Establishing a Business Incentive Program, November 2021


Why should an organization establish a program to harvest business incentives? That question is more easily answered by understanding how capital is acquired. Money may be obtained through earnings, savings or being awarded or gifted funds. Throughout lives, people work to earn money, accumulate it for goals and retirement or are often gifted wealth. Similarly, businesses use enterprise to profit or financing to acquire the necessary capital for additional investment and operations. Businesses conserve capital several ways. Engaging in enterprise alone will reveal cost efficiencies through the operational process and its experiences. Additionally, the utilization of a new technology or a deliberate strategy may be employed to generate cost savings. But when and how are organizations granted funds? Established within federal, state, and local legislation, there exists numerous tax credits and benefits organizations may claim or apply to utilize. Upon completion of governmental programs and objectives, businesses gain the use of tax credits. These are acquired by meeting the terms of a qualified incentive program. These tax credits may reduce a company’s taxes by granting it the allowance to deduct all or part of certain expenses from its income tax bill on a dollar-for-dollar basis.

Business incentives are regularly available to qualifying enterprises. Many programs provide tax credits just for hiring new workers that range from $1,000 to $5,000 per associate. However, newer programs are using alternative methods to generate benefits. For example, one of these more recent programs partner with many of its state’s community colleges to train new associates for nearby businesses. The community college administers the training, along with a bond issue that generates the necessary funds to pay the cost for the new associates’ education. Once the company hires the newly trained associates, the withholding tax for the new employees (typically required to be remitted to the state) is partitioned and used to pay down the bonds that were issued for instruction. By attainment of this incentive, the company received the funds necessary to train its new associates with zero out of pocket costs.

Locating Incentives

Harvesting business incentives is a continuous strategy to reduce or eliminate out of pocket expenses and capture resources currently going unused by a firm. Determining the number of incentives and potential benefit amounts to be received is an essential step towards a comprehensive incentive project. This “research” comprises the initial phase of the overall incentive progression. Future steps include tracking milestones the organization has accomplished toward the incentive, meeting the ongoing compliance obligations and communicating with governing bodies for clarity. Research evaluations should occur to establish which options are viable and attainable. This involves understanding the incentives extended to the organization by researching the details, metrics for compliance, schedule of filings and any additional nuance the programs may contain.

The first step is to catalog all incentive programs that are outstanding. The list should include details about the program itself along with what agency administers the program, the conditions needing to be met to attain the benefit and how long after attainment that benefit can be used (carryover provisions). A great place to begin the collection of existing packages is via the states’ department of revenue or equivalent taxing agency sites. These sites will contain summaries of the various programs the states and local governments have enacted. Governmental sites will list all present programs, including those currently in force but unavailable to new applicants. Since most states’ department of revenue oversee these programs, they often retain the details or compliance procedures for their outdated programs.

State and local administrations regularly update programs or amend the specifications. Take special note of any application deadlines, program end dates or carry over cut off. Governmental sites will often list representatives who may be contacted for additional information or to answer any questions. These individuals may originate from the department of revenue itself or stem from a supplemental agency (like workforce or economic development).

Who can help?

Affiliate state and local agencies are another useful resource for information pertaining to incentives. Economic development agencies and area Chambers of Commerce have personnel well versed in the specifics of state and local incentives. Many directors at economic development bureaus are connected to and foster legislation to advance business incentive bills. Due to their familiarity with their state and programs offered thru it, economic developers make great resources for examining opportunities.

These contacts can become vastly valuable especially when attempting to select the most appropriate programs for application. Assisting to comprehend the various requirements necessary to achieve benefits and various filings mandatory for compliance are other areas of their expertise. Economic developers often act as liaisons between the organization and the programs’ governing body. They also maintain a network of and familiarity with industry consultants who can assist, represent, and lead efforts for companies pursuing business incentives. Industry consultants are specialized business incentive specialists and can support every facet of the incentive harvesting process. Researching, vetting, and managing the overall process are all functions consulting firm will perform on behave of the companies they represent. Economic developers will often refer companies seeking expert assistance to a consulting service within their area.

Another group who also works closely with consultants and legislature on business incentive programs are Workforce Development Agencies. Since many incentive platforms earn tax credits based upon the hiring of new employees, workforce developers maintain the knowledge necessary to assist with pursuit of many “New Job” programs. Workforce developers leverage their extensive network of connections to better assist companies in acquiring benefits. Many of their ties include faculty from community colleges and agents within job placement services. Workforce developers can be greatly impactful with locating job incentive programs, finding qualified new employees, coordinating with community colleges for training and finalizing the process by placing workers into jobs with applicable companies.

Finally, technology and data services exist that will query thousands of incentive programs and filter to the criteria that organization prefers. These technology firms have released web-based applications that make searching the thousands of programs much easier and quicker. Once programs have been identified, the vetting segment of the initiative begins. Communications with representatives from the Department of Revenue or other governing bodies will uncover intricate details necessary to comply with the nuances of the incentive program. This step is immensely imported to ensure outdated incentive plans are filtered from the results.

Ultimately, whether technology services or Economic Developers are leveraged, the purpose of any incentive initiative is to locate and utilize all available resources accessible to the business. The expense of locating qualified labor and capital investment can be reduced or eliminated by initiating a business wide incentive program.

In Part 2 of this segment, “Implementing a Business Incentive Program”, a description of the logistics behind planning the initiative will be covered. The next phase of this article will provide a blueprint of internal and external resources necessary; a description of staff needs to facilitate the effort and decisions businesses will encounter throughout the course of their incentive exercise.

IRS Circular 230 Required Notice‐‐IRS regulations require that we inform you that to the extent this communication contains any statement regarding federal taxes, that statement was not written or intended to be used, and it cannot be used, by any person (i) for the purpose of avoiding federal tax penalties that may be imposed on that person, or (ii) to promote, market or recommend to another party any transaction or matter addressed herein

Establishing a Business Incentive Program, November 2021


The first segment, “Why develop a Business Incentive Program?”, summarized reasons why organizations create business incentive plans and an overview of various phases of the cycle.

  • Research
  • Tracking
  • Compliance
  • Communication

Economical efficiencies are often gained by leveraging the programs issued by federal, state, and local governments. Methods for locating applicable programs, guidance on performing the initial vetting of them and forming connections with the groups that administer incentive programs were all reviewed. By meeting the compliance requirements and terms these governing agencies set forth, businesses could earn lucrative tax credits, rebates, zero to no interest financing, training for employees or other concessions that decrease their overall operating costs.

In this part, the decisions and steps surrounding the implementation of an organization wide strategy will be discussed, including the following:

  • personnel and resources necessary to steer progress,
  • a comparison of insourcing efforts verses outsourcing, and
  • leveraging technology to manage and organize volumes of information.

Who and what are needed?

Regardless of whether organizations elect to internally manage the incentive process or outsource most of its tasks to consultants, certain personnel and resources are essential to benefit harvesting. Many incentive programs offer withholding tax exemptions, credits, or refunds. The documentation typically necessary to claim funds involves supplying employee wages and timecard data from the qualified periods to the managing agency. Appointing a representative from human resources to acquire, collect and submit this information will streamline and increase the likelihood of a successful initiative.

States’ Department of Revenue will audit the payroll data and will typically require clarification when interpreting it. Responding to taxing agency requests and promptly meeting data submission deadlines are essential to this success. Consistency and prompt reporting are typically gained by appointing or at least including a HR staff member to the payroll portion of the project.

Equally necessary to the initiative, is a knowledgeable member of the accounting department. A qualified member of the accounting department will likely already have access to the general ledger data that records these expenditures and will have the means to promptly submit necessary documentation.

After appointing human resources and accounting staff to the initiative, locating a method to track benefits and store data is necessary. The most simplistic means is by spreadsheet. This method will record the various filing, due dates, and cutoffs; but lacks a complete transparency into the overall project. A database system is an inexpensive alternative to a spreadsheet. It provides the additional functionality to query data and simplify calculations. Lastly, an integrated software can present both the calculation and documentation together without trying to cross systems or data streams. Consider appointing a staff member familiar with database suites to administer the information retention and modification portion of the task.

Administer alone or acquire assistance?

Insourcing the entirety of the incentive harvesting process verses outsourcing a portion or the totality of the project are decisions the tax department must make early in the undertaking. Already discussed, were the baseline staff needs to launch an initiative.

Traveling down the insourcing path, additional personnel may be necessary. Namely the appointment of, well organized, senior level leader with knowledge of the firm’s activities and organizational contacts. This person will be tasked with organizing, guiding, and meeting the various filing deadlines associated with capturing tax credits and incentives. This individual will direct the overall efforts and those of the staff accountant and HR representative previously discussed.

The final member of this team is a research analyst. This individual will evaluate, comprehend, and disseminate information pertaining to the programs with which the firm intends to participate. Analysts are pivotal to the campaign, as they will be the party most fully aware of incentive programs requirements, any exceptions, and standard protocols.

Recruiting, hiring, and training specialized associates to oversee incentive gathering may not be viable to an organization. After evaluating additions to staff or infrastructure costs associated with forming a team, firms typically will outsource the initiative and partner with third party consultants instead. The two most impactful benefits of an outsourcing strategy are cost reductions and subject matter expertise.

Utilizing consultants will prevent overextending internal resources. Corporate tax departments are often staffed “at need”. The “day‐to‐day” activities of these areas involve appropriations and mapping expenses to return categories, not the location of incentives and acquisition of tax credits. This translates into a lack of bandwidth, or worse a void of staff, necessary to administer the effort. Retaining a consultant will increase the “return on investment” of the initiative due to eliminating the cost of specialty personnel.

Acquiring a research analyst and a business leader may increase employment costs while repurposing (or adding the incentive harvesting tasks to) existing associates may result with those individuals’ primary functions suffering. Third party consultants eliminate this human capital dilemma, and their compensation is based upon the benefits to be earned. Expenses typically fall between 5‐20% of the overall incentive package. This makes consulting firms a cost advantaged and staffing efficient option to acquire uncaptured incentives, credits, and resources.

In conjunction with the cost savings gained, consultants add tenured expertise to the equation. Their knowledge is focused solely on incentive acquisition and the methods needed for companies to realize benefits. Specialized techniques, unique technology solutions, and dedicated personnel are all leveraged by these experts to acquire incentives for their clients. Consultants actively recruit personnel from the same agencies that administer the incentive programs. States’ Department of Revenue, Workforce/Economic Development, and the Chambers of Commerce comprise the talent pools where third‐party firms locate and recruit professionals. Newer trends show consulting firms widening their scope and onboarding database administrators and programmers. These staff members are being engaged to devise and operate standalone applications focused on incentive compliance.

CFO Services is one such firm focusing on technology to streamline the incentive harvesting process. The firm’s investment in technological resources and specialized personnel has yielded a proprietary application for its client’s use. The BIPS (Business Incentive Portal) is a technology platform that merges database functionality alongside scheduling tools to record pertinent details, deliverables, and data regarding a company’s incentive initiative. The launch of the software package has gained their client improved compliance and a decrease in the complexity of managing multiple programs. This exclusive product displays agency deliverables and upcoming filings to the user in a concise, convenient, and secure environment. Irrelevant of the sophistication of a technology solution, systems positively impact and increase organization aspects of the overall initiative.

Whether firms commit vast or minimal resources to the effort, the development of an incentive initiative grants quantifiable results to any organization. Tax credits and other benefits offered by governing agencies have the potential to greatly impact the overall financial results of an organization that is expanding its operation. Strongly consider the best path for the organization. Most mature organizations will often build an in‐house team to lead the endeavor while growing firms typically leverage consultants or elect a hybrid insource/outsource strategy. Regardless of the path selected, assistance can always be gained by use of technology. For questions or assistance developing a business harvesting program, please contact a representative from CFO Services.

IRS Circular 230 Required Notice‐‐IRS regulations require that we inform you that to the extent this communication contains any statement regarding federal taxes, that statement was not written or intended to be used, and it cannot be used, by any person (i) for the purpose of avoiding federal tax penalties that may be imposed on that person, or (ii) to promote, market or recommend to another party any transaction or matter addressed herein