Of all the areas in tax today, one that is getting a lot of interest from companies and practitioners is credits and incentives (C&I). Some of this interest can be attributed to the Inflation Reduction Act of 2022, which focused attention on green energy credits and grants, and some can be attributed to the overall economic recovery by businesses after COVID (primarily driven by state tax C&I). Whether it is federal credits or grants, or state tax C&I, identifying the opportunities and doing so in a timely manner is critical to be able to capture the value. This short article will focus primarily on state C&I and the buzzwords to enable you to focus on opportunities.
C&I benefit a company in different ways. A tax credit is an amount claimed on a tax return that will reduce taxable income dollar-for-dollar. In many cases, if the credit is more than the tax liability it will carry over to next year, or if refundable, it may be able to be refunded in the same year. A tax incentive is typically designed to incentivize or encourage a particular economic activity by either reducing certain tax payments (like sales tax or property tax) or the overall cost of a project, e.g., funds provided to a company to locate a new facility in another locality. While incentives are typically considered negotiated or discretionary, meaning that you need to seek approval to be entitled to them, credits are statutory, which means you meet the criteria, and you are entitled to claim them.
Securing either a credit or incentive requires one to be aware of buzzwords you see or hear in conversations to be able to capture the value offered by each of them. Most opportunities for C&I will fall into two categories: ongoing operations, and expansions and new opportunities. Of course, jurisdictions will have different C&I and there are too many variations to discuss here, so please consult with a tax professional.
For ongoing operations, when you hear or read about capital additions, new jobs, research being done, or certain expenditures related to green energy, you should engage in learning more about the opportunity. As alluded to previously, each state and jurisdiction is different, so while some may offer a jobs credit for new jobs, others may not and have different credits available.
With respect to expansions and new operations, the buzzwords center around relocation or expansion of existing operations, modernization of existing operations including plans to transition to use of renewable energy sources, creation of new jobs, or investment of significant capital to replace existing equipment and facilities (“routine CapEx”). In the context of considering expansions of operations to another state, major renovations to an existing facility, or the addition of a significant number of new jobs, timing is critical as you want to begin the discussions with the appropriate economic development teams prior to making decisions and moving forward on a project. The ability to discuss significant plans in advance of final decisions to move forward will enhance your negotiating position and the opportunity to find value for your company.
The C&I team at Forvis Mazars can work in conjunction with you to understand your company’s (or your client’s) current and future growth plans for a wide array of capital expenditures. After gaining an understanding of your growth plans, Forvis Mazars can assist with identifying and securing state and local tax credits and/or an incentives package related to your planned growth project. It all starts with the ability to recognize buzzwords that will get you thinking about C&I opportunities.
For more information, reach out to a professional at Forvis Mazars today.