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TAX CREDITS
AN INCENTIVE TO INVEST
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By
James Nicholson
Tax credit. The concept sounds simple. Something is done in
exchange for credit against Federal and State income taxes.
Unfortunately, that is where the simplicity ends and the need
for high powered, highly adept, foresighted professional services
firms becomes apparent.
“The federal government has tax credits all over the place and
for practically everything,” explains Les Block, CPA, partner
of Brown Smith Wallace citing Hurricane Katrina and the Brownfields
Tax Incentive as easy examples. “All are designed as an incentive
for investment in something deemed necessary and to give an
immediate tax benefit to the investor.”
Les
Block, CPA and partner, Brown Smith Wallace
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“In order to spur investment(s) in low income housing,” Block
continues citing another example, “a tax credit covering a ten
year period is in place.” There are also credits for the rehabilitation
of structures built prior to 1936 and those certified as historic
structures. “That one is very big in St. Louis,” Block acknowledges.
When it was rehabbed, Union Station proved to be the largest
such investment in the country. Grand Center is quickly offered
as a site currently possessing a large number of certified historic
structures qualifying for tax credit rehab.
Block also cites legislation, the Access to Capitol for Entrepreneurs
Act of 2006 that has been introduced in the House of Representatives
as a highly attractive temptation for investors. The bill is
designed to incentivize investment in small start-up companies
and will provide a 25 percent tax credit for those individuals
and groups providing the equity for investment, thereby providing
the investor a return on the front end of the investment rather
than enduring the wait until the company invested in begins
to turn a profit. Of course, this legislation needs to be passed
by both the House and the Senate, and signed by the President
to become law.
A program providing tax credits for research and development
of new products which expired at the end of last year is eagerly
awaiting extension by many would-be investors. “It covers a
very broad area,” Block explains. People initially thought it
was just for areas of scientific research, but rapidly realized
that was not the case, “It will be extended,” Block states,
rather than hypothesizes, “we just don’t know when. We’re still
working with people looking to get those credits.”
So, if the tax credits are there, how does one go about taking
advantage of them? The safe answer is to go to a financial consultant
capable of putting together the proper package. As Block points
out, “We are active in the use of tax credits for investment
in low income housing, rehabilitating certified historic structures
and doing research and developmental studies for our clients.
We also make related State of Missouri tax credits available
to our clients.”
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Dave
Herdlick, CPA, RubinBrown |
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Dave Herdlick, at RubinBrown, cites the federal New Market Tax
Credit Program as a means of stimulating economic activity,
via tax credits, in low-income areas by providing affordable
housing and generating commercial activity. Not surprisingly,
he also stresses that all such programs possess significant
rules, which need to be followed in order to receive all the
possible benefits. The trick, he points out, is to locate the
proper application/allocation processes to reap the full rewards
of each program.
Herdlick illustrates the potential bonuses in that programs
are structured to make projects more economically viable by
incentivizing the lenders to make investments with the lending/profit-making
gap being covered by tax credits. “The structure is in place,”
he stresses,“ but a significant amount of professional time
is required to ensure complete benefits. Investors should definitely
talk to professionals in the arena.”
He goes on to point out that the arena, as far as receiving
allocations is concerned, “is very competitive.” From the real
estate developer point-of-view, for instance, “demand outweighs
the supply. It is a way to stimulate economic activity in urban
and low-income areas by creating infrastructure beyond low-income
housing. These programs are designed for any kind of business,
but has tended to go to real estate developers because of established
credit programs.”
Tax credits and incentives, of course, are not restricted merely
to federal programs, as RubinBrown’s Harlan Kwiatek points out,
“Every state and city has similar tools.” Obvious examples in
Missouri, for instance, include the Missouri Historic Preservation
Tax Credit and tax incentive programs for redevelopment of blighted
areas. The idea being to generate bonds to help stimulate growth.
Of course, the definition of a “blighted area” is a highly subjective
one and a lot of political pressure has been applied to such
programs.
He also cites Chapter 100 financing (which was utilized to bring
the Isle of Capri headquarters to Creve Coeur) as another means
of locally produced incentive programs. Under Chapter 100, cities
may designate a portion of their territory as an economic development
zone and pass ordinances and generate bonds to be used to acquire
assets (either real or personal) for expansion. It is a tried
and true (and profitable) means of luring companies into moving
their headquarters into your neighborhood. The money for the
move is provided up front at the local level and the profits
from the business are utilized to pay off the bonds.
Kwiatek also points out that such programs can be very complicated
and “to reduce the risk at the city level, all the i’s need
to be dotted and the t’s need to be crossed.”
Another State program is designed to attract high paid jobs
to the State in various categories utilizing three types (High
Impact, Small and Expanding and Technological) of employers.
The benefits to the employers—tax credits used against income
tax withholding for employees—kick in when the employer meets
the employment threshold of its type of program as mandated
by the State. “Missouri has never before had this vibrant of
a withholding program,” Kwiatek explains obviously envisioning
greater local economic expansion in the near future.
Mergers
and Acquisitions in St. Louis
Commercial wealth obviously can be generated via mergers
and acquisitions.
But how does a company successfully negotiate its way through
such a process?
Jay Wadkins, tax managing director at RSM McGladrey points
out that such deals are “complicated from the outset” and
companies need a transaction support services team to assist
through the entire process—from strategic planning through
due diligence and into the integration process.
“As a national accounting firm with offices across the United
States, we offer a national presence with a local perspective.
Our goal is to be the premier middle market firm in the
country. We chose (to put our offices) downtown, so that
we would be immediately recognized as a St. Louis practice,”
says Wadkins. All such transactions being handled by the
St. Louis office, of course, deal with companies on the
move that will create jobs in the local market, thus building
the wealth of the community.
Whether representing the buyer or the seller, RSM McGladrey
guides the most complex transactions, while minimizing risk.
A quick perusal of an appendix of transaction possibilities
illustrates auxiliary alternatives that can add to the complexity
of any single merger or acquisition. “There are complicated
tax issues involved with any possible deal,” Wadkins explains.
“It is imperative to get the right person involved to structure
each deal.” Which illustrates one way RSM McGladrey views
itself as “investing in St. Louis.” |
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