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Economic Incentives

General Business News

June 2004

Economic Incentives

Do you remember the old line, "I’m with the government and I am here to help you?" That phrase generally means the government is out to get something from you, but this month, we are going to help you turn that around. This month, we want to talk about incentives available to new and existing businesses.

One of the functions of state government is to create an atmosphere that is friendly to business. States accomplish this by creating a good education system, a good infrastructure, and supporting local initiatives in bringing a business to a community.

For example, assume General Motors is looking to build a new manufacturing plant that will create 5,000 jobs. Of course GM is going to look at the schools, transportation infrastructure, cultural environment, etc, but it’s going to want more than just that. GM will most likely negotiate a deal that provides no property taxes for X years and perhaps a moratorium on sales taxes charged for the building materials, as well as anything else it can think of. GM will most likely get most of what it wants. The reason is simple, if a town has GM coming, bringing 5,000 jobs, the town is going to pull out the stops to get GM because it will eventually reap substantial rewards.

So how does all of this affect you? In some cases not at all, but in many cases, there may be some state or local program that will help you with the start-up or expansion costs. The only way to know for sure is to check the incentives out at your state and local economic development office. If you don’t know where to go, the website A Review of State Business Assistance Websites has links to state business and economic development sites.

So what kind of incentives or assistance might you find from state and local governments? Let’s take a look at a few alternatives.

Loans

Typically, states and cities take a portion of the Community Development Block Grant money they receive from the federal government and put them into revolving loan funds. They then use the funds to make low interest loans. This, of course, provides smaller businesses access to low cost funds for needed equipment purchases. Another form of lending might be for the state or local government to deposit funds with a financial institution. The borrower then takes out a loan with the CD as collateral with an interest rate of one or two percent above the CD rate. Other states may provide certain loan guarantees also.

Outright Grants

Some states provide outright grants to assist employers in establishing a business. This could take the form of funding training for new employees or outright cash funds. Be assured, though, you will face reporting requirements to prove you used the funds in a manner consistent with the grant guidelines.

Tax Incentives

Probably the most used incentives to get businesses into a state are tax credits. They can take many forms, depending on what industry wants. These incentives can be quite lucrative.

Take for instance a Louisiana incentive that allows a $2,500 per new employee. Depending on the number of employees, the owner is looking at a sizable savings in taxes. Many states provide incentives such as reduction or elimination of sales or property taxes, investment credits for purchases of equipment, and various other credits. If you are in an Enterprise Zone or other economically disadvantaged area, you can expect to see higher rewards for starting or expanding a business and certain federal credits are available in certain areas.

Conclusion

Businesses these days have to contend with high taxes and that reduces the funding available for business expansion. Many states have economic incentive programs for which you might be eligible. Before you start a business or a major expansion, check out your options for some form of state or federal economic incentive. A mistake in the timing of application can be disastrous. Better still, give us a call and let us help you with the economic incentive maze.
 

These articles are intended to provide general resources for the tax and accounting needs of small businesses and individuals. Service2Client LLC is the author, but is not engaged in rendering specific legal, accounting, financial or professional advice. Service2Client LLC makes no representation that the recommendations of Service2Client LLC will achieve any result. The NSAD has not reviewed any of the Service2Client LLC content. Readers are encouraged to contact their CPA regarding the topics in these articles.

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