Tax Credits + Incentives = a Lean Balance Sheet

Increasingly, companies practicing lean logistics are focused less on the individual cost factors such as sourcing, transportation and warehousing, and more on total cost of ownership as a means to achieve significant financial improvement.

To gain competitive advantage, leaders in lean logistics are going beyond traditional manufacturing and supply chain issues, and applying lean and Six Sigma disciplines and tools to the financial arena to address waste and to add value. A starting point for many of those companies seeking improvement in total cost is the nearly 3,000 tax credits and incentives programs in the United States, sponsored by federal, state and local governments to drive job creation, employee training, capital investment and new business development. More than $60 billion in government incentives are awarded annually. 

Although these statutory and discretionary tax incentives have been around for decades, many companies either have not explored their potential value, or have only scratched the surface of their application.  In fact, a relatively small number of companies, regardless of their size or financial sophistication, are benefitting fully from the tax credit and incentive-related benefits to which they are entitled.  Industry estimates suggest that fewer than 25% of eligible U.S. businesses participate in the federal government’s Work Opportunity Tax Credit (WOTC) program; and despite an array of lucrative employee tax credit and incentive opportunities offered in all 50 states, only about 10% of participating companies appear to be taking advantage of them properly.

Build a Lean Balance Sheet

Most companies of any size, location or industry – ranging from industrial, wholesale or retail operations – have an opportunity to draw from the billions of dollars available from government agencies to build a lean balance sheet through reduction of their capital costs, operating expense, and federal & state tax liabilities. These financial benefits can be captured on a real-time basis, or retroactively.

Businesses most likely to benefit are those that are expanding, relocating, or upgrading facilities; experiencing closures, consolidations, or changes in production or processes; and training or retraining their new and existing workforce.  Opportunities are also available for increases or decreases in employment, job relocations, and employees going from contract to permanent status. 

The most common types of incentives include:

Hiring Credits -   Federal and state government incentives are offered to employers, depending on where they do business and their employee demographics.  Federal hiring credits include the Work Opportunity Tax Credit Program and Long-Term Family Assistance Program with awards of up to $9,000 per qualified employee. In addition, Federal Empowerment Zone (FEZ) Tax Credit Programs allow a credit of up to $3,000 per eligible employee for employers hiring individuals who live and work in geographically designated urban and rural areas. Even companies that believe they don’t hire the types of people who qualify for tax credits are often pleasantly surprised at the number of employees who do qualify, once they get serious about exploring opportunities.

Using only the federal Work Opportunity Tax Credit, a large company that hires 5,000 new employees per year, with 10% of those new hires eligible for the program, can realize $4.5 million in tax credits over a 2-year period.

State-Specific Point of Hire (POH) Tax Credits are also available in a growing number of states. Examples include California’s new hire credit of up to $34,000 per eligible employee for the life of the program; and the Louisiana Enterprise Zone Tax Credit Program of $2,500 for each new hire in specific designated areas.

Investment Tax Credits - These tax credits are offered by states to corporations that invest in long term assets such as machinery and equipment.

Sales and Use Tax Refunds, Credits & Exemptions - Many states offer Sales and Use Tax Credits, refunds and exemptions based on certain qualified purchases.  For example, in addition to the sales and use credits available for locating in economic zones, states will provide the opportunity to receive sales and use tax discounts, exemptions and refunds on certain purchases. For example, Missouri provides exemptions from state and local sales and use taxes of purchases of certain energies, gases, utilities, and chemicals used in manufacturing or processing.

Property Tax Abatements - Exemptions and abatements from taxation on property, both real and personal are offered in most states in certain designated geographic zones.