Corporate capital expansion plans present opportunities for companies to leverage tax credits and incentives, according to a new study by Ernst & Young that found such plans driving activity in this area.
Nearly seven out of 10 executives surveyed by EY—68 percent—expect their companies to pursue moderate to aggressive capital expansion over the next 24 months. As companies accelerate their capital spending, there is a commensurate increase in the likely benefits of exploring C&I opportunities since capital-intensive projects are often the most likely to see improved return from C&I and indirect tax savings.
The study is based on a combination of a quantitative survey and qualitative interviews. The survey, conducted in July 2013, was completed by nearly 800 primarily tax and finance executives from Fortune 1000 businesses. Interviews were conducted with EY C&I professionals with both US and global mandates in September 2013. It is the second of a bi- annual survey, first launched in 2011 to measure C&I activity level, C-suite focus, allocation of resources, and to better understand barriers companies face with their C&I initiatives.
“More organizations are paying attention to these opportunities,” said Ali Master, partner and national director of business incentives at tax credits at Ernst & Young, in a statement. “As companies become more aware of C&I, they assume a better position for reaping the rewards. According to the survey, 42 percent of respondents say that over the past two years they have been more active in pursuing business incentives.”
However, high-level executives have little awareness and involvement in pursuing C&I opportunities. Only 16 percent of survey respondents say their C-suite is “very” aware of the potential benefits from business incentives. Meanwhile, 36 percent say their C-suite is merely somewhat aware and 20 percent indicate their C-suite is not at all aware of their organizations’ C&I strategies. In contrast, 28 percent say their most senior executives are either more aware than in the past two years or are beginning to focus on these opportunities more so than in the past two years.
However, a small but significant group of almost 60 companies (8 percent) consider themselves “very active” when it came to capturing C&I. This group of “front-runner” companies said they had a department focused on C&I with a “coordinated process at all levels” to maximize the capture of C&I. When comparing the behaviors of these front-runner companies to others, their activity, inter-departmental collaboration, dedicated resources and C&I program participation levels are all markedly higher than their peers. For example, only 24% of companies describe their C&I efforts as “collaborative,” compared to 60% among the front-runner companies.
The majority of companies, 83 percent, devote one full-time equivalent employee or less to C&I initiatives. In comparison, 61 percent of these front-runner companies devote at least one or more FTE to such issues. As a result, front-runner companies also tend to derive greater benefit across a broader spectrum of both statutory and negotiated or discretionary C&I opportunities. The spectrum includes tax abatements, enterprise zone credits, job training credits, cash grants or cash equivalents or sustainability credits.
“Companies interested in improving the return on their capital investment should emulate the organizations in the survey that clearly emerged as the front-runners in creating a business advantage through the use of credits and incentives,” said Master.
The total pool of available C&I also is increasing, presenting worldwide opportunities for companies. Expansion of such programs is not uniform—not all jurisdictions are active—but the trend is toward more, not less. Competition is global, with local, regional and national governments actively courting new businesses and working to retain or expand existing businesses. In such instances, the size of total incentives packages is growing, and there is a greater willingness and flexibility to work with businesses to develop the appropriate combination of incentives to address business needs.
A copy of the study is available at www.ey.com/us/salt.
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