As many Massachusetts businesses begin returning to the workplace, plans may include a building renovation project or even a real estate expansion. During the COVID-19 pandemic, a number of Massachusetts companies have experienced an unexpected increase in demand for their products; biomanufacturers; technology firms; food, beverage and pet food suppliers; and distribution services are among the sectors seeing a significant uptick in customer demand.
For many companies, one option to meet that growing demand is a physical expansion, which can be costly and time–consuming. But there is good news. Businesses contemplating expansion in Massachusetts may qualify for tax incentives, enabling them to save thousands – even millions – of dollars.
Companies that have plans to make a financial investment as part of their expansion project may pursue tax incentives under the state Economic Development Incentive Program (EDIP). If a company plans to retain or create jobs, renovate a leased or purchased building or construct a new building, tax incentives may be available.
Sweeping changes to the EDIP were established by the state legislature in 2009 and 2016, with additional revisions to the program’s eligibility requirements as recently as 2018. The elimination of some of the “alphabet soup” that was previously required – such as Economic Target Areas and Economic Opportunity Areas – have made this economic development tool available to all communities in every corner of the commonwealth.
There are a wide range of tax incentives available. The state EDIP Credit for qualifying depreciable assets is based on job creation and other criteria, and is capped at $20 million annually; the state 10 percent Abandoned Building Tax Deduction applies to costs associated with renovating an abandoned building at least 75 percent vacant for two years; the municipal tax increment financing (TIF) is a negotiated local property tax exemption of up to 20 years on the increased value of the project property due to new construction or other significant improvements; the municipal personal property tax exemption provides a negotiated local personal property tax exemption of up to 20 years with all TIFs; and the municipal special tax assessment is a negotiated local property tax exemption of up to 20 years on the total base value of the project property.
Which Incentives Apply?
A company’s plans will determine the incentives that may apply. For example, if a company plans to retain jobs but not create new ones, or is a manufacturer or a life sciences company, it may be eligible to apply to a TIF-only project within a particular municipality and may not be eligible for the EDIP state credit. Timing of the project is also essential; it’s important to investigate tax incentive options in the very early stages of a project. If a company has already made a commitment to a property, it is unlikely tax incentives would be available at that stage.
Once the available and applicable incentives have been identified, the company must receive approval from various municipal boards and committees, the city council or town meeting and, eventually, the state.
Due to the complexity of the incentives process, it is critical that participating companies have strong communication and negotiation skills. Achieving a positive outcome will be based on the company’s ability to successfully present the project to government officials and resident voters at numerous municipal meetings and community sessions.
Many of the state’s most respected businesses – such as TripAdvisor, New England Ice Cream, Horizon Beverage, IPG Photonics, Analog Devices, MilliporeSigma, Waters Corporation and Vicor – have realized long-term financial benefits from government tax incentives. These incentives can apply to both publicly held and privately-owned businesses, and represent significant value for growing companies.
Taking the time to learn about, apply for, and secure government tax incentives for your company’s expansion is an important step towards keeping your business on track for success. By doing otherwise, you’re leaving cash on the table.
Lynn Tokarczyk is president and government tax icentives consultant of Business Development Strategies Inc., a leading government tax incentives consulting firm in Massachusetts.