Credits, Incentives and Your Construction Project
Bill Willbrand, CPA, CCA, CCP, Member in Charge, Real Estate Advisory Services, discusses how to approach claiming credits and negotiating incentives with Construction Today.
Tax credits and business incentives make it feasible to develop a new facility and expand into new markets. The process for securing and implementing credits and incentives requires a phased approach:
- Develop a scope for the project and initiate your claim for credits or incentives with the appropriate governing body
- Document the agreement
- Implement according to your plan
- Stay up to date with legislative updates or changes, filing deadlines, reporting requirements, etc. These steps are crucial to realize the benefits of the credit or incentive.
American Taxpayer Relief Act
There’s some good news in the American Taxpayer Relief Act for businesses planning new construction in 2013. The Act included a provision to extend Federal Empowerment Zone tax credits through Dec. 31, 2013. More than 20 states have these special districts, or zones, that governments are trying to revitalize. To qualify, businesses must have employees that live and work in the zone for at least 90 days. In return, businesses can receive a 20 percent credit of wages up to $15,000 ($3,000 maximum credit per employee) on their federal income tax return. Choosing to build in these zones could yield extra funds for your business.
There are even more opportunities to find savings for your construction project with incentives. Unlike credits, which are statutory, incentives are benefits that are negotiated with state or local economic development, taxation or other government officials as an inducement to locate or expand operations in a specific jurisdiction. Some key facts about incentives include:
- Businesses MUST negotiate the terms of the incentive before breaking ground
- Incentives are available at the federal, state, county and city level
- You may need to follow specific guidelines to receive the incentive
- Potential benefits may include the reduction or elimination of
- Acquisition costs (free/discounted building or land)
- Site preparation costs
- Public infrastructure costs (road, rail, sewer)
- Occupancy/build-out costs
Negotiating incentive packages takes experience. It’s important to work aggressively to get what you want. You should never be afraid to ask for something. The worst that can happen is that the governing body says no.
Don’t forget to protect your negotiating leverage. Incentives offer businesses negotiating power. You can pit states against each other to garner the most lucrative package for your building project that results in a better financial outcome.
Whether your business is eligible for credits, incentives or both, it’s a good idea to have a plan in place for implementation. This plan should address:
- Key deadlines and what you’ll do to ensure none are missed; missed deadlines can jeopardize your agreement
- Requirements to secure the credit or incentive and your plans to follow the guidelines to the letter
- How your team will ensure that negotiated benefits are actually received
Many credit and incentive agreements have recapture clauses. If your business doesn’t follow through, you may be on the hook for thousands of dollars.
Typically, business owners benefit from credits and incentives, but some credit and incentives enable contractors to qualify. In either case, contractors should be well versed in these benefits as they have conversations with prospective business owners.
Bill Willbrand is partner in charge of Brown Smith Wallace’s real estate advisory services and construction practices. He has over 25 years of experience serving clients in the construction and real estate industries. He can be reached at email@example.com, or 636.754.0200.
Click here to read the original Construction Today blog post.