Reasons Why Companies Underutilize State Incentives

Incentives are such a large and frequent opportunity that corporate executives need to plan for them at least once each year. The best place for this incentive planning is the capital expenditure planning process. First, consider that there are two main classifications: (a) statutory incentives and (b) negotiated incentives.  Statutory are the incentives most pursued by finance and tax personnel.  These incentives are required to be offered to all on the same basis.  More specifically, to earn the incentive what a company has to do is spelled out, the value of the incentive is the same for all performing the activity (e.g., adding jobs) and the process is usually to fill out a form and submit to a tax return or in some cases to get a tax credit certificate. 

On the other hand, negotiated incentives are discretionary on the part of the offering entity, a state, county or local (city/town) government. Whether the incentive is offered is up to the offering entity.  The amount is usually up to the offering entity and the terms and conditions are also theirs to decide.  While there often is standardization or limits these are still highly discretionary.  To obtain, a company must send a letter to start the process and then usually submit information requested which can vary from time to time

Second, incentives are offered for a large variety of activities, actions, or investments.  There are incentives for adding fire extinguishers, reducing electrical or other utility usage, investing in R&D, adding to payroll 15 classification of new hires, as well as the biggest three categories:

  • Investments that add jobs
  • Investments that retain jobs
  • Investments in training

Third, there are many forms of incentives including:

  • Cash grants
  • Income tax credits/exemptions
  • Property tax credits/abatements/exemptions
  • Sales Tax credits/exemptions/rebates
  • Use Tax credits/exemptions/rebates
  • Utility rate reductions/reclassifications
  • Opportunity Funds and Block grants
  • Fee waivers Port tax credits
  • Site/building redevelopment grants
  • Free buildings
  • Free training

Planning and analysis are key to match up planned activities to incentive programs.