States have historically offered statutory tax credits as a way to compete for businesses that are looking to relocate their operations as well as to retain existing businesses. Although states assign considerable amounts of funding toward these programs as part of their annual budget process, they generally do not engage in outreach to the business community to increase awareness. As a result, many businesses do not realize these credits even exist in their state, or if they do, they may be unsure whether they qualify.
Some of the most common tax credits that states offer to businesses involve job creation, job training, and neighborhood revitalization efforts.
Job Creation
An employer increasing its workforce could be eligible for a tax credit for each job that it commits to creating in the state. Applying for this credit usually involves completing an application that details how many jobs will be created over a specific period of time. In exchange, the state or local government will award the employer with a credit for each job that is created within the guidelines of the program.
Job Training
States also provide training grants to employers that engage in specific job training or retraining in various industries. These grants are typically issued through a state’s labor or workforce development agency. They can apply to on-the-job or classroom training, either employer-led or provided by an outside source. Employers can utilize these grants to offset costs incurred to train employees.
Neighborhood Revitalization
Businesses can benefit from state revitalization zones created to bring investment back to blighted communities and help them recover from the loss of industry and employment. Two of the most prominent programs in our region are Grow NJ and Pennsylvania Keystone Opportunity Zones. Both programs offer businesses substantial tax benefits for relocating to specially designated areas, with the goal of revitalizing those zones.
There is a wide variety of state and local tax credits available to assist with minimizing your tax burden and offsetting the cost of recruiting, retaining, and training employees. If you are expanding your workforce and/or physical presence in a state, evaluate whether tax credits exist in that state and, if so, what is required to qualify. Timing is everything, and even businesses that meet the eligibility requirements for a program could be “boxed out” from receiving benefits if they do not file a timely application to participate.
Once you have been awarded a tax credit, it is critical to understand the administrative requirements for participation in the program. There are typically ongoing requirements to ensure that your business is in compliance with commitments made in the application process. The agency awarding the credit could also audit your business to determine whether you are fulfilling the requirements stipulated as part of the agreement. Businesses that are non-compliant with certain reporting requirements during the life of the credit could face a demand or claw back from the state agency for repayment of the tax credits utilized on returns.
Despite the administrative burden imposed on companies that have received benefits, statutory tax credits should receive serious consideration as a way to reduce your company’s costs and increase the ROI for recruiting, hiring, training, and retaining your employees.
This is part one of our two part statutory tax credits articles. Look for part two in our March newsletter.
If you have any questions about this topic, please don’t hesitate to contact a member of Kreischer Miller’s State and Local Tax group.
Thomas M. Frascella can be reached at Email or 215.441.4600.
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