How to cut your project costs by utilizing expansion incentives

State and local governments actively seek to stimulate economic development by offering incentives to employers to relocate or build a new facility in their jurisdiction, as well as incentivize businesses to stay in a specific locale.

These expansion incentives shouldn’t be the sole factor in the decision of where to expand your business, but they are something you should take seriously given the potential benefits available.

“On average you can expect about one-third of your project cost reimbursed through various types of incentives,” says Brian Berning, CPA, managing partner of tax and assurance at the downtown Cincinnati office of BDO USA LLP.

Smart Business spoke with Berning about how to enhance your expansion with economic incentives.

When should a company investigate incentives?

Your opportunity to negotiate must come prior to hiring new employees, making a capital investment, signing a lease or entering into a purchase agreement. For example, if you’re adding jobs, one or two usually isn’t enough, but adding 10 jobs over a three-year period or moving 10 employees from one locale to another could be.

You need to work with an expert who can help you exploit these incentives, prior to making a commitment, during the planning stages. The key actions that trigger a look at potential incentives are:

  • Adding jobs.
  • Leasing or buying a facility.
  • Renewing an existing lease.
  • An acquisition or merger.
  • Relocating operations.
  • Expanding or downsizing operations.
  • Purchasing major equipment.
  • Incurring or deploying training initiatives.
  • Investing in research and development.

The size and scope of the incentives vary. If your expansion adds jobs or relocates jobs that tends to drive the highest incentives.

What types of incentives are available?

You can expect a variety of possible incentives:

  • Payroll tax credits, the most common are generally job creation, and job retention.
  • Real and personal property tax abatements.
  • Work opportunity tax credits.
  • Training grants.
  • Infrastructure grants.
  • Lease savings.
  • State and local discretionary grants.

Each state and local government is different but there are a lot of similarities. In Ohio, the two most common incentives are the Ohio Job Creation Tax Credit and a job-training grant. Others include the Ohio Research and Development Investment Tax Credit and the Ohio Enterprise Bond Fund.

How does timing play into this?

Everyone is interested in incentives and they generally know where they want to move or how they will expand, but it’s easy to jeopardize the potential for tax credits, grants or attractive financing if your mind is already made up.

Timing is crucial. You put potential incentives at risk when you compromise your ability to negotiate. You don’t want to have already signed or extended a facility lease, purchased or expanded a building, hired the new employees, purchased or installed the new equipment and/or made a public announcement. Also, because of the type of business you might have no leverage or alternative location.

Get started no less than 30 days out, but it’s better to start the process as far out as possible.

How can companies find out about the different incentives available to them?

There are officials in economic development who can assist you, but the best way to negotiate better rates and incentives is using a professional who offers incentive procurement services.

These professionals can put together an economic analysis to depict the project’s impact over time. They also know how to navigate the appropriate government decision-makers, have prior experience in negotiating these incentives and make sure you understand both the benefits and risks.

It’s a low-risk proposition because several advisory firms provide assistance of a contingency fee basis; generally the adviser doesn’t get paid unless your company derives and collects a direct benefit.

Insights Accounting & Consulting is brought to you by BDO USA LLP