By Jack Rogers
From the May/June 2018 Issue
After the Great Recession, many financial practices that had been taken for granted before the fiscal collapse came under new scrutiny. Economic development was not immune from this kind of review, especially the longstanding willingness of locations to bestow lucrative tax credits to lure new projects.
Increasingly, new project announcements have been followed by public examinations of exactly how much future tax revenue has been sacrificed to create a batch of new jobs (usually reported as “the state [or county or city] is paying $100,000 per job to get the new widget plant”). These rough calculations have fueled a large debate over the value of tax credits in general, particularly those used to nail down retentions rather than new projects; and they’ve opened the door to reductions in funding of overall spending on economic development programs.
For several years now, locations far and wide have been working to ameliorate these concerns by including strict performance-based requirements in their incentives, including clawbacks. Increasingly, across-the-board incentives have been supplemented by a diverse panoply of targeted, industry-specific incentives.
So when we make our annual Editor’s Picks for incentives, we’re looking for innovative perks which address a specific growth sector, or support entrepreneurs and startups, as well as more generic offerings designed to spur relocations, exports, workforce development and the like. Keep that in mind as you peruse this year’s Editor’s Picks: Incentives.
Heroes for Hire Credit (Alabama). A one-time $1,000 income tax credit for each recently deployed, and now discharged, unemployed veteran hired and a $2,000 income tax credit to recently deployed, and now discharged, unemployed veterans who start their own businesses. Employers must also meet the requirements of the Full Employment Act of 2011.
Headquarters Relocation Tax Credit (Indiana). When a business relocates its corporate headquarters, divisional headquarters or R&D facility to Indiana, it is entitled to a credit against its state tax liability equal to half of the costs incurred in relocating the headquarters. The company also must have worldwide annual revenue of at least $50 million to qualify and after relocation; the corporation must have 75 employees in Indiana. The tax credit is applied against income tax liability and may be carried forward nine years. There is no carry back, and the credit is nonrefundable.
Export Trade Assistance (Iowa). The International Trade Office (ITO) at the Iowa EDA offers financial assistance to eligible Iowa small companies to help companies market their products and services to a global audience.
- Export Trade Assistance Program (ETAP): Eligible Iowa companies reimbursed up to 75 percent of defined international marketing expenditures in a qualifying trade show or IEDA trade mission
- Domestic Trade Assistance Program (DTAP): Eligible Iowa companies reimbursed up to 75 percent of defined marketing expenditures in a qualifying international trade show held in the U.S.
- ETech Trade Assistance Program (ETech): Eligible Iowa companies reimbursed up to $2,000 for participation in a Center for Industrial Research and Service-sponsored ExporTech™ training program
Health Care Industry Zone Incentive Program (Mississippi). A sales and/or use tax exemption and accelerated 10-year state income tax depreciation deduction is available for a business enterprise certified by MDA as a Health Care Industry Zone Facility. Certified businesses may also receive a property tax exemption, which may include a fee in lieu of property taxes for projects with investments of at least $10 million; property tax exemptions are subject to approval by local authorities. Qualifying industries include healthcare industries with a minimum capital investment of $10 million or that create a minimum of 25 new jobs. To be eligible, businesses must locate in Health Care Industry Zones.
Bring Jobs Home Act (Missouri). Existing out-of-state companies looking to relocate to Missouri may qualify for an income tax deduction equal to 50 percent of the expenses associated with eliminating a business unit located outside Missouri and reestablishing that unit in Missouri. The elimination must occur under a written in-sourcing plan, but the elimination and relocation need not take place in the same year.
Data Center Tax Abatement (Nevada). A partial abatement from personal property tax and sales and use tax are available to data center companies that locate or expand their business in Nevada. The personal property tax abatement can be up to 75 percent of the taxes due for 10 or 20 year abatement periods. Abatements for sales and use tax are for taxes imposed on the purchase of eligible machinery or equipment. The abatement reduces the applicable tax rate to 2 percent for a period of 10 or 20 years, a near 75 percent reduction. Abatements apply to co-located businesses of the data center.
Technology Business Tax Certificate Transfer (NOL) Program (New Jersey). This program enables technology and biotechnology companies that have promise but are not currently realizing a profit to turn net operating losses and R&D tax credits into capital. Net operating losses and R&D tax credits may be sold for at least 80 percent of their value, up to a maximum lifetime benefit of $15 million per business.
Job Development Investment Grant (North Carolina). The Job Development Investment Grant (JDIG) is a performance-based, discretionary incentive program that provides cash grants directly to new and expanding businesses to help offset the cost of locating or expanding a business facility in the state. The grant amount is based on a percentage of the personal income tax withholdings associated with the new jobs. The grant amount is calculated by weighing several factors, including the location of the project, the county tier designation, the number of net new jobs, the job wages compared to the county average wage, the level of investment and whether the industry is one of the state’s targeted industry sectors. Grant funds are disbursed annually, generally for up to 12 years, to approved companies following the satisfaction of performance criteria in grant agreements.
For high-yield projects that invest more than $500 million and create more than 1,750 jobs, JDIG can provide a grant worth up to 100 percent of personal income tax withholdings for 20 years.
In 2017, lawmakers approved a provision that allows larger incentive packages for companies that invest more than $4 billion and create at least 5,000 jobs in NC. Such “transformative” projects will not be subject to the state’s cap on JDIG awards. They can also receive grants that reimburse up to 100 percent of the personal income tax withholdings associated with new jobs for up to 25 years.
New Markets Tax Credit Program (Ohio). Helps to finance business investments in low-income communities by providing investors with state tax credits in exchange for delivering below-market-rate investment options to Ohio businesses. Investors receive a 39 percent tax credit spread over seven years if they make an investment in a qualified low-income community business. Community Development Entities (CDEs) apply to the program for allocation authority and work with investors to make qualified low-income community investments. The credit helps to spark revitalization in communities.
21st Century Quality Jobs (Oklahoma). This Quality Jobs program is specially tuned for businesses with a highly skilled, knowledge-based workforce. This unique incentive may pay qualifying businesses cash back, up to 10 percent of payroll, for up to 10 years for the creation of 10 jobs with an average wage of $94,000 annually or higher, depending on county.
Industry Cluster Grants (Rhode Island). Competitive grants to start, grow or improve industry sector partnerships, encouraging companies to work together to solve problems, exchange technology and share talent. Competitive startup and technical assistance grants range from $75,000 to $250,000, while competitive program grants start at $100,000 and cap at $500,000 for businesses that enhance cluster growth and effectiveness.
Single Factor Sales Apportionment (South Carolina). A company whose primary business in the state is manufacturing, distribution or selling or dealing in tangible personal property will apportion its income by multiplying the net income remaining after allocation by a fraction consisting of the company’s sales made in South Carolina divided by its total number of sales. This formula is advantageous for a company whose majority of sales occurs outside SC.
Moving Image Industry Incentive Program (Texas). Provides grants to promote film, video game and visual effects industry growth in Texas. The incentive is available in the form of a cash production grant from 5 percent to 22.5 percent of qualified in-state spending for eligible projects. Commercial and reality television projects are eligible for a cash production grant from 5 percent to 12.5 percent of qualified in-state spending.
The W Fund (Washington). This $18.5 million venture fund invests in early-stage life science, biotech, medical device, alternative energy and information technology companies emerging from universities and research centers across Washington. The objective is to spur company formation and job creation from Washington’s significant R&D base. Fund recipients will be located in the state, providing vital capital and creating economic opportunity in key growth sectors. Investment maximums are $500,000 per investee.
Commercial Patent Incentives Credit (West Virginia). The Commercial Patent Incentives Tax Credit can offset up to 100 percent of the corporation net income tax, or in the case of individual taxpayers, the personal income tax. The credit is based on a percentage of royalties, license fees and other considerations for developers of a patent or a percentage of net profit attributable to a patent used in a manufacturing process or product when that patent has been developed in conjunction with an agreement with Marshall University or West Virginia University.