[IMGCAP(1)]Payroll tax credits, workforce training grants, infrastructure grants, property tax abatements and tax increment financing are just a few of the tools that state and local economic development groups have at their disposal to entice businesses to expand and invest in their communities.
Add these all together, and you have a tremendous amount of value available to growing businesses—value that state and local governments want to deliver to support job creation and economic expansion in their areas.
You likely read expansion, jobs and incentive announcements on a weekly basis in your local business journal. Businesses are being courted and incentivized to expand all around you. Are your clients in the headlines? Are they being offered competitive and highly valuable incentives? If not, both your clients and your firm may be missing out on significant opportunity.
Most CPAs don’t actively work with their clients to negotiate and procure state and local incentives. Why? The reality is that these incentives don’t work like federal tax incentives. Both the mechanisms of benefit and the process of obtaining these credits are fundamentally different. Here are the top four reasons why your clients may miss out on valuable incentives—and what your firm can do to help them.
Discretionary state and local incentives are far less known to taxpayers and their CPAs than federal tax incentives. They vary greatly from city to city, county to county and state to state. Incentives also tend to change significantly over time. All of this change can prevent businesses from keeping up with opportunities, which keeps real dollars out of their pockets.
It’s a very common misconception that incentives are only available for large companies looking at new locations and large capital expenditures. The reality is that growing businesses of all sizes bring value to their communities, and economic development corporations have plenty of incentives to motivate closely held businesses to expand and invest in their communities.
Most state and local incentives have to be negotiated before expansion plans are announced, leases are signed or purchases are made. Unlike many federal tax incentives, which can be documented and claimed after the fact, local incentives are typically discretionary and awards are negotiated. Growing businesses need to understand available incentives and pursue them at the right time.
With state and local economic incentives, timing is everything. To bring maximum value to your clients, you have to understand their plans. That means having proactive conversations about where their business is going and asking the right questions. Shouldn’t you be doing that anyway? Helping your clients procure incentives may be as easy as adding a few pointed questions to your planning discussions.
The discretionary nature of local and state economic incentives means that businesses must understand and explore their expansion alternatives. While businesses may look first to expand in their current community, exploring location alternatives could illuminate other options and create incentive for multiple locations to compete for the business.
For example, multistate businesses could choose to locate expansion and investment activities in a number of different locations. Businesses that supply products to customers in many states may have the option of locating an expansion near their headquarters or near a major client. Many factors including labor force, cost analysis and business environment may affect growth decisions.
In the end, expanding near home may be the best option, but knowing all of the alternatives will almost always lead to value. Understanding and exploring expansion alternatives is critical to finding the best location while maximizing incentives.
Like any other area of life, knowledge and experience will get you a long way. Businesses that are represented by site selection and incentive negotiation specialists receive awards far more frequently and with much greater value than those that do not.
How do these advocates bring value? All you have to do is look at the three points above to understand. First, economic incentive specialists have knowledge of which incentives are available and how and when to pursue them. Local, regional and state economic development corporations often work together to administer incentive deals. Knowing who to talk with and what to say goes a long way.
Timing is also important. Economic incentive specialists know when to pursue incentives and they can help your firm identify and pursue opportunities for your clients.
Are you maximizing incentive opportunities for your clients?
Steve Brunson is a principal in the Site Selection and Economic Incentives Practice at McGuire Sponsel. Steve brings insight and value through site identification, comparative analysis, demographic and labor force analyses, tax and non-tax cost comparisons and economic incentives negotiation and procurement. He can be reached at email@example.com or (317) 564-5015.
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