McGuire Sponsel Blog

The Missouri Works Program was crafted to aid with the creation and retention of high quality jobs in Missouri by providing payroll withholding awards and tax credits. Given the program has only been in effect since August 2013, many professionals are still not aware of all the benefits the program can provide. Most importantly, the Discretionary Incentives part of the program found under 620.2010 RSMO. Here, we find language that states “In addition to any benefits available under subsection 1 of this section, the department may award…additional tax credits.” So, how do these incentives support business growth? And, how can we place a value on these awards?

You may be familiar with the Missouri Works Program. But after reviewing the General Assembly Quarterly Report ending March 31, 2017[1], it became apparent- many Works Program deals are lacking a discretionary offer. Why? Many reasons are possible, but to make sure it is not because of a lack of clarity on the program, we will cover potential ways to gain access to the discretionary component of the program.

Missouri Works is a “performance-based” incentive, such that the benefits are not provided until the actual new or retained payroll is documented at the end of each year of the company’s benefit period. In addition, each company that participates in the program must execute an agreement with DED to ensure compliance, record keeping and minimum job creation/retention, and in certain instances, minimum new capital investment.

Tax credits under the Missouri Works Program

As found in the “Definitions” section of the Missouri Works Program statute, the tax credits are defined as follows:

(29) “Tax credits“, tax credits issued by the department to offset the state taxes imposed by chapters 143 and 148, or which may be sold or refunded as provided for in this program;

When determining the amount of tax credits to award under this subsection, the department will consider the following factors:

  • The significance of the qualified company’s need for program benefits;
  • The amount of projected net fiscal benefit to the state of the project and the period in which the state would realize such net fiscal benefit;
  • The overall size and quality of the proposed project, including the number of new jobs, new capital investment, proposed wages, growth potential of the qualified company, the potential multiplier effect of the project, and similar factors;
  • The financial stability and creditworthiness of the qualified company;
  • The level of economic distress in the area;
  • An evaluation of the competitiveness of alternative locations for the project facility, as applicable; and
  • The percent of local incentives committed.

Each of these categories has its own unique requirements. Meaning, it is vital to have a trusted advisor to walk through this matrix. Understanding what your project brings to the community and the multiple hurdles associated with growing a business in one location compared to another, is a critical piece of driving value with state and local tax incentives.

Valuing the Statutory and Discretionary aspects of the Statewide Works Program

Statewide Works provides significant state incentives for eligible companies creating new jobs in Missouri. The incentives are a combination of the retention of state withholding tax of the new jobs and a discretionary refundable/sellable state tax credit. For example, statutory benefits for the retention of state withholding tax for the new jobs would include, but are not limited to:

  • AGI of $40 – 45,000: 3.00% of total new payroll
  • AGI of $45 – 50,000: 3.11% of total new payroll
  • AGI of $50 – 55,000: 3.21% of total new payroll

The above statutory retention benefit will be awarded to the company for either five or six years, based on how long the company has been in operation in Missouri. Such a statutory benefit would look like the following;

New Jobs 20 40 60 60 60 Total
Average Wage $41,000 $42,230 $43,497 $44,802 $46,146
New Payroll $820,000 $1,689,200 $2,609,814 $2,688,108 $2,768,752
Prelim. Program Benefit $24,600 $50,676 $78,294 $80,643 $83,063
Statutory Estimate Retained WH $24,600 $50,676 $78,294 $80,643 $83,063 $317,276

However, in addition to the Automatic Benefit indicated above, a Statewide Works project may be considered for discretionary benefits. Meaning, discretionary benefits can be awarded when a project treats the process as more of a negotiation. By providing an economic impact study, total net tax values, and information on the site location options for the project, the full scope of the challenges and opportunities can be seen. That understanding will in turn improve the project’s chance to receive an award that would look like the following offer, rather than the above offer;

New Jobs 20 40 60 60 60 Total
Average Wage $41,000 $42,230 $43,497 $44,802 $46,146
New Payroll $820,000 $1,689,200 $2,609,814 $2,688,108 $2,768,752
Prelim. Program Benefit $24,600 $50,676 $78,294 $80,643 $83,063
Statutory Estimate Retained WH $24,600 $50,676 $78,294 $80,643 $83,063 $317,276
Discretionary Tax Credits $16,400 $33,784 $52,196 $53,762 $55,375 $211,517
Total Benefit $528,793

In addition to the extra $211,517 received over the same five-year period, see above. It is important to know another way a discretionary award can increase the value offered to the project. While the state’s formula will estimate the benefits the company will receive over a period of five years, a discretionary offer could take that five-year period and use it a different way. Most often, it is a five-year window from year one of the project. Meaning, any job created in year five would only have one year of benefit. However, as a discretionary benefit, the five-year window could be used as a five-year window for the new jobs. Meaning that each job will be given five years of time to receive a payroll benefit and tax credit. Resulting in, a period that could be 10 years, based on a five-year window for jobs created in year five.

How Can You Take Advantage of the Missouri Works program?

While the Missouri Works program can be extremely valuable, as seen in our article examples, obtaining a discretionary offer and maximizing the potential value can be challenging for many businesses. From identifying opportunity, to managing interactions with local economic development liaisons, to meeting compliance requirements, the Missouri Works program can be difficult to navigate.

Having an experienced site selection and economic incentive advisor is a great first step. At McGuire Sponsel, we believe that rapidly growing companies, especially multi-state companies, need to have a strategic location and incentive plan. Our planning services focus on multi-state incentive program education, collaborative planning and ongoing opportunity assessment. If your company is investing and adding jobs, incentives like the Missouri Works Program could bring you hundreds of thousands of dollars or even more in benefit. To schedule your incentive planning session, call McGuire Sponsel at 317-564-5000 or email ddalton@mcguiresponsel.com or sbrunson@mcguiresponsel.com.

[1] https://ded.mo.gov/sites/default/files/Mo%20Works%201st%20Quarter%20Ending%203-31-17%20Final_6-1-17_0.pdf

 

Stephen Brunson

Stephen Brunson

As a Principal at McGuire Sponsel, Steve Brunson helps growing businesses across the country through location decisions while negotiating valuable economic incentives. He works closely with advisors to coordinate strategies that bring the greatest benefit to each client he serves. View Steve's bio.

More Posts