The Last Word: A Look At Incentives

Jeremy J. Schirra, Esq., CPA, Partner and Real Estate Attorney at the law firm of Dickinson Wright PLLC presents a high-level view of the incentives landscape for manufacturing facilities in the U.S. market.

By BF Editors
From the May / June 2024 Issue

 

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incentives for manufacturing, Jeremy J. Schirra, Esq., CPA, Dickinson Wright PLLC
Jeremy J. Schirra, Esq., CPA, Partner and Real Estate Attorney at the law firm of Dickinson Wright PLLC

n the ever-changing and competitive world of manufacturing, strategic expansion is a pivotal step to ensure a business continues to thrive. If incentives are effectively considered and obtained, the reduced effective costs of expansion and local governmental support can prove to be a great catalyst to an expanding manufacturing enterprise.

There are two particular items to note when selecting a site, other than the obvious general location, suitability, and other general considerations.

First, there are often additional incentives available before purchasing a site. This means incentives should be explored prior to or once a business has entered into a purchase contract, but before acquiring the property. Part of the rationale is state and local agencies provide additional incentives to induce a prospective business before it commits. This makes sense in part since the business at the site selection stage could locate its site in another state, county, or municipality. Note that failure to obtain incentives prior to acquiring a site does not prevent incentives in general, and several incentives listed in this article are unaffected by mere acquisition of a site.

As the landscape in the U.S. evolves, manufacturers that navigate the intricate web of state, local and federal incentives will undoubtedly be better positioned relative to competitors.

Second, the location of a site may affect the type of incentives available to the development planned at the particular site. For example, a site may be located in (i) a qualified census tract, potentially enabling use of new markets tax credits, (ii) an opportunity zone, enabling use of the opportunity zone program, or (iii) a designated community reinvestment area. These designations enable certain incentives to be awarded to a project, if at all. Stated differently, in many cases, a specific designation or designation relative to a particular location is a prerequisite to obtaining certain incentives.

Speed Round: Incentives

An incentive is simply a concession or stimulus to foster economic development or job creation. Business-specific factors such as scale and location are significant, but below is a more universal (and non-exhaustive) list with general applicability. This list is organized by type of incentive or typical governmental entity allocating such incentives.

State and federal tax credits:

  • Tax credits offset, on a dollar for dollar credit basis, underlying tax liability.
  • Many state tax credits are saleable or transferable.
  • Many federal tax credits require allocation to an outside investor to realize value, but the investor’s capital effectively lowers the overall costs to the underlying business.
  • Federal tax credits and incentives for consideration are new markets tax credits and historic tax credits.  Many states also have a corresponding state tax credit.
  • Note most tax credit programs are often competitive and may require allocation of credits, an award of credits, or similar mechanism.

Opportunity zone:

  • Requires underlying property’s location is in a designated opportunity zone, among other criteria.
  • Currently provides two key benefits: (1) temporary tax deferral for invested capital, and (2) tax exempt appreciation after the investment is held for at least 10 years.
  • A minority of states have a corresponding additional opportunity zone tax credit or other incentive.

Tax abatements and exemptions:

  • Tax abatements and exemptions include long-term relief from increases in property tax or full relief from sales tax on hard costs.

The Role Of Human Resources In Site Selection

Now more than ever, choosing an ideal location calls for insight from the human resources department, explains Linda Burns, Incentives & Site Consultant, Wadley Donovan Gutshaw Consulting. Read more…

State department of development programs, which typically include:

  • Low interest loans that can further be subordinated to traditional debt; forgivable and partially forgivable loans; and grants.
  • Some programs are industry-specific or focus on measuring jobs created.

State brownfield loans and grants:

  • Loans are typically provided with low interest and may be subordinated to other debt.

Local incentives:

  • May include a variety of above-described incentives, especially those listed under the state department of development programs.
  • Local governments often provide tax credits on new overall payroll or number of new and/or retained jobs.

As the landscape in the U.S. evolves, manufacturers that navigate the intricate web of state, local and federal incentives will undoubtedly be better positioned relative to competitors.

For more insights from experts in economic development, corporate relocation, corporate expansion and site selection, read these The Last Word columns.

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