Economic Development Tax Incentives Experts

Economic Development Tax Incentives

Businesses owners and key stakeholders often ask their trusted advisors: What are tax incentives? Economic development tax incentives are tax tools used by communities to encourage certain businesses to grow in one location versus another. A follow-up question may be: Do economic development incentives work? Tax incentives work as they encourage or incentivize businesses to chose a particular location based on the tax value that business can receive from the economic development tax tools made available by that particular community. What are the benefits of tax incentives? The benefits of tax incentives are often realized by companies as tax discounts or savings:  tax credits, exemptions, abatements, refunds, rebates, and even cash grants. Economic development incentives work by creating a tax benefit for businesses to create or retain new jobs (employment) and invest new capital investment. As a result, the communities benefit from economic development tax incentives by realizing an increased rate of investment and new job growth that might not have happened without the incentives being offered. The tax incentives offered by the community decrease the risk associated with making investments and adding employees by the business. The business takes a risk by choosing one location over another and the community supports that decision with tax incentive benefits. Tax incentives work as they are not prescriptive for each community. While most economic development tax incentives are governed by legislative statutes, the communities still have discretion on offering tax incentives benefits. Not all communities will offer tax incentives as they will need to determine if there is enough capital investment or new jobs to offer the benefits of tax incentives for new or expanding businesses. This discretion in offering the benefits of tax incentives makes it important for growing businesses and their advisors to work closely with a trusted economic development tax incentive expert. Economic development tax incentive experts help navigate the complexities of the tax incentive applications and increase the chances of a company receiving tax incentive benefits. So do tax incentives work? The answer depends on many factors.

Economic Development Incentives by State

Economic development tax incentives vary from state to state. Some state economic development incentives focus more on tax credits for corporate income tax liability. Other state economic development incentives allow cash grant options or refunds or rebates that create a cash equivalent option. State economic development organizations help to drive growth in their state as opposed to another state. For example, Indiana economic development incentives often compete with surrounding state programs, such as Tennessee economic development incentives, Kansas economic development incentives, or Minnesota economic development incentives. Indiana economic development incentives are very flexible and have minimal clawback risks. North Carolina economic development incentives often offer cash grants for performance benchmarks. Kansas economic development incentives allow companies to retain the wage withholding tax for employees, creating a cash equivalent benefit that is realized immediately. Alternatively, Kansas economic development incentives also offer a refund option as well as a corporate income tax credit for new job creation and new investment in the state of Kansas. New Jersey economic development incentives were placed on hold for 2 years as the state worked to revise its programs and review processes. This meant that New Jersey economic development incentives were not available for new or growing companies for a significant amount of time. Now, New Jersey economic development incentives are available again, though the value must be analyzed as there are significant fees for applications. This typically means that New Jersey economic development incentives are geared toward very large projects. Pennsylvania economic development incentives have also changed substantially in the last few years. Some key programs used as Pennsylvania economic development incentives in the past have sunset and have not been replaced by new programs. The Pennsylvania economic development incentive program called PA First is a cash grant program that still remains and is very effective at supporting new job growth and new investment in the state. When clients are considering investing in the business, they should always consider economic development incentives by state.

Impact of Tax Incentives on Economic and Industrial Development

Economic development tax incentives provide significant advantages and positive impacts for growing businesses, both through tax incentives for investment in developing communities and tax incentives for investment in developing countries. All tax incentives and impacts on the tax structure of businesses have pros and cons that must be weighed. Trust advisors and tax incentive experts assist growing companies in evaluating the effects of tax incentives. It is important to consider both the pros and cons of tax incentives. Though there are many advantages of tax incentives for businesses, growing companies always need to determine if there are any negative effects of tax incentives, including the risk of clawbacks if a company does not perform the way they intended. Tax incentives are typically offered to primary employers: those companies that create new capital as a result of their operations. Primary employers are usually industrial operators, but can include headquarters, logistics and distribution, and technology operators as well. Tax incentives are typically devoted toward industrial companies, though other commercial operators may be eligible for select economic tax incentives. Industrial growth within a community creates the most opportunities for jobs and capital investment, both of which are key to receiving the benefits of tax incentives for industrial growth. Industrial growth creates demands for further growth and investment within a community, such as housing, retail, and other commercial developments. Therefore, tax incentives support both general economic growth and can lead to further industrial development. In general, the effect of tax incentives is a positive one on a community as it encourages other economic growth. With further economic growth comes more tax revenue for a community to work with. This tax revenue supports schools, public safety, and other quality of life initiatives within the community. The McGuire Sponsel team has many tax incentives pdf that outline how to take advantage of economic development incentives.

Tax Incentives For Businesses

Economic development tax credits and incentives come in many forms. These tax benefits often are focused on large industrial or commercial developments that create many jobs and involve large investments in real and personal property. Tax incentives for businesses are generated from qualifying business activities that would themselves increase the amount of tax revenue a community can receive. Investment in real property would increase the amount of real property taxes. Therefore a property tax abatement reduces the tax liability a business would have had to pay in order for that investment in real property to take place. Many people also ask about tax incentives for activities separate from economic development, such as asking do companies get tax breaks for hiring disabled people or tax incentives for hiring minorities, tax credits for small businesses coronavirus, tax credits for small business owners, tax credits for small businesses 2021, and small business tax credits 2022. Tax incentives for business may have particular requirements, such as hiring of a certain number of minorities or employees with disabilities. Federal tax incentives, such as the work opportunity tax credit (WOTC) encourage businesses to hire individuals with disabilities, military backgrounds, and criminal backgrounds. Tax credits for small businesses are rare as small businesses often don’t have enough qualifying activities (new jobs/new investment) to receive tax incentives. While many programs encourage the hiring of minorities or employees with disabilities, very little direct tax benefits are generated from these activities. Some tax incentives require a minimum amount of employees to qualify as minorities, however, these requirements can be difficult to uphold due to the location or number of available minorities in a hiring demographic. While many temporary programs developed due to the coronavirus pandemic, most tax credits or programs for small businesses have expired or run out of funding. When it comes to tax credits for small businesses and owners, there are very few programs available without significant job creation or capital investment expenditures.

Economic Development Incentives Examples

The economic development incentives definition is tax tools used by communities to support business growth in one location versus another. Tax incentives examples include tax credits, tax refunds, tax exemptions, tax abatements, tax reductions, and cash grants. There are certainly more examples of tax incentives for businesses, these are just a few. Economic development incentives are offered to business to encourage those businesses to make investments and hire net new jobs in a particular location. As a business chooses where to invest its future growth, the economic incentives offered by state and local governments show the importance of incentives to the community’s economy. This is the importance of incentives in economics. State and local governments have discretion in offering economic development incentives, so businesses should follow economic development incentives best practices. Governments incentivize businesses to growth in a particular location and offer tax savings as a reward for locating within the government’s jurisdiction. Government incentives for individuals are not offered, as individuals do not create jobs or investment. Government incentives for businesses are awarded to companies which create jobs and investment. Those businesses receiving tax incentives typically can pass the tax savings along to their business owners, depending on the tax structure of the business and the offered incentives. There are many government incentives examples that follow this framework, but there are also local incentives examples to consider. Local incentives are just as important as state level economic development incentives, but are often overlooked. A trusted economic development credit and incentive specialist will pursue both state and local incentives as a best practice.

Advantages And Disadvantages Of Tax Incentives

Business owners, accountants, and stakeholders may ask, what is the purpose of tax incentives? The tax incentives definition is: the tax tools used by communities to encourage certain businesses to grow in one location versus another. By offering tax incentives, a community promotes a business to make capital investments and grow jobs within its jurisdiction. Businesses that make investments and create new jobs within a community, create more tax revenue as a result, thus creating the importance of tax incentives to a community’s economy. Every program has advantages and disadvantages from offered tax incentives. The disadvantages of tax incentives for businesses is that if a business does not perform to the standard set at the outset, they may have to pay a penalty, or clawback, for their lack of progress. One stereotype of the negative effects of tax incentives is that businesses use tax incentives and then move to a new location once the tax incentives fade away. This notion is often unfounded and, in fact, is proven to be incorrect more often than not. Businesses that experience the positive effect of tax incentives will often invest more into a community than originally considered. This further investment into a community highlights the importance of tax incentives toward economic growth. In the vast majority of cases, the advantages of tax incentives far outweigh the potential disadvantages of tax incentives.