Contributors: Nick Cousino, Senior Manager | State Credits & Incentives Advisory
What Are State Credits and Incentives?
Throughout the U.S., individual states offer unique tax credits and negotiated incentives to attract or retain business operations. Currently, there are more than 2,400 state and local incentive programs available. There are a variety of ways these tax credits and incentives can be utilized to benefit companies:
- Tax credits for dollar-for-dollar reductions to a company’s overall tax liability
- Refundable tax credits where companies may receive a refund in excess of the tax liabilities owed
- Tax credits that can be claimed on a retroactive basis so a company may receive benefits for jobs created or investments made in the past
- Discretionary tax incentives such as cash grants, property tax abatements, sales tax refunds or utility reductions to incentivize economic growth in their areas
There are 10 states that standout as having incredibly lucrative credits and incentives opportunities, including:
- Alabama
- Georgia
- Kentucky
- Mississippi
- North Carolina
- Ohio
- South Carolina
- Tennessee
- Texas
- Virginia
State Credits and Incentives for Job Creation and Investments
Jobs Tax Credits
The job creation incentives are available in these 10 states. The incentive amount varies by location and industry. However, all job creation incentives typically require:
- A minimum net job increase
- Maintained jobs
- Operations in certain industries or activities
Jobs Tax Credits may be claimed on a retroactive basis in Georgia, South Carolina, Mississippi, Tennessee and Virginia in any open tax years. To qualify for payroll or cash refunds, the company must file an application and receive approval from the state prior to creating the new jobs.
- Alabama: The Alabama Job Act provides a cash refund of up to 4% of the previous year’s gross payroll for new jobs for up to 10 years.
- Georgia and South Carolina: Georgia and South Carolina offer similar job credit programs over a five-year period.
- The Georgia credit ranges from $1,250 to $4,000 per net new job annually, depending on the company’s location. The credit may be used against income tax, and excess credit may be used against payroll withholding tax in certain situations.
- The South Carolina credit ranges from $750 to $25,000 per net new job annually, dependent on the company’s location. The South Carolina tax credit is claimed in the following year after job creation, and the tax credit may only be used against 50% of the company’s income tax liability. Qualified small businesses need only create two new jobs to qualify.
- Kentucky: The Kentucky Business Investment Program provides wage assessments of up to 4.5% taxable wages for up to 15 years.
- Mississippi: Mississippi offers a job credit of up to 10% of the new payroll for a five-year period, depending on the company’s location. The tax credit may offset up to 50% of the company’s income tax liability.
- North Carolina: The North Carolina Job Development Investment Grant provides a cash refund of up to 80% of personal income taxes generated by new jobs for up to 12 years.
- Ohio: Ohio offers a refundable job creation tax credit based on the state income tax withheld for new jobs for up to 15 years.
- Tennessee: Tennessee offers a jobs tax credit of $4,500 per new job and additional enhanced jobs credits for up to five years, depending on the company’s location. The tax credit may be used against the company’s franchise and excise tax. With the phasing in of the single sales apportionment factor, the credit may now be carried forward 25 years instead of 15 years.
- Texas: The Texas Enterprise Zone offers a sales and use tax refund depending on the number of jobs created or retained and level of capital investment. A Half Enterprise Project may be eligible for a maximum refund of $625,000 with up to $5 million of capital investment over a five-year period and a maximum refund of $2,500 per job created or retained.
- Virginia: Virginia offers a jobs credit equal to $1,000 per net new job. The credit is claimed over a two-year period. Virginia also offers an annual job creation grant of up to $800 per job for up to five years for companies located in one of 46 Enterprise Zones. New or expanding companies that use the Virginia ports may also qualify for an additional jobs grant worth between $1,000 to $3,000 per job created in the company’s first 12 months of operations.
Investment-Related State Tax Credits and Incentives
States offer investment-related incentives and tax credits, property tax abatements and rebates, sales and use tax exemptions, and utility reductions. These tax incentives may require negotiations with the state and local governments prior to making any public announcements of the project.
- Alabama: Alabama offers an investment tax credit equal to 1.5% of qualified capital investment for up to 10 years. The tax credit requires pre-approval from the state.
- Georgia: In lieu of a jobs credit, Georgia offers an investment tax credit ranging from 1% to 8% of capital investment to existing companies engaged in manufacturing or telecommunications that have operated in Georgia for at least three years. The tax credit may be used to offset up to 50% of the company’s income tax liability. Companies located in Rural Counties Tiers 1 or 2 may apply credits to payroll withholding depending on the situation and if transferred by May 31, 2024.
- Kentucky: The Kentucky Reinvestment Act provides an income tax credit to companies that invest at least $2.5 million in machinery and equipment. The credit may offset up to 100% of the company’s income tax for up to 10 years. Companies must retain at least 85% of their employees at the time of approval.
- Mississippi: Mississippi offers an investment tax credit equal to 5% of eligible investment (a minimum of $1 million in building and equipment) to manufacturers that have operated in Mississippi for at least two years. The tax credit may be used to offset up to 50% of the company’s income tax liability.
- North Carolina: The One North Carolina Fund provides a discretionary cash grant to reimburse capital costs such as installation or purchase of equipment, structural repairs and renovations, and construction or improvements to utility lines or associated equipment for manufacturing or industrial operations.
- South Carolina: South Carolina offers an investment tax credit of up to 2.5% of the manufacturing and productive equipment property. The tax credit can be used to offset 100% of the company’s income tax liability.
- Tennessee: Tennessee offers an investment tax credit of 1% to 10% of industrial machinery. Expensed repair costs may also qualify for the tax credit. The tax credit may be used to offset 50% of the company’s franchise and excise tax. Similar to the Tennessee jobs tax credit, the investment tax credit may be carried forward 25 years as a result of the single sales apportionment factor phase in.
- Virginia: Virginia offers a cash grant of up to $500,000 for companies that make qualified investments in real property for companies located in one of 46 Enterprise Zones. A company that is expanding in an Enterprise Zone and invests as little as $600,000 in qualified real property can qualify for $100,000.
Sales and Use Tax Exemptions
States and cities may offer sales and use tax exemptions on machinery used in the manufacturing process, research and development, and pollution control. States like Georgia and Texas may also exempt sales and use tax from electricity used in the manufacturing process.
Take Advantage of Available State Credits and Incentives
State and local governments leverage economic incentives to attract businesses to grow in their areas. State governments may offer a deal-closing fund when they are competing with another state. The local governments may offer property tax abatements and sales tax refunds to increase the company’s return on investment.
Your Guide Forward
The state credits and incentives programs are constantly changing, and it can be difficult to keep track of the criteria and reporting requirements. Cherry Bekaert’s professionals have developed strong relationships with the state economic development agencies and the state and local governments to stay on top of these changes. If you have operations in any of these states, please contact a member of Cherry Bekaert’s State Credits & Incentives team for a comprehensive review to help you take advantage of these credits and incentives opportunities.
