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Minimize State and Local Tax with Negotiated Credits & Incentives

05/15/2017

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Guest blogger: Stephen Brunson, McGuire Sponsel

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.

Fortune 500 companies often use these incentives as a part of strategic plan to minimize state and local taxes and keep more money in the company. Can closely held businesses do the same? Many can, but few do. Why? Most CPAs don’t actively work with their clients to negotiate and procure state and local incentives. These incentives don’t work like federal tax incentives. The mechanisms of benefit and the process of obtaining these credits are fundamentally different.

Who should take a proactive approach to state and local tax minimization with negotiated incentives?

  • Multi-state clients
  • Manufacturers
  • Logistics companies
  • Technology, software and IT companies
  • Research driven organizations
  • Insurance companies
  • Any company that derives significant revenue from outside its home state

What do you need to help your clients take a strategic approach to state and local incentives?

  1. Knowledge
    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.
     
  2. A proactive approach
    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.
     
  3. Alternatives
    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.
     
  4. An experienced partner like the LBMC/McGuire Sponsel Credits and Incentives Team
    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 like LBMC/McGuire Sponsel receive awards far more frequently and with much greater value than those that do not.

How do we bring value?

All you have to do is look at the 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.

Taking a proactive approach to economic incentives can save companies hundreds of thousands or even millions of dollars. Are you maximizing incentive opportunities for your clients? We would love to talk with you about how to help your clients implement a proactive, value driven approach to state and local tax minimization.

Call or email Andrew Hill today to learn more about how your firm can work with LBMC/McGuire Sponsel to bring extraordinary value to clients.

BrunsonGuest blog from the professionals of McGuire Sponsel, an LBMC strategic partner delivering specialized tax and advisory solutions. They approach their work as trusted resources to CPAs, enhancing those important annuity relationships through innovative tax strategies.