Tax Incentives Blog

Negotiating Your Business’ Future with Discretionary Incentives

Written by Stephanie Cornejo Banuelos. Updated May 4, 2019.

ChoicesImagine: After getting laid-off and pounding the proverbial pavement for several months, you finally have two employers knocking on your door. Both offers are adequate. One offers a higher salary and flexible hours. The other promises better benefits and a shorter commute. As you’ve been inching towards desperation, you’d consider taking either offer as-is. Yet you want the ‘full meal deal.’ What do you do?

Commence the negotiations. See which company will do the best to meet your proposed requests. They want you as much as you need them – but don’t show it. Present a ‘willing to walk away’ attitude. Let it be known if they cannot offer further incentives, you will not accept their offer.

This negotiating scenario rings a similar tone to how businesses can negotiate for monetary support through certain government corporate tax incentives, called discretionary or negotiable incentives.

Local municipalities and states often compete for companies looking to develop or expand their business, merge with another, or close a location, and negotiable incentives can be a powerful bargaining tool.

Commonly associated with a “site selection” analysis, the benefits offer financial assistance, growth support, and other perks to private businesses willing to invest within certain jurisdictions. They encompass all types of money-saving opportunities based in areas such as employment, property and capital investments, research and development (R&D), and training.

Negotiable incentive opportunities include:

  • Tax Abatement
  • Tax Revenue Sharing
  • Cash Grants
  • Free or Discounted Property
  • Financing Benefits
  • Infrastructure Assistance

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These opportunities go beyond the standard published programs. One of the key differences is that the value of the available incentives is considered an element/variable in the overall investment decision of the business.

And focusing on the business' future helps proactively identify and capture the available incentives. Also, securing discretionary incentives requires a more comprehensive approach since it often deals with multiple jurisdictions.

Here is where the negotiation becomes critical. Businesses want the most financially and socially desirable location to develop or expand. The government seeks to promote private sector development for augmented economic and social impact.

By easing the restraints of companies’ financial capacity through negotiable incentives, the government can grant greater appeal for a proposed business development location. Businesses, on the other hand, must not reveal an ‘all-in’ commitment to a site, but rather present a ‘willing to walk’ posture to secure the lion’s share of incentives.

Enter the “but for.” Discretionary programs only provide these benefits if the company can reasonably claim the proposed project or investment would not happen without said incentives. This a “but for” requirement: “But for” the government benefits the private project would not be possible. Companies can find compliance with this mandate in several ways, but it must be clear and verifiable to program administrators and elected officials.

Many eligible businesses overlook these programs simply because they’re not aware that they qualify. Others receive only a portion of their eligible benefit because they fail to identify all the benefits or available programs. Companies need to know where to look and how to negotiate in order to reap their full financial potential.

An experienced tax specialist can work as your company’s negotiator to help find and secure these types of valuable incentives.

 

 

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Topics: Discretionary Incentives

Stephanie Cornejo Banuelos

Written by Stephanie Cornejo Banuelos

Stephanie Banuelos leads CTI’s Credits & Incentives Practice with primary oversight of operations and overall practice development. She is focused on identifying, and maximizing federal, state and local tax credits that drive job creation, job training, capital investment and new business development.

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