Companies establishing a new facility or expanding an existing facility can take advantage of the many tax credits states offer as incentives to increase investment in their state. These credits provide a variety of ways to potentially eliminate an organization’s entire state income tax liability. States also offer numerous sales tax exemptions and property tax reductions specifically for manufacturers. These credits provide a great opportunity to help reduce start-up and annual operating costs.
The costs of running a modern manufacturing operation consistently increase. To offset operating costs, it is beneficial for manufacturers to stay abreast of the latest developments in state tax credits and incentives. Consider, for example, the recently increased job tax credits offered in South Carolina for businesses that stimulate job growth: up to $125,000 per employee over a five-year period, the most generous job tax credit in the country. Companies that take advantage of these and other available credits and incentives can gain a competitive edge in their industries.
The following three credit types are popular among the manufacturing and distribution industries. Should your company plan to expand operations in the near future, or has done so within the past three to five years, the following credits should be considered in the decision making process:
Job Tax Credits – Expand Your Workforce to Position for the Future
Did you know that many states offer Job Tax Credits for increasing your company’s workforce in their state? Generally, the Job Tax Credit is a valuable incentive that rewards businesses for the creation of new full-time jobs in a state. Most job tax credits come in the form of income tax credits that may be earned by C corporations, S corporations, partnerships, sole proprietors, and limited liability companies. Credits must be used as much as possible in the year they are generated. Certain credits can also be applied against corporate license fees in some states. Generally, throughout the Southeastern States, we see credit amounts ranging between $1,000 to $25,000 per employee, per year.
While qualifying business types vary among states, almost all states allow manufacturers and distributors to be eligible business types. The job tax credit rules and requirements can be complex and require a comprehensive analysis when planning for credit utilization. We encourage you to contact your Elliott Davis advisor to discuss opportunities to generate and utilize job tax credits for your business.
Port Volume Credits – Earn Tax Credits for Increasing Port Volume
Many coastal states with port facilities provide credits for increasing the volume of shipments that travel through their ports. Do your company’s goods travel through a state’s port facilities? Now could be a great time to review your distribution footprint as multiple states provide income and or withholding tax credits for distribution operations that increase volume through their state’s ports. For example, South Carolina provides a discretionary income tax credit or withholding tax credit to manufacturers or distributors who increase their port cargo volume. To be eligible for this credit in South Carolina, a company must have 75 net tons of non-containerized cargo, 385 cubic meters or 10 loaded TEU containers transported through a South Carolina port facility for their base year and then must increase their port cargo volume by 5% over base-year totals. Most states that also offer port volume credits generally have similar requirements to those of South Carolina’s.
Capital Investment Credits
Have you considered whether your company’s recent or future expansion would be eligible for income tax credits for capital investment in manufacturing machinery and equipment? Some states recognize that a barrier to future growth is the substantial capital costs associated with machinery and equipment. Generally, capital investment credits are available and will be offered as a percentage of direct capital investment in manufacturing equipment. Be careful, however, as most states require property basis reductions for the amount of the credit claimed.
We Can Help
The Elliott Davis, LLC State, and Local Tax Practice is a team of experienced professionals who will work closely with you and your company to take advantage of a wide array of state and local incentives. Whether you need assistance with state income taxes, property taxes, or sales taxes, our State and Local Tax professionals are here for you. If you would like to receive State and Local Tax alerts, articles, newsletters, and information on webcast and CPE events sign up here.
The information provided in this communication is of a general nature and should not be considered professional advice. You should not act upon the information provided without obtaining specific professional advice. The information above is subject to change.