Thursday, June 10, 2010

Georgia's Tax and Economic Development Incentives

Economic Development incentives and Tax considerations are a hot topic nowadays, and I’ve been asked more than once to summarize what’s available in Georgia. Every time I name a few, there’s an immediate and universal desire to see if they may be applicable to one’s organization. No good business person likes to leave money on the table. So here it is… a summary of the tax considerations for companies that consider locating (or remaining) in Georgia.

For those who like to scan ahead, I'm going to go from state to local to Federal offerings and begin each group with the topics most related to real estate.

STATE LEVEL CONSIDERATIONS
Geographical-Based Credits. I’ll start with my favorites as a commercial real estate agent: Opportunity Zones and Lesser Developed Census Tracks. To be eligible for these, you must relocate into a parcel in the affected area. You can do so as a Tenant or Buyer, but you’ll need an agent who knows how to verify specific parcel eligibility with certainty.

Opportunity Zones. Georgia has established a list of economically “blighted” areas… areas that have great potential but need companies to blaze the path for others. To incent this to happen, certain specific areas have been pre-approved for a $3,500 tax credit per new job added. That’s not entirely unique, but what IS unique is that (1) you only have to create 2 new jobs to be eligible and (2) the credit is completely usable because it’s applied to payroll tax withholding (as opposed to corporate tax liability, which is tougher… read on).

Less Developed Census Tracts. Based on Census data, Georgia has identified areas that need development and has offered the same key benefits as the Opportunity Zones… $3500 per job… threshold of five… applied against payroll taxes. Note that these areas are currently based upon 2000 Census data. Many geographical doors will close when the 2010 Census data comes out.

The map to the right (and up) shows a high-level overview of both OZ’s an LDCT’s around metro Atlanta.

Job Tax Credits. Companies in designated industries may be able to claim job tax credits based upon where they locate their business and how many jobs are added. The credits range from $750 per new job to $4,000 per new job. And they get these credits every year for 5 years. A few of the targeted industries include distribution, technology, manufacturing, telecom, and processing.  One caveat is that the credits can be tricky if you lack a high Georgia corporate tax liability... there's a balancing act between you credits and liabilities. The map below shows the tiers, which determine the credit amount and the number of job adds required to qualify.

Quality Jobs Tax Credit. Create at least 50 jobs and pay wages of 110% or more of the county’s average and you’re eligible to receive a credit of $2,500 to $5,000 per job per year for up to five years.

Mega Project Tax Credit. Employ at least 1,800 net new employees and either (a) invest $450M or more or (b) have an annual payroll of $150M or more and you’re eligible to receive a $5,250 per job per year credit for the first five years of each new job’s existence.

Retraining Tax Credits. Reclaim up to 50% of a company’s investment in training as a tax credit when your employees go through an approved training program. There’s a $500 per employee annual cap on the credit.

Child Care Tax Credits.
• Build a child care facility for your employees and you may be eligible for tax credits equaling 100% of the construction costs.
• Provide or sponsor child care for your employees and get a credit for 75% of your direct costs.

Port Tax Credits.
These credits are available to taxpayers who increase imports or exports through a Georgia port by 10% over the previous year. This credit bonus can be used with other Credit Programs like the Job Tax Credit.

Tax Exemptions
• Sales and Use Tax. A qualified equipment purchase or lease is sales tax exempt when the equipment is used in the manufacturing process. In some circumstances, several other types of expenses (capital, material, and utility) can be exempted.
• Inventory Tax. Keep lots of raw material, work in progress, or finished goods on hand? Certain counties will exempt up to 100% of it under the right circumstances.

Finding and/or Creating Employees.
• Hiring Assistance. Georgia’s Department of Labor will help you post openings, review and screen candidates, schedule interviews, and even host job fairs.
• Quick Start Training. Qualifiying companies’ new employees can receive customized skill-based training at no cost to the company. The state program provides the space, instructors and materials.
• HOPE Scholarship and Grant. Most of us are aware of the college scholarship program for high school graduates with a B or better average. The HOPE Grant program allows “older” folks to pursue a degree or certificate program at no cost in a Georgia technical college or school. Need to grow your employees’ capabilities? Here’s a way to do it cost-effectively.

Small Businesses and Entrepreneurs. Some benefits and incentives are aimed specifically at small and start-up businesses:
• Accelerated Depreciation. Make capital investments of less than $410,000 and you can write off as much as $102,000 that same year. You can go above $410,000, but the benefits begin reducing.
• Loan Guarantees. In certain rural communities, the state will guarantee amounts between $35,000 and $250,000 to help cover your start-up costs. You’ll have to put in 10% equity, but it’s a great deal!

Incentives for existing companies to grow. If you’ve been in the state for three years or more, consider these:
• Job Tax Credit. Claim a one-time additional tax credit for every net new job added now through 2011.
• Investment Tax Credit. Get a tax credit for 1 to 8 percent of a qualified capital investment if you’re in manufacturing or telecommunications. The percentages vary with what you invest in and where you are.
• Optional Investment Tax Credit. Anticipate consistent large annual increases in your income tax liability? Use this credit in lieu of the Investment Tax Credit and you can get a tax credit for 6 to 10 percent of your investment.

R&D Tax Credit. Is your R&D expense greater than your gross receipts? You may be able to claim 10% of the difference as a tax credit.

Favorable Income Tax criteria. Companies should note that they only pay Georgia income tax based upon revenue that is generated in Georgia. A $50M global gaming company with 5% of their subscribers based in Georgia, for example, would only be liable for corporate income tax on $2.5M in revenue.

LOCAL INCENTIVES
In addition to monies that the State puts on the table, Counties, Cities, Community Improvement Districts (CID’s), and Tax Allocation Districts (TAD’s) may come into play. County, City and CID incentives are offered strictly on a case by case basis, whereas TAD benefits, by their nature, are available for all takers considering a property within the TAD.

Counties and Cities can offer many incentives, a few of which include:
  • Economic Opportunity Funds. Monies set aside to assist with corporate recruitment.  Effectively a grant.
  • Small Business Loan Programs. Some Development Authorites function as actual lenders to help small businesses get up and running.
  • Bond Financing (for large facilities in certain verticals).  Certain entities can issue bonds and then use these funds to help ease an organization's transition costs.
  • Property Tax Abatements.
  • Employee Education Grants
  • Permit and Zoning assistance (reduced fees and expedited processes).
  • Development and Occupation Fee discounts.
  • Utility Discounts.
  • Project Resources.
Community Improvement Districts are voluntary membership organizations in which companies in an area (district) pool their monies to improve their area. They’ve been very successful in attracting resources to multiply their contributions and tackle the projects that make their area more attractive to incoming business. And of course they work hard to bring desirable companies into their districts. While they lack the breadth of “touch” that a city or county may have, there are things that they can do to help make an area more attractive.

Tax Allocation Districts are intended to spur redevelopment. Tax benefits are offered within a very specific list of plats to incent developers to purchase and redevelop in that area. When the redevelopment is complete, the property generates significantly more revenue for the taxing authority and the government’s investment pays off! TAD’s tend to be promoted at the City and County level, so you’re best off engaging a resource – like a commercial real estate agent - who knows how to find them.  Some of these TADS are able to issue bonds to fund grants to help developers even further.

FEDERAL INCENTIVES
Renewal Communities.  This is a federal tax incentive given to developers who rehabilitate a commercial property in a predefined/targeted area.

New Market Tax Credit Program.  An initiative to leverage up to $15 Billion (with a "B") of private investment into highly impoverished communities... both urban and rural.

Closing Note
You need professional help!  You'll quickly recognize that there is a LOT of potential savings outlined above... enough to dramatically impact any company's P&L statement.  That's the good part.  The bad part is that it's complicated... you mustn't take any of the information above as the "end all" on these topics.  There are requirements and caveats for just about every one of these incentives, and a mis-step can be very expensive.  I once witenessed a CPA's expert correct a state employee on a mutal exclusivity the state employee didn't know about. 

If you're likely to go down one of these paths, please contact me.  I'd be interested to hear about your project, and I'll do all I can to pair you up with the appropriate expert.

-John
404.547.2009

1 comment:

Joseph Russo said...

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