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Production-Based Tax Incentives
The federal government and most states want to provide tax incentives for manufacturing and other production activities in their jurisdiction because of the jobs and the economic growth these activities produce. These incentives aren’t just one-time tax credits; they provide tax benefits year after year. Our credits and incentives teams work closely with our manufacturing and consumer products teams to make sure industry nuances are considered when identifying all the relevant incentive programs available to our clients.
The domestic production activities deduction (DPAD) is a special federal tax deduction provided to encourage production activities in the United States. It is available to companies that:
- Manufacture tangible personal property
- Grow crops or timber
- Mine natural resources
- Develop software
- Record music or produce films
- Produce electricity, natural gas or water
- Construct or substantially renovate real property
- Perform engineering or architectural services
Our DPAD optimization team utilizes a structured approach to analyze your revenue sources, supply chains and related expenses, as well as your information systems and business processes. This approach results in a robust DPAD calculation model and documentation process tailored to your business and designed to generate the maximum allowable deduction using the best available methods provided by tax regulations. Because of the significant reduction in the corporate tax rate, the Tax Cuts and Jobs Act of 2017 also repealed the DPAD for tax years beginning after 2017. Accordingly, the 2017 tax year is the last period for which companies can claim this deduction.
State production programs
States also provide manufacturing and production incentives in the form of state income tax credits or sales and use tax exemptions available to companies that create tangible personal property. Each state approaches qualifying criteria differently, so applying a one-size-fits-all approach to tax calculations can create a risk of disqualification or leave money on the table. Our state and local tax specialists help businesses navigate the myriad tax credits and exemptions to maximize tax efficiency.