Beyond the R&D tax credit, state and local incentive programs are meant to incentivize business activity and growth in a specific state, county, city, or municipality. These incentives typically take the form of one of the following:
Traditional Tax Credits are used to offset tax due for an individual or entity that receives the credit. The big downsides of a traditional tax credit is that there must be tax liability to offset for any value to be recognized and credit use is limited to a floor amount (typically $0, but sometimes another minimum amount).
Refundable Tax Credits are used to offset tax due, however when all tax due is offset a refundable credit allows credits to create a negative tax amount. In other words, the taxing entity will send you a check for excess amounts beyond your tax liability.
As state and local incentives vary wildly in terms of type and category depending on the jurisdiction offering them, in this post we will focus on incentives offered by the Indiana Economic Development Corporation (IEDC). The IEDC offers several incentives aimed at startups, business expansion, and business relocation.
Some of the key incentives offered by the IEDC include:
Economic Development for A Growing Economy (EDGE) Tax Credit– This credit provides a tax benefit to companies creating net new jobs. EDGE awards are released on an annual basis over a period of ten years after a company first certifies to the IEDC its net new Indiana payroll achieved for that year. Employment figures included in the report represent the total number of employees anticipated to be hired over the term of the incentive agreement. The refundable corporate income tax credit is calculated as a percentage (not to exceed 100%) of the expected increased tax withholdings generated from new jobs creation.
Headquarters Relocation Tax Credit– The Headquarters Relocation Tax Credit was established to incentivize the relocation of corporate headquarters to Indiana. Qualifying projects must involve the relocation of the principal offices of a company’s principal executive officers. The credit amount is equal to 50% of a company’s qualifying relocation costs.
Hoosier Business Investment (HBI) Tax Credit– The Hoosier Business Investment Tax Credit program is a job creation incentive. The purpose of the HBI program is to encourage companies to make significant new capital investment in Indiana spurring economic development. Hoosier Business Investment (HBI) Tax Credit provides a conditional incentive to a company making a sizeable capital investment in order to locate or grow in Indiana. Updates to the HBI tax credit expand qualified investment to capture modernized equipment used in today’s manufacturing and logistics sectors, including refurbished machinery, technology-integrated equipment, as well as 3D and other digital printing equipment. The credit is equal to a percentage (up to 10%) of a company’s eligible capital investment in Indiana. The HBI award may be carried forward for a period of up to years.
Skills Enhancement Fund (SEF)– This fund supports training and upgrading skills of employees required to support new capital investment. These grants are used to cover up to 50% of eligible training costs. The award period is usually two calendar years. Grants from the fund must lead to post-secondary credentials, a nationally recognized industry credential, or specialized company training for both new hires and existing workers, and an increase in wages for existing employees.
Venture Capital Investment (VCI) Tax Credit– The Venture Capital Investment Tax Credit supports innovative new business in IN in certain industries such as life sciences, technology, and research and product development. The VCI helps entrepreneurs and startups attract capital more quickly by giving investors an additional incentive to invest in growing firms. A change to the program will make the tax credits transferable starting in 2020, increasing the pool of potential investors for high-growth, early-stage companies to utilize the program. After a proposed business is deemed to be a Qualified Indiana Business (“QIB”), the venture capital investors are eligible for a non-refundable tax credit of up to 20% of their investment.
Twenty-First Century Research and Technology Fund– The Fund provides grants or loans to companies engaged in the commercialization of innovative new technologies and creating high wage technology-based jobs in Indiana. It supports the state’s efforts to propel innovation and entrepreneurship through a variety of programs and initiatives, such as making direct investments into Hoosier startups and supporting public-private partnerships to advance R&D. Program compliance is based on technology development benchmarks and financial reporting. This program does not have a statutory job creation requirement. It is a dedicated investment fund for Indiana-based companies in a growth stage that have a market size of more than $1 billion and demonstrate clear, sustainable competitive advantages.
SBIR/STTR Grant Matching – 21 Fund – The Small Business Innovation Research/Small Business Technology Transfer matching funds are available to ideation-stage Indiana companies who are recipients of phase I research and development grants through five federal agencies. Phase I matches up to $100,000 and up to $350,000 for recipients of Phase II awards. The purpose of these grants is to leverage federal dollarsand accelerate the development of innovative new technology.
Like many states, the state of Indiana has implemented an array of business incentives to help your company become or remain a success. Navigating the options can be time consuming but seeking out the right expert to help can often be worthwhile in generating non-dilutive financing.
Contact me or one of our team members to review your company’s eligibility for these IEDC incentives, or the federal and state R&D tax credits.