Wednesday, November 27, 2013

One Way Companies Leave Money on the Table: Tax Incentives

New and existing manufacturers, research and development firms, and certain high technology companies can benefit from several tax incentive programs offered by the state of Washington.  Incentives may come in the form of tax deferrals, reduced rates, tax credits or incentives.  Tax incentive programs have dwindled down over the years; however there are still a few tax credit programs that can benefit certain types of companies.  

In Washington State, tax credit programs are usually available to companies in particular regions, rural or high unemployment areas, and are for job creation or retention.  In a few cases, there are industry-specific tax deferrals or credits such as in the food processing, aerospace or biofuel industries.  

On a Federal level, there are numerous programs for converting to solar or green energy.  It is a good idea to inquire before any purchases are made, building permits applied for or employees are hired.  

Surrounding counties may have added rural tax incentives available.
The city of Spokane is home to a Community Empowerment Zone (CEZ) that includes most of the West Central, East Central and HIllyard areas and some surrounding areas.  

To qualify for the sales tax deferral program:

  • businesses must be located in the CEZ zone; 
  • complete the application with the State prior to breaking ground or hiring; 
  • hire a certain amount of residents living in the CEZ; 
  • and be engaged in manufacturing, research and development or software development.  

Every bit counts to a small business!
A recent article pointed out that business leaders should take some initiative and learn about relevant tax credit programs that are offered (  Companies could be missing out on substantial tax savings by not participating or being aware of applicable programs.  

Like any government agency, there can be a bit of red-tape and reporting to claim credits or incentives.  On a state level, certain tax credits require an application and annual report.  Others can be more involved yet still worth the effort.

How do tax credits work?

For instance, to use the Rural County B&O Tax Credit for New Employees allows the company to take a credit against the Business and Occupation (B&O) taxes for each new employment position filled and maintained by qualified business.  Specific to this, the business must be creating new employment positions or increasing its workforce by 15%.  

Sample Tax Credit Savings for hiring new employees
The Credit amount is $2,000 per employee with annual wages of less than $40,000 or $4,000 per employee for over $40,000 annually.  For a new manufacturer expecting to hire 20 employees, this could easily add up to $50,000 in tax savings.  This program has a cap on the total amount and reporting (and tracking) requirements, but well worth it to a small business.

There are many resources available to learn about different incentives and tax credits.  Contact your local business advisor, economic development agency or visit the Washington State Incentive page.