As we’ve mentioned before, our Georgia clients frequently ask us to investigate potential credits and incentives in other states where they have operations, potential acquisitions or strong relationships with customers or vendors. In addition, private equity groups ask us about potential $$ for their portfolio companies.
We were recently asked about credits and incentives in Colorado. I was able to speak with some Colorado economic development professionals and learned some of their details (Colorado Office of Economic Development and International Trade (OEDIT) click here).
Colorado is in the middle range for corporate tax burdens and incentives when compared with other states. Colorado ranks 19th in the The Tax Foundation’s 2014 Business Tax Climate Index (click here).
Colorado has a moderate selection of incentives, credits, loans, and programs to assist businesses for increasing and retaining jobs and increasing business investments. Job Growth Incentive Tax Credits provide a 50% of FICA growth tax credit to create a minimum of 20 new jobs in the state, or a minimum of 5 jobs in certain zones (click here). Other incentives include Advanced Industry investment credits and various sales tax and energy tax exemptions. The Strategic Fund Incentive provides comprehensive discretionary assistance to new and expanding businesses (click here). Specific requirements depend on business type, size, wages, location, and other factors.
Another big consideration — an application and approval process is required for all of Colorado’s OEDIT incentives.
Compared to Georgia, Colorado has:
- Somewhat lower taxes: Lower corporate income tax rate. Lower personal income tax rate. Similar sales taxes and higher property taxes.
- A smaller range of industries eligible for incentives if adding jobs and capital investments, and a far narrower range for training incentives.
- NO opportunities for incentives unless pre-approved.
- Location, location, location — cool mountains and great climate, if that’s what is important to the business
To summarize, Colorado is not as competitive as leading states for new and expanding businesses, unless those businesses really need Colorado’s Central Rockies location.
Do any of your clients have Colorado connections? Make sure you review their potential qualifying activities early to maximize their $$ benefits!!
Time-critical 2014 Job Tax Credit ranking details have been released by the Georgia Department of Community Affairs (click here). Also, please note:
- Census Tracts have changed: due to the transition from the 2000 Census boundaries to the 2010 Census boundaries, your clients’ locations may be impacted. This applies to Less Developed Census Tract, Opportunity Zone, and Military Zone tax credits.
- A Notice Of Intent may need to be filed to maintain your client’s tier, zone, or Less Developed Census Tract designation — the form must be filed by Feb. 15, 2014 (click here).
So please remember to review your clients’ plans for 2014. Job Tax Credits may be available if they plan to increase employment levels, open new or change locations in Georgia, or buy another company.
Your clients may be coming out of the recession (well, some of them!) andincreasing their headcounts. These employment increases may qualify for a Georgia job tax credit (or one of its variations). But first you need tocarefully analyze the details to determine if there is potential.
Here are some items to check when reviewing your client’s potential:
- Job Tax Credit – If your client has utilized the job tax credit in the past, then the new headcount monthly average for the year must be an increase over the previous largest average (click here for details).
- Opportunity Zone – This location-based tax credit for any business type is popping up all over Georgia. The headcount increase must be within the designated date range. For example: Commerce, Georgia’s Opportunity Zone was started February 5, 2013 (clickhere for details).
- Less Developed Census Tract – This location-based credit for designated Business Enterprises may change annually. In addition, the 2010 Census boundaries may have changed your client’s eligibility (click here for 2013 details).
- Military Zone – This location-based tax credit for any business type could also change annually and is based on the 2010 Census boundaries (click here for details).
Clients always appreciate it when you find extra $$ from state credits and incentives. So when your clients add jobs, help them make it really count!
With the economy recovering in some areas, companies are starting to re-invest in their operations. These investments (such as software upgrades and head count increases) may qualify for state tax credits. Unfortunately, some companies may not have the income tax liability capacities for these tax credits in the near term. But in many cases, state tax credits earned can be carried forward (up to 10 years) and may show up as Deferred Tax Assets on the balance sheet.
Depending on a company’s tax structure, there may be benefits to these carried forward tax credits:
- C Corporation: the tax credits will increase the company’s assets on the balance sheet. This will be beneficial to investors and bankers that consider assets for valuation purposes. In addition, acquiring companies may be able to leverage these tax credits in the future.
- Pass-through (such as S Corporation , LLC, LLP, and others): individual equity participants could benefit from personal “deferred tax assets” that could be utilized to off-set future income tax liabilities (i.e., spouse income increases, their business is sold, and other items). Include this in discussions with the client’s wealth management team.
So remember to reach out to your clients to discuss their company and personal asset planning. A deferred tax credit today may cover a tax liability tomorrow!
We have heard a lot of concern about the new ACA healthcare program (also known as the Affordable Care Act, Obamacare, and other names) that starts in 2014. Many companies are considering big employee changes, such as reducing headcount, moving employees to part-time basis, and leveraging staffing firms/independent contractors. But be careful — these changes could negatively impact your clients’ tax credits and their net after tax savings.
We recently attended the Georgia Chamber of Commerce’s conference on the new Federal Healthcare program (click here for upcoming sessions). Watch out for these state tax credit variables:
- Number of employees – different programs for small groups (49 or fewer employees) and large groups (50 or more employees), based on Full Time Equivalent (FTE) employees.
- Employee – employees that work 30 hours/week or more must be offered coverage.
- Unknowns – lots of unknowns such as affiliated service group impact, common law employee clarification, and play-or-pay penalties.
- Federal Small Business Health Care Tax Credits – may be available (company has 24 or fewer full-time employees and less than $50,000 in average employee wages, click here )
The following Georgia tax credits may apply to your clients’ employees:
- Retraining Tax Credit – Each employee must average 24 hours/week or more and can include regular and leased employees
- Job Tax Credit (including Opportunity Zones, Less Developed Census Tracts and other) – Each employee must average 35 hours/week or more and can include regular and leased employees
Your clients may think they are saving $ by making these changes, but their net after tax credit savings may not justify the changes! For example, if employees are reduced to less than 30 hours/week, the Job Tax Credit can’t be utilized, since the total head count for employees (35 hours/week) goes below the Job Tax Credit head count minimum threshold. Pretty confusing! So get on top of this now, and reach out to your clients to discuss these issues.
The Georgia Legislature is about to wrap up this year’s session, and there have been few changes that relate to business incentives or tax credits. But an interesting one is for the Opportunity Zones. SB 137makes changes that allow Opportunity Zones to be designated by the commissioners of the departments of Economic Development and Community Affairs — IF they agree! (click here for details)
We are frequently asked which entity can utilize the Georgia tax credits. This becomes confusing with mergers, acquisitions, tax structure changes, and other complexities. Here are some basic things to keep in mind:
- Operating entity: where is the company’s operation? If it is a manufacturing company, which tax entity buys the raw materials and pays the employees and other related costs? For example, a real estate entity that leases land and buildings to a manufacturing entity cannot utilize the investment tax credit because it does not manufacture (even though both entities are owned by the same equity owners).
- C corporations: Georgia Form 600 allows the tax credits to be assigned to another “affiliated entity.” This can only be done in the current year and NOT amended returns. Assigning tax credits does not apply to pass-through entities that file Form 600S or 700.
- Tax structure conversion (that is, change tax structure, but keep the same EIN)
- From C to S: tax credits carried forward by a C corporation can be distributed to S corporation equity owners via K-1 after the conversion.
- From S to C: tax credits carried forward by equity owners cannot be assigned to the C corporation after the conversion.
- Blockers, roll-ups, tuck-ins, investment vehicles, and other complexities: check with Pamela Goshay at DOR (click here).
This Tax season is getting started with the annual goat rodeo of collecting and reviewing client data. You have probably already mailed, emailed, called, and reminded your clients that “it’s that time again.” Well, so that you won’t sound like a dentist (as in, “this won’t hurt too much”), make this a more cheerful experience by asking your clients about their activities that may qualify for tax credits (click here for the Alpharesults Tax Credit Summary).
The number of tax credit Opportunity Zones has been increased by DCA (click here). It was announced recently that the City of Atlanta has been approved for some new zones.
This tax credit can get complex, since the local Opportunity Zone contact person, DCA, and DOR have to be in the loop for approval. If the tax credit is going to be utilized against payroll withholding taxes, another level of complexity is added. These tax credit $$ can really add up – but proceed with caution!