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If you plan to add employees or invest in property, plant and equipment, do not overlook the opportunity to tap into state and local tax credits and incentives.
Kentucky state government and various local governments offer financial incentives to encourage and reward businesses for growing.
Income Tax Credits and Wage Assessments
Kentucky offers incentive programs to assist businesses that are either expanding, closing or on the verge of shuttering their operations. These programs are administered by the Kentucky Economic Development Finance Authority (KEDFA).
A business must timely file an application with KEDFA for consideration. KEDFA will negotiate the appropriate level of incentives before entering into an agreement with the business. The agreement governs the amount of incentives, directs how they will be taken and establishes project targets and compliance procedures. The business generally must be approved for the incentives before moving forward with the proposed project.
The state’s primary incentive program for new and expanding business is provided by the Kentucky Business Investment Act. KBI authorizes incentives to construct new facilities and expand or rehabilitate existing facilities. To qualify, the project must involve capital expenditures of at least $100,000 and create at least 10 new full-time jobs for Kentucky residents. KEDFA can award tax incentives up to the project’s total eligible costs; the actual level of incentives is negotiated.
To qualify, companies must be engaged or planning to be engaged in manufacturing or agribusiness in Kentucky, or have located or be planning to locate a regional or national headquarters in Kentucky. KBI incentives also are available for companies engaged in or planning to be engaged in “nonretail service or technology” activities in Kentucky including call centers, centralized administrative or processing centers, telephone or Internet sales order or processing centers, distribution or fulfillment centers, data processing centers, research and development facilities, or similar operations.
KBI incentives are claimed over 10 years through tax credits and wage assessments. The eligible company may claim tax credits up to 100 percent of Kentucky income and limited liability entity taxes otherwise due on income, gross receipts and gross profits from the project. The eligible company may claim wage assessments (4% state and 1% local) from the Kentucky individual income tax and, where imposed, local occupational license tax withheld from wages paid to each new project employee. For projects in economically challenged counties, KBI incentives may be taken over 15 years and the state wage assessment rate is increased to 5%.
KEDFA administers other tax credit and wage assessment programs that apply to specific industries or situations.
The Kentucky Incentives for Energy Independence Act provides tax credits, wages assessments and other tax incentives for renewable energy projects. The Kentucky Reinvestment Act authorizes tax credits for manufacturing companies that are reinvesting in existing facilities but not creating new jobs. The Kentucky Industrial Revitalization Act authorizes tax credits and wage assessments for manufacturing operations that are in imminent danger of permanently closing or that have closed temporarily.
Industrial Revenue Bonds
Businesses that finance projects with industrial revenue bonds (IRBs) can obtain abatements of state and local property taxes for up to 30 years. IRBs may be used to finance a variety of projects from manufacturing facilities to housing and commercial developments, and also can be used in conjunction with traditional financing.
Projects financed with IRBs are generally exempt from state and local property taxes. Payment in lieu of taxes may be negotiated, providing for payment of a percentage of taxes that the project normally would have generated. Typically, IRBs are most beneficial for projects costing $4 million or more.
Tax increment financing provides tax dollars to finance public infrastructure elements of a project. Tax increment financing is an involved process and is beneficial only for large projects involving substantial public infrastructure.
Kentucky also offers incentives that provide sales and use tax refunds, low interest loans and collateral support for private financing.
If a local government owns land which is available for new development, that land can be offered at a reduced price or transferred at no charge to a business as an incentive. Local governments also may enact property and occupational license tax moratoriums.
The Community Development Block Grant program can provide funds to construct infrastructure or provide direct loans to businesses to create new jobs.
The Kentucky Transportation Cabinet can provide transportation-related improvements and the Kentucky Skills Network can provide state grant funds for worker training.
If your company plans to add employees or make capital investments this year or in the future, contact a member of SKO’s Tax Practice to learn what state and local incentive programs are available to assist with your project.