When To Capture Tax Incentives
Accurately capturing tax incentives to ensure there is no money left on the table can be a daunting task. Working with a Business Incentives Advisory group helps you identify triggering events to ensure you receive the greatest return. Let's take a look at a few examples of possible triggering events.
- Annual employee hires > 750 and/or
Annual military employment hires > 75 (US hires only)
This level of hiring activity will warrant pursuance of specific federal and state hiring credit programs.
- Business operations within a federal, state and/or local economic/enterprise zone
Inquire with a tax department and take advantage of CTI’s proprietary look-up database to confirm whether locations are within economic/enterprise zone or near an Indian reservation.
- Change in physical operations (Expansion, Consolidations or Relocations)
Opportunities exist to secure incentives when there are changes to the business’ physical operations. Many programs will provide assistance to retain businesses and assist in their expansion and relocations. Often these programs will require specific investment requirements and can provide assistance in many different areas (credits, deductions, exemptions, grants, financing, employee training, infrastructure employment, etc.)
- Major capital expenditures (> $1M in any single location)
Major capital expenditures are good opportunities to take advantage of sales/use tax exemptions, investment tax credits and property related benefits such as property abatements and favorable property classifications (Cost Segregation, Repair/Capitalization Review). In addition, it will help us to identify opportunities related to securing energy incentives as they may relate to the capital expenditures reviewed.
- New job creation (> 25 in a single state)
The majority of the state employment incentive programs are based on an overall increase in employment. Identifying those instances where a business has increased and is planning to increase their employment in a particular jurisdiction provides a good opportunity to capture incentives.
- New/existing employee training (> 40 trainees in a single state)
Many jurisdictions offer training assistance (grants, credits, wage subsidiaries, assistance). Identifying instances where a business conducts substantial training (new employee, product related, etc.) can provide good opportunities to secure training incentives.
- Research & development spending (>$500K spend in a single state)
Research & Development (R&D) Activity is sought after by many jurisdictions due to the higher paying jobs associated with the activity. These programs can provide sales/use tax exemptions, income tax credits and property tax abatements. Although the main program is the Federal Credit for Increasing Research Activities, many state jurisdictions provide additional benefits for activities conducted in their states.
- Design, develop, improve a product, process, technique, formula, invention or software
Many businesses incur research and development costs but often fail to properly identify and classify these expenses. It is helpful to inquire about such activities (patents, etc.) to identify additional opportunities, research and development costs and capture additional R&D incentives.
- Property acquisition/leasehold improvements over $500,000, including energy efficient lighting, HVAC, hot water or building envelope systems
Federal, state and local governments provide many incentive programs to reward energy efficiency and the use of alternative energy in the design, construction, and improvement of buildings and homes. Benefits come in the form of tax credits, rebates, deductions, exemptions and grants.
- Domestic manufacturing and production activities
A tax deduction based on profits from qualified production activities is allowed for federal tax purposes. The qualified activities can be quite broad and include many industries beyond manufacturing such as food production, film making, utilities, oil extraction, farming, construction, architecture, engineering and production and software development.
- Active tax audits: income tax, sales tax or property tax
Audit activity is a good time to review additional incentive opportunities since it allows you to reduce any proposed assessments and allows you to receive refunds sooner and without the risk of unwarranted audit activity.
Many eligible businesses overlook these programs simply because they are unaware they qualify or receive only a portion of their eligible benefit by failing to identify all the available programs or fully capturing the benefit for the programs they do identify.