Our five takeaways from TEI: HR leaders want to know how to optimize their tax credits

This year in March, the Tax Executives Institute held its 72nd Midyear Conference in Washington D.C. HR leaders and those managing tax obligations for businesses attended for a variety of topics including corporate tax management, tax technology, U.S. International Tax issues and more.

I joined several of my peers as a featured speaker for the panel, “Optimizing Credits and Incentives: Developing a Program to Identify and Take Advantage of New Incentives.” Here are my five takeaways from the panel to help you get the most out of the tax credits and incentives you pursue:

Don’t shy away from discretionary incentives

During the panel discussion, some attendees posed questions regarding the risk and reward of discretionary incentives. For example, when negotiating discretionary incentives (cash grants, property tax abatement, etc.) based on a commitment to create jobs, how aggressive should you be in calculating your job creation? How strict are the goals for earning discretionary incentives? These questions and concerns may cause some to avoid pursuing these altogether. However, in spite of the uncertainty inherent in negotiating discretionary incentives, they should be considered in many investment and expansion situations. The next four takeaways can help you navigate and mitigate the risk for not just discretionary incentives but all tax credit opportunities.

Stakeholders

Including the relevant stakeholders from your organization in the incentives discussion is critical to success.  Oftentimes, identifying the stakeholders can be half the battle.  Discussing investments and managing expectations with tax, HR, finance, real estate, and others can both maximize the incentives opportunity as well as mitigate risk often encountered from poor communication among these stakeholders.

Relationships

It’s important that you or your trusted provider develop and maintain strong relationships with economic development professionals in your key geographies. In negotiating tax credits and incentives, it is important to your success that state and local economic development leaders understand the economic value your investment can bring to the area. Engaging with local leaders and building these relationships will make your company part of the community and improve your chances of earning tax credits that are created to promote local economic growth.

Understanding tax incentives

You should understand the role certain tax incentives play in the governing authority’s economic development policy as well as your own business.  Unfortunately, non-tax professionals in an organization may sometimes take it upon themselves to negotiate tax incentives without understanding the tax impact to the organization.  For example, a real estate team may successfully negotiate an income tax credit with the state only to find out later that your organization is in a Net Operating Loss position and therefore the tax credits provide no value.  State and local governments have a lot of tools in their toolbox to help encourage economic growth including sales tax exemptions, property tax abatements or reductions, etc.

Mitigate risk

In our modern world, public perception and reputational risk is guarded almost as closely as trade secrets. News sources are more and more aware of how taxpayer funds are used and whether those funds are consistent with local agendas. Managing this public perception can sometimes be as important as pursuing the incentive itself if the damage to your brand outweighs any financial benefit.

BONUS: Six common mistakes to avoid

Knowing what to avoid in pursuing and capturing valuable tax incentives is as important as knowing what to do. Here are six common mistakes to avoid:

  • Avoid a myopic approach: Tax incentives rarely drive the business decision but they should be a significant factor in certain investments. Make sure as many relevant stakeholders as possible are included in the discussion to avoid focusing on benefits that may not truly benefit the organization.
  • Avoid setting unrealistic expectations: Don’t overstate job count, capital spend, etc. Overestimating could create claw backs and/or reputational harm.
  • Avoid focusing on incentives above all else: Don’t let the tail wag the dog. Tax incentives should promote your business objectives, your business objectives shouldn’t be focused on promoting your eligibility to obtain credits and incentives.
  • Avoid excluding incentives in strategic moves: Disregarding incentives entirely can cost your organization millions of dollars.
  • Avoid moving forward without a strategic timeline: Strategic timing of press releases, rent agreements, hiring and more all influence your ability to optimize incentives.
  • Avoid the mistake of disregarding ongoing compliance: There is always a risk of claw backs and/or lost value in the future. To reduce the burden of ongoing compliance, consider working with a third party well-versed in a variety of tax credits and what it takes to streamline your processes and optimize your gains.

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