Don’t Miss Out on Valuable Facility Review Tax Credits
John Hoffman, Baker Tilly Virchow Krause, LLP
Many businesses overlook significant tax credit and incentive savings that offer tax reductions, refunds and other payouts related to investments in their facilities. Numerous governmental entities offer tax credits or incentives to businesses to encourage development, create jobs, promote research, save energy or otherwise boost the recovering economy. To utilize the credits and incentives available, companies must evaluate their costs and activities and then evaluate which tax-related opportunities may be applicable and beneficial. This can be challenging if they lack the appropriate resources. As a result, sizeable dollars in credits and incentives go unused every year.
Various events and expenditures can make a company eligible for credits and incentives. Situations that could potentially qualify a company for tax savings include:
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- Job creation and/or retention
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- Remodeling or retrofitting existing facilities
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- Lease renewal or leasehold improvement investments
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- Transferring equipment or employees
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- Acquiring a business or undergoing a merger
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Considerable tax credits and incentives may be available for a company’s facility-related expenditures but companies should conduct a comprehensive review of the estimated costs associated with facility enhancement or construction to obtain the maximum benefit.
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Federal tax incentives associated with building or renovating a facility include:
- Cost segregation to accelerate depreciation and prevent a company from “pre-paying" taxes
- Energy incentives, including renewable energy opportunities, qualified energy projects and energy-efficient commercial building deductions
- The Research Tax Credit that includes a current deduction of certain building expansion design and engineering costs
- Federal New Markets Tax Credits to encourage commercial investment in low-income communities
- The Domestic Production Activities Deduction
- Federal Wage Tax Credit incentives
- Capital gain exclusion for the sale of certain assets
- Building usage and performance-related incentives
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State and local tax opportunities and incentives include:
- Property tax-related savings and incentives
- Adjusting what companies pay when they either sell, lease or rent property or obtaining a refund if they have overpaid
- Tax credit or exemption for the purchase of qualified manufacturing machinery
- Training grants for new employees
- State research tax credits
- Utility rate reductions
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Depending on a company’s location, international credits and incentives may also be available.
To increase the likelihood of obtaining valuable credits and incentives, it is crucial to compile accurate data and information about the scope of the investment and the number of jobs it will create. Companies also need to develop a compelling story about their work and the benefits the investment will provide to the community. Before applying for a tax credit or incentive, consider the following:
- Analyze state and local tax impacts for potential sites
- Conduct research to learn about available tax credits and incentives
- Keep thoughts and plans confidential – defer public announcements to appropriate times
- Plan meetings with state and local officials
- Request a preliminary credits and incentives proposal
- Prepare the application and gather the requested financial and operational data
- Complete any second round of information requests on a timely basis
- Anticipate how to address potential roadblocks
- Lock in the credits and incentives package through contracts and final applications; ask for a review by outside or corporate legal counsel before signing
- Be sure all ongoing compliance requirements that are included in the final contract are understood and can be met
Using local, state, federal and international tax credits and incentives can save companies a considerable amount of money — and, in turn, help them vastly increase their profitability.
John Hoffman can be reached at john.hoffman@bakertilly.com.