Tax credits, tax abatements, grants and loans all make up the typical local and state economic development incentive toolbox. Tax credits are usually a state performance-based incentive tied to job creation and capital investment. These tax credits in most cases are competitively awarded as there is a limited amount of state government funding available to support them. Thus, higher job growth, higher wages, and larger capital investments from companies attractive for investment are given priority for these tax credits. Tax abatements temporarily decrease the amount of taxes a business owes and are generally negotiated at the local government level based upon state program standards. States also offer outright grants for companies in exchange for the retention and creation of an agreed-upon number of jobs and capital investment. A recent trend is the use of “closing funds” as the dominant form of economic development incentives. Low or no-interest government-sponsored loans or other project financing programs are an attractive alternative to bank or other private-sector financing for a planned economic development expansion. Companies with growth potential face new challenges to gain the financing needed to move to the next level and eight states offer some form of a project financing program to attract economic development as outlined below.
Along with corporate headquarters, manufacturing jobs with their high wages and long supply chain that can provide a multiplier effect for the jobs have long been sought by economic development leaders across the nation. While every general state tax credit can be used for manufacturing firms, eight states as listed below also have tax credits designed specifically for manufacturing firms. Research and development and technology-related jobs are another major focus for economic development leaders. Technology-based Economic Development initiatives are attractive because they create high-wage “multiplier” jobs with companies in the growth mode for the Information Age economy. Research and development, particularly focused on the recruitment of corporate research and development centers, is an economic development prize, and seventeen states, as listed at www.montrosegroupllc.com, offer economic development incentives focused on gaining research and development centers. Many of these state programs are focused on the retention and attraction of major corporate research and development centers.
Recognizing the challenge of developing in rural communities, several states focus tax incentives on rural markets, including:
- Florida’s Rural Job Tax Credit Program offers an incentive for eligible businesses located within one of 36 designated Qualified Rural Areas to create new jobs.[i] The tax credit ranges from $1,000 to $1,500 per qualified employee and can be taken against either the Florida Corporate Income Tax or the Florida Sales and Use Tax, and the credit can only be taken against one of these two taxes. These tax credits are provided to encourage meaningful employment opportunities that will improve the quality of life of those employed and to encourage the economic expansion of new and existing businesses in rural areas of Florida.[ii]
- Pennsylvania’s Rural Jobs and Investment Tax Credit Program is an investment tool designed to offer rural business owners access to capital for business development in rural areas.[iii] The capital is sourced to Rural Growth Funds, designated to receive up to $50 million dollars in capital contributions from investors, and Pennsylvania is using this investment tool to attract and retain rural businesses to the commonwealth, create family-sustaining jobs, and stimulate economic growth in rural businesses.[iv]
- New Mexico’s Rural Jobs Tax Credit Program is a non-refundable credit program applied to Maines due on state, gross receipts, corporate income, or personal income taxes designed to spur job growth in any county other than Los Alamos County, certain municipalities like Albuquerque, Rio Rancho, Farmington, Las Cruces, Roswell, and Santa Fe, as well as 10-mile zones around those select municipalities for manufacturers making a product in the State, non-retail service companies exporting a substantial percentage of services out of the State (50% or more in revenue), or companies in certain green industries.[v]
- Utah Rural Economic Development Incentive Grant is a program designed for businesses creating new, high-paying jobs in rural Utah counties whether remote, online, or physically located in that county paying for each new position between $4,000 and $6,000 based upon the employee’s location and wage.[vi]
- Washington Rural County/CEZ Business and Occupation Tax Credit Program are available to manufacturers, labs, and commercial testing facilities located in a rural county or within a CEZ creating new employment or increasing in-state employment by 15% by paying a tax credit equal to $2,000 per position with annual wages/benefits of $40,000 or less and $4,000 with annual wages/benefits greater than $40,000.[vii] The total cost of doing business at each site under consideration will be reviewed by comparing site real estate, construction, workforce, and tax costs minus the economic development incentives, and a site is then chosen that best serves the client’s needs.[viii]
Rural U.S. communities as home to the global manufacturing industry are well positioned to use economic development incentives to retain and attract high-wage jobs and capital investment.