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Are You Getting the Most Out of Your State?

By: Ritu Verma and Sonjui L. Kumar Email By: Ritu Verma and Sonjui L. Kumar
April 2011
Are You Getting the Most Out of Your State? Tax season is upon us yet again. For most, that means time to research all the deductions, credits, exemptions, and write-offs available so that we may keep as much of that hard-earned money as possible. Are you giving your business tax return the same type of scrutiny? You could be leaving money on the table, and not even know it! There are numerous tax and business incentives available from state and county governments. Used together, these incentives can help new or expanding businesses, as well as established businesses, be more cost-effective, and profitable.

Keep in mind that eligibility requirements (minimum number of employees, threshold capital investment, etc.) vary from state to state and county to county. If your business meets these local requirements, common activities such as opening a new office or plant, or expanding your business by adding a new division, may qualify you for significant incentives in your area. The list below identifies some possible incentives that may be available to your business and which could considerably lower your cost of doing business.

1. Corporate Tax Credits

Corporate tax credits may be available to companies to minimize or entirely eliminate state corporate income taxes. These credits often depend on the “tier status” of the community where your business is located. Tier status is based on the economic strength of each county, with the highest credits offered in the counties with the greatest need (Tier 1 & 2), and the lower credits offered to the most prosperous counties (Tier 3 & 4). An example of one of the credits offered in Georgia is the Jobs Tax Credit, which some counties reward to new and expanding businesses for creating jobs in their county. The minimum number of new jobs created could be as low as five in some counties.

2. Property Tax Exemptions

Several counties offer property tax exemptions for qualifying property such as inventory, pollution control equipment, pollution control facilities, etc. Additionally, some counties offer property tax abatements and even contributions of land to certain businesses that are expected to generate significant jobs or capital investments. An example of property tax abatement is in South Carolina, where eligible businesses investing at least $50,000 in a new or expanding manufacturing, research and development facility may qualify for a five-year abatement from county property taxes.

2. Sales and Use/Inventory Tax Exemptions

Some equipment purchases or leases may be exempt from sales tax when you use the equipment in the manufacturing process. This exemption may also be extended to warehouses and distribution centers. Many counties may also exempt 100 percent of raw material, work-in-process and finished goods inventory. In these counties, distribution center and warehouse inventories are also exempt if the inventory is destined to be shipped out of state.

3. Research and Development Tax Credits

Even the federal government is ready to provide incentives. A portion of a company’s research and development expenses may be claimed as a tax credit. The IRS has a specific criteria for this, but businesses that qualify under the IRS and local requirements may apply any credit they receive to offset state payroll withholdings.

4. Workforce Training/Development Funding Incentives

Customized recruitment, assessment, training development, management, and implementation services are offered by many states at little or no cost to those companies that are creating new jobs with competitive wages and benefits. Georgia, for example, uses a nationally-ranked employee training program called Quick Start, which provides customized training for new employees in skill-based jobs at no cost to qualifying employees. This could potentially save businesses hundreds of thousands of dollars in recruitment and training costs.

5. Green Tax Credits

Environmentally aware companies can also benefit. Many counties offer incentives such as pollution control equipment tax credits, clean energy technology tax credits, and reduced taxes on electricity—all incentives based on businesses who are operating in a “green-friendly” way.

These are just some of the state and local incentives and exemptions that may be offered to your new, expanding, or existing business. Others include child care tax credits and workforce training credits. There are also non-statutory discretionary funds that may be available to your company through the economic development commissions of a State. Utility companies, railways, and other third parties may also be willing to provide incentives to encourage new businesses to relocate or expand at their current locations. Business owners can consult with qualified professionals or State economic development agencies and commissions to learn more about the incentives available and how to take advantage of them. 

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