If you’re considering expanding your business in another part of your current state, or into another state, you must consider what incentives are out there to help you make your growth goals happen.

Business expansion is expensive. You’re making an investment in a number of things, such as hiring people, buying equipment, constructing a building or leasing something new. You have to identify and recruit talent, and train these employees, which also takes a sizeable portion of your start-up costs. The total cost of expanding a business, however, should not incite you to second guess your decision.

Economic development incentives exist to help you reduce the amount of your investment in the form of tax credits and other business benefits. There are even tax incentive programs that help you train employees to make a smoother transition.

Yes, and that’s exactly how you may actually monetize your business expansion.

You’re going to have some options regarding where you put your facility. Different locations in the state or neighboring state offer a varying degree of resources for your growing business.

There are two forms of economic development incentives: above-the-line and below-the-line. Below-the-line incentives come in the form of tax credits. Above-the-line incentives may come in the form of cash.

How Complex Is Qualifying For Business Expansion Tax Incentives?

States have a finite amount of tax incentive opportunities, and they want to make sure they reward companies with business activities that are going to lift their economic development. So, some tax credits and incentives inherently focus on specific industries.

You must consider what programs are available and see if those programs align with your business. You’ll be offered more benefits that address your business’s needs than a location without these same programs.

There’s one particular catch to capturing incentives for your business expansion, in that, you must adhere to a fairly specific timeframe.

For example, if you’ve already leased a building before looking for tax incentives, you’re unlikely to get the benefit, because the state already knows you’re committed to coming to that location. They aren’t incentivized to provide you with a tax benefit at that point.

First, consider multiple locations, and show the state or jurisdiction that the only reason you’re coming to a location is for the financial benefit. You have to tie your action to the benefit. This is what the state programs are based on. Basically, you can’t show your cards by planning ahead.

You have to be in absolute control of the information regarding your business expansion. When companies don’t have experience, the person leading the effort may unfortunately let things get out of hand. People within the organization may make public statements at a job fair about the expansion or say too much to a real estate broker. These situations could all influence a state’s decision to award expansion benefits.

Even Still, Financial Benefits Are Not The Main Driver

Tax benefits are a line item on your spreadsheet, but the bottom line is the success of your business.

First and foremost, your business should be moving to a location because it satisfies the needs of your business. Having the right resources at your disposal is the key to monetizing your business. Businesses that expand into the Bay Area, for example, are there to tap into a specific workforce. Technology job talent in that area is abundant. Even if Sacramento is only a few hours outside of the city, and is a fraction of the cost, the right resources simply aren’t there.

Aside from tax expertise, an outsourced tax consultant ensures your expansion efforts are kept proactive in terms of capturing credits and incentives. With deep knowledge of state-specific programs, and their regulations, you don’t waste time pursuing a program that’s a dead end.

Also, if a desired location for your business expansion isn’t offering the incentives you were hoping for, there are ways to go outside of the set programs and receive some benefits.

Tax incentives commonly fall into three buckets:

• Statutory – Programs like R&D tax credits and the WOTC, where if you take the steps you typically get the credit
• Prenotification – Slightly more complicated with more complex steps
• Full Discretionary – You go through the process, file an application, but there’s no guarantee you’re going to get the benefit

An outsourced tax consultant helps counsel you on these three types of tax incentives. And if there are terms that can be negotiated, your consultant provides you with the right insight to successfully negotiate beyond a program’s set terms. 

For example, say you want to open a huge facility that will create 7,000 jobs. You tell the state jurisdiction that, to make this happen, you need a specific type of benefit. It’s not uncommon for a state jurisdiction to create a business incentive, in terms of a non-established program, especially if your business expansion means an improvement to their economy.

That’s why it’s so important to hyper-manage the process of capturing economic development incentives – ensuring you maximize the benefit. An outsourced tax consultant takes the burden off of your business’ shoulders, so you are able to focus on other important aspects of your expansion.

Ready to learn more about what tax incentive programs are offered in your area? Click below.