Magazine article Strategic Finance

Improve Financial Performance with Business Tax Incentives

Magazine article Strategic Finance

Improve Financial Performance with Business Tax Incentives

Article excerpt

YOU CAN SAVE YOUR COMPANY THOUSANDS BY TAKING ADVANTAGE OF TAX CREDIT PROGRAMS.

When Superior Walls of Central Illinois, Inc., opened for business in the Springfield Enterprise Community, it created job opportunities for 42 low-to-moderate-income neighborhood residents. "These employees show great pride in producing a quality product," says Springfield developer Mike Suhadolnik, owner of Superior Walls, a company that manufactures a wall and foundation system for the building industry.

Suhadolnik's enthusiasm is matched by that of the new employees, who often are able to walk from their homes to a variety of jobs that include plant management, equipment operation, carpentry, excavating, marketing, and office staffing. Superior Walls expects to hire up to 100 employees from the neighborhood as the manufacturing facility moves to full production capacity.

The State of Illinois recently awarded Superior Walls $52,780 to train workers in assembly and production techniques. The award was part of the state's Industrial Training Program that grants companies financial incentives to train employees.

TAX INCENTIVES OVERVIEW

Superior Walls is just one example of a successful tax incentive program participant. Historically, the government has used the tax code to encourage worthwhile activities that it believes corporations might not otherwise undertake on their own, such as making certain charitable contributions or capital investments. Business tax incentive programs draw on this motivation to enable firms to participate in community investment and enhance their bottom line at the same time. Yet many businesses forego these profit enhancement opportunities. Typically this is attributable to a false perception that the costs and system resources required to comply with federal and state regulations would likely outweigh the benefit of tax incentive program participation. In addition, many companies perceive that they aren't participating in activities that would qualify them for tax incentives, such as hiring individuals from certain demographic backgrounds or training employees.

SPECIFIC TAX INCENTIVE OPPORTUNITIES

Among some of the most rewarding federal and state business tax incentives are the Work Opportunity Tax Credit (WOTC), the Welfare-to-Work Tax Credit (WTW), the Empowerment Zone Tax Credit (EZ), the Enterprise Community Tax Credit (EC), and the Job Training Cost Reimbursement. The target audience for these incentives includes:

* Businesses that will have large hiring needs,

* Expanding businesses that will be hiring new employees,

* Businesses with relatively high turnover that often need new employees,

* Businesses looking to reduce their tax liability,

* Businesses expanding within an EZ or EC that will be hiring new employees,

* Businesses participating in summer youth employment programs, and

* Businesses seeking to qualify as EZ businesses that must meet the 35% Zone-resident employee requirement.

The incentives are not relevant to:

* Start-up businesses that may not meet the threshold of having large tax liabilities,

* Nonprofit organizations that don't pay federal taxes, and

* Businesses with highly specialized employees (unless there's a training program that can supply appropriately trained employees).

WORK OPPORTUNITY AND WELFARE-TO-WORK TAX CREDIT PROGRAMS

Let's look in more detail at these tax incentive programs. Image Staffing, a temporary agency with 650 employees, has had great success hiring WOTC eligible candidates. Within the last year, 50-100 welfare recipients have been placed. A company spokesperson noted that WOTC offers an excellent opportunity for employers to hire individuals and help them get "kick-started" into a career while simultaneously giving the company's bottom line a boost from the tax credits generated. …

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