By Steve Brunson, McGuire Sponsel

With one of the nation’s best environments for business, economic growth that exceeds the rest of the country, and a strong outlook for continued growth, the State of Tennessee is definitely open for business. Increasingly, Tennessee is on the short list for businesses looking to expand and invest, and whether a growing company is already in Tennessee and is looking to expand or is coming from the outside and considering the state, a number of incentives exist that can help to bridge any competitive gaps and put Tennessee over the top.

What you need to know about the Job Tax Credit

State government, local governments and the Tennessee Department of Economic and Community Development (TNEDC) work together to administer economic incentives designed to attract and retain businesses and create high quality jobs. Among the many instruments the TNEDC and Department of Revenue can utilize, the Job Tax Credit (JTC) and the FastTrack program can create a significant catalyst to get a project started. The JTC, administered by the Department of Revenue, is a very valuable incentive for job creation while FastTrack grants from the TNEDC can provide additional support for competitive projects. How do these two incentives work and how could they benefit your project?

Tennessee’s incentives for companies expanding within the state or relocating to the state include a combination of tax credits, job training reimbursement grants, abatement, tax increment financing and public infrastructure development. The value and duration of the incentives depends on the type of company, project, number of jobs created and the amount of capital invested, in addition to the specific location of the project. Two incentives based primarily on job creation are the JTC and the FastTrack program.

Job Tax Credit 101

Tennessee’s JTC is one of the most valuable and streamlined incentive programs in the country. Companies that create at least 25 net new full-time positions within a 36 month period and invest at least $500,000 may qualify for a credit of $4,500 per job to offset up to 50 percent of franchise and excise taxes in any given year with a carry forward for up to 15 years. Tennessee law provides that only certain industries are eligible for the JTC program. So who is eligible? Tennessee’s incentives are limited to the following types of companies:

  • Headquarters
  • Manufacturing
  • Data Centers
  • Warehousing and Distribution
  • Call Centers

In addition, Tennessee does offer an Enhanced Job Tax Credit which can increase the credit given for job creation. This is done by county classification. Based on the county the project is located in, the credit can be extended to a five year annual credit of $4,500 per job and increase the offset from 50 percent to 100 percent. Moreover, the Enhanced JTC also reduces the amount of created jobs necessary to qualify for the program. A Tier 4 county only requires 10 net new full-time positions within 60 months as opposed to the 25 required under the regular JTC.

FastTrack Program 101

The FastTrack program is a series of grants available to companies through the TNEDC. This program has three different grants available, as follows:

  • Economic Development Fund
    • Provided to local communities to reimburse a company for eligible expenditures not covered by infrastructure or job training grants. The grant will offset expenses such as relocation of equipment, capital improvements and retrofitting.
  • Job Training Assistance Program
    • Provided directly to new or expanding companies. Funding levels are based on the number of net new full-time positions created, amount of capital investment, wages of new employees, and the types of skill and knowledge levels required to perform the jobs.
  • Infrastructure Development Program
    • Provided to local governments for public infrastructure needs. TNECD will work to identify eligible project needs. Examples include water, sewer, rail, gas, electric, roadway, telecommunications or other site improvements.

Minimize State and Local Tax with Negotiated Credits & Incentives

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.

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 businesses don’t actively work with their CPAs 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 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.

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?

Considering growing in Tennessee?

If your company is considering an expansion or relocation within or to the State of Tennessee, the JTC and other grants can be a valuable tool to close any competitive gaps with other sites. While Tennessee’s credits, grants and abatements can be very valuable, many other factors will also be important in selecting the best site for your project. From evaluating project locations, to managing interactions with economic development liaisons, to meeting compliance requirements, creating value throughout the site selection process can be challenging. Having an experienced location and economic incentives advisor on your side is a great first step.

The LBMC/McGuire Sponsel team believes that growing companies, especially multi-state companies, need to have a strategic location and incentive plan. Approaching a project with a site selector will ensure all possible options and locations are considered, and will also help to maximize incentive value realized on local and state levels.

Our planning services focus on multi-state location comparisons and education, collaborative planning, and ongoing assessment. If your company is investing and adding jobs, incentives like the JTC could be an important factor in your decision – bringing you hundreds of thousands of dollars or even more in benefit.

To schedule your location advisory and incentive planning session, contact us.

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.