2023 Marcum Year-End Tax Guide

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THE MARCUM YEAR-END TAX GUIDE 2023

Jobs credits generally reward companies for hiring, developing, and retaining employees. Enhanced benefits may be available to companies that hire individuals with barriers to employment. The credit can be computed as a percentage of qualifying wages or increased employment over a base period. FTZs offer duty and excise tax protection, among other benefits. Furthermore, tax is not assessed until the product enters the U.S. market. This saves companies from paying duty on spoilage or items that are exported. Businesses with substantial imports may want to consider a cost-benefit analysis to decide whether to take advantage of a FTZ and reduce customs costs. specified distressed areas. Various zones within a state could supply different credits for employment or investment. Discretionary incentives are generally negotiated ahead of time with economic development agencies. Examples of negotiated incentives include cash grants, reduced cost financing arrangements, accelerated permitting, income and payroll tax credits, sales/use tax exemptions or abatements, property tax abatements/ exemptions, and utility reductions. Location-based credits and incentives seek investment in

Incentives can be negotiated locally as well. In states such as Ohio, where there are local income taxes, the local tax credits can be negotiated. Property tax abatement or PILOT payments and sales tax are also examples of localized incentives. Grants can also be negotiated and, many times, require local approval. Some incentives are hybrid – where there is a supporting statute, but prior application is required. However, unlike dictionary incentives, the incentive is not negotiated with various agencies. Furthermore, a “but for” argument may not be needed. Businesses may have already taken some action towards qualifying activities without disqualifying themselves for the incentives. Structure and monetization are just as important a consideration as the tax credits and incentives themselves. Certain credits are only available to corporate taxpayers, while others are passed on to owners of flow-through entities. If a credit is non-refundable or transferable, pursuing that credit may not be beneficial. States such as Georgia have robust statutory jobs tax credits. In certain situations, Georgia allows companies to apply excess tax credits against employee withholding taxes, allowing companies to monetize the incentive better.

Whether qualifying for an “as-of-right” credit or obtaining and maintaining discretionary incentives, businesses should carefully review the tax incentives available and consult a professional credits and incentive advisor to assist with the process, avoid any adverse consequences, and identify new planning opportunities. Not having sufficient resources to research and manage a credit program can put businesses at risk of losing out on potentially valuable benefits. Incentive packages may require strict accountability along with annual (or more frequent) compliance/reporting. Noncompliance could result in clawbacks of previously provided incentives. Businesses may need to renegotiate the terms of commitments with individual jurisdictions to maintain valuable benefits. Some jurisdictions have added requirements such as ESG, green energy, community involvement, and prevailing wages to their incentive programs. Accordingly, taxpayers need to understand all the requirements and consider whether an incentive package is feasible. The industry also has an impact on incentives. Incentives can specifically target industries such as advanced manufacturing, distribution, film, high-tech, and automotive. However, there are industry-neutral incentives that focus more on the business’s investment in the location and workforce.