Believe it or not, your clients’ payroll systems contain key data to help you find them tax credits! Whether they use an outside payroll provider or internal payroll software, it’s important to discuss this with them. For example, the Georgia Retraining Tax Credit and the Job Tax Credits in many states are dependent on details that can only be found in the payroll systems. Here are a few items to keep in mind regarding payroll systems and tax credits:
- Employee Data – employee ID (not SSN), job title, pay rate, hire & termination date, state resident, location and Quarterly Georgia DOL-4 details.
- Access to historical data – important for prior years and trend analysis.
- Ability to download details to spreadsheets – Since each tax credit has its own unique requirements, it’s important to be able to analyze the data as needed.
- Georgia payroll withholding taxes – Ask the outside payroll provider about their actual experience with utilizing tax credits against Georgia payroll withholding taxes (click here for the form and list of qualifying tax credits).
Many payroll companies offer sophisticated Human Resource Information Systems (HRIS) that provide additional features that may be beneficial. For example, monthly headcount by location and analysis of employee transfers versus new hires are critical when your client has multiple locations throughout Georgia. Some locations may be in special Opportunity Zone or Military Zone tax credit locations.
Helping your clients understand how payroll helps with tax credits strengthens your client relationships!
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 Kentucky. I was able to speak with some Kentucky economic development professionals and learned some details (Kentucky Cabinet for Economic Development’s Think Kentucky site click here).
Kentucky’s main tax credits and incentives are meant to encourage new jobs and investments within the state. Incentives and credits are available to a decent range of targeted industries that include manufacturing, energy, technology, motion picture production, headquarters facilities, and others.
Kentucky’s credits and incentives range in complexity and are typically more generous than other states.
- Kentucky Business Investment Program (KBI) – Up to 100% tax credit or wage assessment up to 5% of gross wages for projects creating 10 new jobs and $100,000 investment.
- Kentucky Reinvestment Act (KRA) – Provides up to 50% of project costs and 100% of job skills upgrade costs for investments by manufacturers of $2.5 million (plus other qualifications) for up to 10 years.
- Kentucky Enterprise Initiative Act (KEIA) – Sales and use tax refunds for minimum investments of $500,000 on materials, equipment, and IT.
- Skills Training Investment Credit – Tax credit for existing companies, providing up to 50% of approved costs for occupational and skills upgrade training, limited to $500 per Kentucky resident not to exceed $100,000 per company per biennium.
- Other incentives include tax credits, grants, loans, and reimbursements for “environmental stewardship,” industrial revitalization, research and development, alternative fuel development, and small business investments, among others.
- Bluegrass State Skills Corporation (BSSC) – A leading workforce training program, BSSC provides grants for training and employment services for new, expanding, and existing companies (click here).
Compared to Georgia, Kentucky has:
- Similar tax rates and structure
- A similar range of incentives and credits.
- A somewhat smaller range of companies eligible for most credits.
- Similar qualifying activities and somewhat smaller incentive $$ amounts.
- A more hands-on approach to working with companies and projects.
- BIG DIFFERENCE – most incentives must be pre-approved and carefully planned.
To summarize, Kentucky is very competitive with surrounding states. However, prospective and existing Kentucky businesses must get permission from the state to receive benefits from most of the credits and incentive programs.
Do any of your clients have Kentucky connections? If so, check out the Blue Grass State’s opportunities.