and attract and retain businesses, and for businesses to rebound from the pandemic. While some incentives are targeted to specific industries or locations (enterprise zones, for example), many programs are much more expansive. Businesses should be aware of available incentives to mitigate tax exposure, increase cash flow, and foster a better return on investments.

Site Selection

U.S. and international businesses that invest, expand, or are involved in site selection may realize significant benefits by procuring tax credits and incentives to offset costs. While some credits and incentives are “as-of-right” and are generally available to most businesses that qualify, other credits and incentives are discretionary and must be negotiated. Examples of negotiated incentives include cash grants, reduced cost financing arrangements, accelerated permitting, income and payroll tax credits, sales/use tax exemptions or abatements, property tax abatements/exemptions, and utility reductions.

Businesses are looking to rebound post-pandemic, but are cautious about the future of the economy. Labor shortages have put a strain on companies’ resources, and businesses are now looking to “do more with less.” By taking full advantage of the credits and incentives that are out there, businesses can increase their bottom line. However, not having sufficient resources to research and manage a credit program can put businesses at risk for losing out on potentially valuable benefits.

Incentive packages may require strict accountability along with annual (or more frequent) compliance reporting. Furthermore, noncompliance could result in clawbacks of previously provided incentives. Businesses may need to renegotiate the terms of commitments with individual jurisdictions to maintain valuable benefits. With telecommuting now the new normal, some states have adjusted incentives programs to include the remote workforce. Accordingly, taxpayers need to consider whether remote employees will count towards an incentive package or if renegotiations of contracts may be necessary.

Structure and monetization is another important consideration for tax credits. Certain credits are only available to corporate taxpayers, while others accrue to owners of flow-through entities. If a credit is non-refundable or transferable, there may not be any benefit in pursuing that particular credit.

Whether it’s qualifying for an “as-of right” credit or obtaining and maintaining discretionary incentives, businesses should carefully review the tax incentives available to them and consult a professional credits and incentive advisor to assist with the process, avoid any adverse consequences, and identify new planning opportunities.

THINGS TO LOOK FOR

There has been a big push recently by the federal government to drive manufacturing within the U.S., particularly in the high tech industry. Many states have incentive programs that target manufacturing. States such as Idaho and New York have enacted legislation or expanded their incentives programs to accommodate growth for industries targeted by federal incentives. Kansas enacted special legislation in its bid to win the Panasonic vehicle battery production facility.

While manufacturing is generally a highly incentivized industry (as it provides stability and jobs to local communities), various activities are pinpointed for credits and incentives. Such activities generally include:

• Opening new facilities or expanding existing facilities.
• Changing headquarters locations or establishing a new regional headquarters.
• Significant capital expenditures or leasehold improvements.
• Workforce expansion and/or development (training).
• Investment in high tech/innovation.
• Greening initiatives (carbon reduction/recycling).

Other credit and incentives programs target specific industries, job creation, capital investment and economic development, specific locations or zones, certain social activities, and environmental objectives. Credits and incentives could be statutory or “as-of-right” credits, discretionary or as-negotiated incentives, or a hybrid approach.

• Investment tax credits incentivize capital investment for targeted purposes. These credits are generally computed as a percentage of capital investment (including buildings and structural in some states).
• Jobs credits generally reward companies for hiring, developing, and retaining employees. Enhanced benefits may be available to companies that hire individuals with barriers to employment. The credit can be computed as a percentage of qualifying wages or increased employment over a base period.
• Location-based credits and incentives seek investment in specified distressed areas. Different zones within a state could provide different credits for employment or investment.

State Credits

Some notable state tax credits incentives that could affect taxpayers for 2022 include, but are not limited, to the following:

Investment Tax Credits

AL, AR, AZ, CT, GA, ID, IL, IN, KS, MA, NE, NM, OK, PA¹, NY, NJ, SC, TN, WV, WI

Jobs/Hiring Credits

AL, AR, AZ, CA, CO, CT, GA, IA, ID, IL, IN, KS, KY, LA, MA, MD, MO, MS, MT, NE, NM, NY, NYC, NJ, NC, NV, OH, OK, PA, PHL, RI, SC, TN, VA, WV, WI

Location-based Incentives

AL, CO, CT, IL, LA, MD, MI, MN, MT,ND, NH, NJ, NY, OH, OK, OR, PA, TX, UT, VA, WA, WI

Marcum Observation

Credits and incentives are powerful tools used by governments to trigger desired actions. Companies that are involved in or looking to become involved in certain activities could benefit from these incentives. Using these tools effectively increases overall cash flow. Companies should consider consulting tax credits and incentives professionals to assist with obtaining and negotiating these incentives. There are hundreds of incentives nationally that businesses and owners can consider. Some of these incentives are localized to specific counties or tracts. Therefore, careful planning and scoping should be done prior to any planned expansions, development, hiring, or capital investment to ensure proper realization.

Source

1. PA’s incentive is structured as a deduction against corporate income tax for qualified capital investment.