Exclusive JUMP resource · A guide to Site Selection for US Manufacturers
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The Compliance Phase: Redeeming and Maintaining Incentives
Congratulations! Your company has just completed the site selection process and secured a lucrative negotiated incentives package for your new or expanded facility. The press release declares that the economic development authorities awarded your company lucrative incentives for their location.
Your job is done, right? Sorry!! The journey has just begun!
The Compliance Reporting Phase of the incentives process is just as important as the incentives negotiation phase. Many companies lose out on millions of dollars of incentives because they fail to fulfill the compliance requirements. For example, a study done on the Oklahoma Quality Jobs Program (QJP), found that only 25 percent of companies approved for the Oklahoma Quality Jobs Program completed the required incentive compliance.
Since most incentives are "performance-based", a company can only redeem lucrative abatements, tax credits and grants upon proof that they have actually complied with the requirements of the agreement. Incentives are realized over a period of time, some can be upwards of 5 - 10 years. Incentives compliance can last anywhere from the period of the incentive to twice the amount of time.
The most important aspect of incentive compliance is to start early! The biggest mistake a company can make is to wait until the first annual report is due. The amount of reporting and information gathering takes time and can overwhelm an individual if left until the last minute.
Step 1: Company Contact Person
Immediately after the incentive negotiations are complete, assign an internal incentives specialist, or "champion", to manage the compliance process. Individuals from the tax, human resource or real estate group make great choices for this role. If an outside consultant is hired to manage the compliance, a representative within the company is still needed to help gather information.
Step 2: Read and Review the Signer Agreements
Negotiated incentives are always accompanied by contracts or agreements that spell out the terms of receiving the incentives. Some agreements are hard to read or contain too much "legalese". In those cases, you might ask your legal department to assist. The important part is to gather a list of the basic parameters of the project, which may include:
- Number of new jobs the company has committed to hiring
- Amount of investment commitment
- Project timeline
- Penalties or "Clawbacks" for underperformance
Step 3: Contact Local/State Economic Development Liaison
As soon as possible, speak to the state or local economic development contact person and introduce yourself. Discuss any questions you might have on the agreement. Don't be shy! Your Economic Development contact can be your best friend throughout this process. They also have an investment in the project's success. Request a blank copy of the annual compliance filing and any other required paperwork. Ask for all due dates and deadlines.
Step 4: Find Available Statutory Incentives
Sometimes forgotten in the incentives compliance process are the statutory incentives. Statutory credits and incentives are approved by law, but not widely advertised. Develop a comprehensive list of statutory incentives that may apply to your company based on your industry and location. Begin early! Some programs require the screening of new employees and your HR group will need time to establish that process. Strategies for uncovering available programs include:
- Review state and federal tax returns for available tax credit programs
- Tax research software will have a comprehensive list of tax credits and incentives
- Contact your state/local economic development departments.
- Ask for a tax specialist who can walk you through the programs
- Consider hiring a consulting firm to identify and calculate the incentives
Important Note: Your facility might be located in a special zone that will allow you to claim additional credits. Federal empowerment zones, state enterprise zones, or other special geographic designations all provide for incentive opportunities. Ensure that your location is reviewed for these opportunities.
Step 5: Assemble a Team
Develop a list of items that will be requested for the negotiated and statutory incentives. You may need to coordinate information requests among different departments, functions, and locations. You may also need to develop contacts in at least the following areas:
State and local withholding taxes
Unemployment Insurance (UI) reports - HR Department
Step 6: Understand the tax credits/incentives offered
Incentives come in many different forms. It is important to understand how the incentives are redeemed and what to look for:
Abatements can cover real property, personal property or both. Understand the difference.
Some agreements require a school contribution - "to make the school whole". Understand how the school contribution is calculated.
Step 7: Create a Reporting Timeline
Finally, you should create a calendar of compliance reporting due dates. The calendar should include a timeline for data collection and review. Leave time for signatures from senior company officers, if required. Ensure that you have listing of income tax filing deadlines. In addition, your tax preparer might want information long before the tax return is due.
Send in a secure environment
7. Do expect all information provided to be audited and possibly open for public inspection. It is not necessary to send more info than requested.
Equifax Workforce Solutions has a dedicated team of Location Based Incentive professionals and processes to assist your company with securing and maintaining valuable negotiated and statutory incentives.
Please reach out to Pete Krieshok at Equifax Workforce Solutions at 314-214-7325 or by email at email@example.com.
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