Investment and Employment Tax Credits for Mid-Atlantic Manufacturers
The manufacturing industry has been the backbone of the U.S. economy since the Industrial Revolution. The success of this industry has helped position the U.S. as the world's largest economy.
An economy with a strong manufacturing presence helps ensure that a nation's people can access the food, supplies and commodities they need day-to-day. To help this industry thrive, several states in the Mid-Atlantic region provide state income tax and other tax credits for increasing employment or placing manufacturing equipment into service.
Let's look at each state and see exactly what is offered to manufacturers.
Maryland provides a few credits that are beneficial to businesses with manufacturing operations:
1. One Maryland Tax Credit
The One Maryland Tax Credit provides businesses tax credit for expanding the economic development of Maryland Tier 1 counties, including Baltimore City. The amount of income tax credit received depends on the project cost of the business expansion. The new qualified jobs assessment is based on a 24-month period, and the maximum benefit depends on the number of qualified jobs created:
For businesses that create 10-24 qualified positions—a maximum of $1 million in credits based on eligible project costs
For businesses that create 25-49 qualified positions—a maximum of $2.5 million in credits based on eligible project costs
For businesses that create at least 50 qualified positions—a maximum of $5 million in credits based on eligible project costs
The minimum project cost to qualify for this credit is $500,000. There is no credit provided if fewer than 10 jobs are created with the project. The jobs created must pay at least 120% of Maryland’s minimum wage and must be filled for at least 12 months. The company that applies must provide a notice of intent and apply for the credit. The state must certify the credit before the company will be allowed to use the credit to offset their income tax liability.
2. Maryland Enterprise Zone Tax Credit
The Maryland Enterprise Zone Tax Credit is not an industry-specific credit but can still be great for manufacturing companies that want to reduce their state income tax liability. The program provides state income and real property tax credits for businesses located in a designated Maryland enterprise zone. Job creation and investment in these areas allow companies to qualify for the credit.
There are 36 enterprise zones and three designated focus areas in Maryland. You can search the address of your business to see if it is located within an enterprise zone.
Income Tax Credit
There is a one-time credit and three-year credit available to reduce Maryland income taxes. The one-time credit provides a $1,000 credit for each qualified employee position created in an enterprise zone. This amount increases to $1,500 if the position is created in an enterprise focus area. The three-year credit is provided to companies that create jobs for new economically disadvantaged employees. The benefits of the three-year credit are as follows:
|Year||Enterprise Zone||Focus Area|
Property Tax Credit
Property tax credit benefits differ depending on whether a business is located in an enterprise zone or an enterprise zone focus area.
In regular enterprise zones, a 10-year credit against local real property taxes is provided on a portion of real property expansion, renovation or capital improvement in the enterprise zone. The credit is 80% of the eligible assessment in each of the first five taxable years but increases by 10% annually in years six through 10.
In enterprise zone focus areas, the credit assessment is the same. However, the credit remains at 80% of the qualified assessment for all 10 years of the credit period.
NOTE: The company must certify the credit with a local enterprise zone administrator to take either credit.
For additional details on these credits, check out our blog post, Tax Credits for Maryland Manufacturers & Distributors.
1. Major Business Facility Job Tax Credit
A company can qualify for the Major Business Facility Job Tax Credit if they are operating in Virginia, expand into the state with a new facility or expand an existing one, and create 51 new jobs with the expansion. Only 26 new jobs need to be created if the new/expanded facility is in a designated enterprise zone or other distressed area noted by the Virginia Economic Development Authority.
The credit provides $1,000 for every new job created over the qualifying threshold amount above. The credit is earned over two years, and employment levels must be maintained for six years, or the state will recapture the credit. You can apply by completing Form 304 at least 90 days before the related tax return is filed claiming the credit.
2. Worker Training Tax Credit
The Worker Training Tax Credit is allocated to companies that provide eligible training to qualified workers. The credit is 35% of the cost of providing eligible training to qualified workers or 35% of the direct costs of giving manufacturing training or instruction to middle or high school students.
The credit can be used to offset Virginia income tax. The credit is capped at $500 per employee per year ($1,000 if the employee’s income was below Virginia’s median wage amount before applying for the credit). The maximum credit for direct expenses for manufacturing training for middle and high school students is $2,000 per company.
Delaware provides an income tax credit to companies in the manufacturing and wholesale distribution industry as outlined in the Blue Collar Job Act.
A business is eligible for the Blue Collar Jobs credit if, in any consecutive 12-month period, it hires five or more regular, full-time employees and a minimum of $200,000 is invested in the facility. At least 25% of the qualified employees hired must be Delaware residents.
The credit is equal to $500 multiplied by each $100,000 of qualified equipment put into service. In addition, $400 is multiplied by the difference between the number of qualified employees hired the year after the facility is placed in service and the number of qualified employees hired the day before the facility is placed into service. This number is then added to the previous sum.
Let’s look at a real-life scenario based on the following assumptions:
- A company invests in $1 million worth of manufacturing equipment in Delaware
- There were no employees before making the investment
- After putting the equipment into service, 20 Delaware residents are hired to run the new equipment
The tax credit provided to this business is $13,000 ($500 x 10 $100,000 worth of qualified equipment put into service) + ($400 x 20 new employees working in Delaware).
To obtain this credit, an application must be sent to the Delaware secretary of finance for approval.
New Jersey provides the New Jersey Manufacturing Equipment and Employment Investment Tax Credit. This tax credit can be used against the entire net income of a corporate business income tax for the investment in qualified manufacturing equipment.
The credit is equal to 2% of the qualified machinery and equipment put into service during the company’s tax year—up to a maximum credit of $1 million. If the taxpayer has 50 or fewer employees and its net income is less than $5 million for the tax year, the credit increases to 4% of the investment credit base of qualified equipment placed into service during the tax year. Despite the increased allowance against qualified equipment, the credit is still maxed out at $1 million.
This tax credit is limited to 50% of the taxpayer’s total liability for a given year, but the credit may be carried forward for seven tax years.
In conjunction with qualified property put into service in the state, New Jersey also allows a credit for increased employment.
New York provides an Investment Tax Credit for businesses in the manufacturing, processing, assembling, refining, mining, extracting, farming, agriculture or commercial fishing industries. There is also an Employment Incentive Credit that works alongside the Investment Tax Credit.
The tax base of the credit is calculated by adding up all a business’s eligible qualifying property that’s put into service in New York and subtracting the amount of non-qualified, non-recourse debt that is levied on any of the qualified property.
Generally, qualifying property is any depreciable property with a life more than over four years, except for furniture, office equipment, excavating equipment, public warehouses, electricity generating equipment and leased property.
The credit provided is 5% on the first $350 million of qualifying tax base and 4% on any amount above $350 million. The credit is used to offset business income tax. If the investment in New York also creates New York jobs, the state provides an extra 1.5% to the Investment Tax Credit allowance for up to two years.
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Published on January 26, 2023