Professional review triples value of manufacturer's tax incentive package
Close look at project plans increases Indiana tax incentive opportunity
A privately held rubber manufacturer seeking to expand its operations within Indiana submitted a proposal to the state requesting consideration for a variety of tax incentives related to an upcoming capital project. The company expected the expansion to bring 100 new jobs and a $13.2 million investment in the state over three years. Indiana returned an offer letter proposing $525,000 in tax incentives and training grants, which the company asked RSM to review.
RSM's client service team turned to the firm's tax credit and incentive specialists to determine the quality of the offer, which combined funds from Indiana's Hoosier Business Investment (HBI) tax credit and Skills Enhancement Fund (SEF) training grant. RSM evaluated the structure of the HBI credit and the SEF grant against the project facts and the client's training methodology. This detailed analysis uncovered a significant deficit between the proposed package value and what the manufacturer should receive pursuant to the SEF grant and HBI program terms. Based on the credits and incentives team's calculations, the company would realize $325,000 less in practice than the original offer provided.
Identifying that deficit required understanding how much the company intended to invest in the expansion project and when that investment would take place. For this particular project, most of the $13.1 million investment was slated to occur in year three. Due to the two-year deadline for and non-refundable structure of the HBI, this timing would have allowed the company to claim roughly $200,000 of the proposed $425,000 HBI credit. The $100,000 in proposed SEF training grants was also largely nullified by timing, as the grant applied to training wages that would not be paid until after the grant's qualifying period expired.
All was not lost, however. RSM recommended that the manufacturer respond to the state requesting consideration for an Indiana Economic Development for a Growing Economy (EDGE) credit in place of the original offer.
RSM negotiated a revised incentive offer centered on the Indiana EDGE credit. This resulted in the state offering $700,000 in refundable tax credits over 10 years—credits that the company can fully realize. The final incentive package varied greatly from the one originally proposed. RSM was able to secure an additional $175,000 in the incentive offer and $500,000 more in realized incentives, and the new offer utilized a more flexible program that fit the company's business model. RSM remained part of the project team and is now managing the annual compliance requirements to ensure the incentives are fully realized.
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