Spring 2006 issue of Horizons

ives should be available and are often as lucrative as the initial offering. It is better to build slowly rather than attempt to accommodate an expansion that proves to be excessive to your actual needs. Above all, once an incentive package is received, make sure that someone takes responsibility to comply with any and all periodic (usually annual) reporting requirements to maintain the package. Quite often incentive packages are lost because the taxpayer fails to do the simple mundane task of reporting. This task should be calendared the same as any tax compli- ance. Maintain Flexibility Many of the credit and incentive programs have specialized requirements that were incorporated to narrow the pool of eli- gible businesses. It pays to read the statute and any regula- tions. For example, Missouri offers a business incentive tied to new employee tax withholdings. In the legislation, certain busi- ness operations were excluded from the eligible list. In review- ing the legislation and discussing a taxpayer's situation on an anonymous basis, the taxpayer's consultant was able to qual- ify the administrative segment of the otherwise ineligible busi- ness activity. It is important to use all available avenues to seek credits and incentives. While most taxpayers focus on state level agen- cies, they miss the capabilities of local representatives or politi- cians to facilitate access to local credits and incentives. Exposure Once the expansion or relocation project is underway, there will be publicity. If the taxpayer has followed the rules and maintained the high road, the publicity will be positive. When the media finds that the taxpayer has been either less than forthcoming or overly threatening during the negotiations, the publicity will be negative. Remember that politicians, other governmental officials and generally those segments of the public affected have long memories. If your story is positive when it makes the front page, the process employed was successful. Available Programs The list of tax credits and incentives varies by jurisdiction. Within each jurisdiction, there will be areas (zones) that quali- fy for more credits than other areas within the same jurisdic- tion. Most programs fall into the same categories:

• Capital funding arrangements for investment in real or personal property, usually in the form of Industrial Revenue Bonds (IRB) • Training or retraining of the work force, usually in conjunction with the efforts of a community college • Increase or retention of employees, which can lead to credits against income tax or in the form of rebates • Grants to fund specific governmentally desired activities, such as purchasing recycling equipment • Offsets of tax liabilities for capital investment or work force, usually applied to income or sales/use taxes • Rehabilitation of Blighted Areas or Environmental Remediation, which include redevelopment efforts or Brownfield credits • Property Tax Abatements/Exemptions for expansion of business • Sales/Use Tax Exemptions/Credits for expansion of business • Infrastructure funding mechanisms such as Tax Increment Financing (TIF) • Utility rate concessions including water, natural gas or electri- cal energy Depending upon the jurisdiction, business activity and magni- tude of the expansion, there exist various forms and combina- tions of the above. If you feel that your project may be too small, have your representative investigate alternative pro- grams tailored after state mandated programs that may be sponsored by large local government agencies for smaller investments. Review the Offer Once an incentive package is offered by a jurisdiction, it is essential that it be thoroughly reviewed to determine fluff from substance. What appears to be innocent language may be the clause that causes the taxpayer to regret the deal some years later. Did the jurisdiction really offer any incentives beyond those that are a right of any business located in the jurisdic- tion? For example, some states will point out that a taxpayer's inventory will not be subject to property taxation when in fact that jurisdiction's property tax law exempts all inventories from taxation. Another pitfall can be the jurisdiction's incomplete stating of exemptions. For instance, the jurisdiction may state that all expansion property is not subject to the jurisdiction's property tax levy but fail to mention that this exemption does not include the taxes levied by the local public school. A review of the credit and incentive packages by your trusted business advisor should account for most, if not all, of the con- tingencies that will arise in your business. If the review is done from an objective viewpoint and issues with the package of incentives are discussed with the appropriate governmental agencies, a complete win-win package will be the result.

4 • spring 2006 issue