NY Fed and state incentives and credits F - EY - United StatesFILE/Fed_and_state_incentives_and_credits.pdf · Views expressed in this presentation are not necessarily those of

Federal and state business incenti es and ta creditsincentives and tax credits

1 May 20131 May 2013

New York

Disclaimer

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► Views expressed in this presentation are not necessarily those of Ernst & Young LLP

Eighth annual domestic tax conference2

► Views expressed in this presentation are not necessarily those of Ernst & Young LLP.

Circular 230 disclaimer

► Any US tax advice contained herein was not intended or written to be used, and cannot be used, for the purpose of avoiding penalties that p p g pmay be imposed under the Internal Revenue Code (IRC) or applicable state or local tax law provisions.

► These slides are for educational purposes only and are not intended, and should not be relied upon, as accounting advice.


Today's presenters

Ali Master – ModeratorMary Faye LaFaverPaul NaumoffKaren Hensley-Chelstowska


Agenda

► Introductions► Current climate for credits and incentives► Current climate for credits and incentives► Key trends for tax and non-tax incentives► Federal developments

► Incentives in President’s budget► Incentives in President s budget► State developments

► Recent legislative activity► International developments► Corporate trends and leading practices► Q&A (throughout)


Current climate for credits and incentives

► “Fiscal cliff” in the review view mirror

► Companies poised to spend capital

F d l d t t i ti il bl► Federal and state incentives available► Federal credits extended through 2013

► Uncertainty remains► Tax reform impact on federal incentives► Key states (e.g., California) curtailing tax credits


Key trends for credits and incentives

► Governors focused on eliminating income tax► Examples: Louisiana, North Carolina, Nebraskap , ,► Alternate revenue sources cited to be sales tax

► State income tax credits► State income tax credits

► Rise in non-income tax incentives

► Rise in tax credit transferability and monetization


Other trends impacting incentives

► Globalization continues as do global incentives► Impact of international incentives on US program p p g

availability

► Re-shoring also on the rise► Re shoring also on the rise

► Data center incentives► Financial services industry (consolidation of► Financial services industry (consolidation of

operations)

► Impact of the Affordable Care Act (ACA)► Impact of the Affordable Care Act (ACA)


"Big picture"

Business drivers► Labor cost and availability (today and in the future)► Labor cost and availability (today and in the future)► Proximity to suppliers/buyers► Access to transportation corridors/competitive alternatives

► Port and rail facilities► Port and rail facilities► Interstate highway access

► Ongoing operating costs including taxes► Utility costs, capacity and reliability► Education resources and collaboration opportunities► Incentives


Company interests

Generally, company interests include:► Impactful economic benefit from incentives and credits► Impactful economic benefit from incentives and credits► Realization

► Cash grants or cash equivalents► “Above the line” savings (non income tax benefits transaction tax► Above the line savings (non-income tax benefits –– transaction tax

incentives, utility discounts, etc.)► “Marketability” of unusable tax credits

► Unique/creative responses addressing specific drivers► Unique/creative responses addressing specific drivers► State tax planning► Project facilitation (operations)

► Minimal project interference maximum confidentiality► Minimal project interference, maximum confidentiality


State and local officials’ concerns

State and local officials are looking for:► Political impact – and political cover► Political impact and political cover► Financial stability, "cost certainty"► Targeted sectors, subject to local needs

A t bilit ( ti i t f i t !)► Accountability (anticipate performance requirements!)► Social responsibility► Good business "citizens"

The needs of all parties to an incentives project can be satisfied via a culture of collaboration and acknowledgement of the benefits associated gwith a "win-win" result.


How are programs evolving to meet both parties' needs?

► Realization► Increased closing fundsg► Withholding tax rebates

► Negotiability and advance qualification► Increased emphasis on "business case"► Increased emphasis on business case► Transition from "as of right" credits – e.g., NY, CO

► Targeted sectors (e.g., data centers) and demographics (veterans, unemployed workers)unemployed workers)

► Sustainability incentives


Announced mobile project jobs as a percentage of existing employment by state, 2012

Hawaii

Alaska

Lower job growth

Higher job growth


Source: Ernst & Young USIM based on Conway data and Ernst & Young research.Note: Data on California is incomplete.

Top 20 projects ranked by new and retained jobs, 2012

Company name State Product Investment (in US$ millions) Jobs

Apple Inc. TX Wireless equipment 304 3,600

Kohl's Corp. WI Clothing 250 3,000

Exxon Mobil Corp. TX Petroleum refining – 2,000

General Motors Company MI Innovation center 300 1,750

BB&T Corporation NC Financial services – 1,700

Ericsson TX Telecom 54 1,600

Baxter International GA Biological products 1,000 1,500

Caterpillar, Inc. GA Tractors 200 1,400

Boeing Co. OK Aircraft – 1,350

General Motors Company MO Cargo van assembly 380 1,260

A t LLC A Chi IL R l t t t d 192 1 200Aeroterm LLC, Aero Chicago IL Real estate agents and managers 192 1,200

Vistaprint USA Incorporated MA Printed products 57 1,180

Wingspan Advisory Group TX Financial services 3 1,100

Daimler Truck North America (Local #1) NC Class 8 on-highway trucks – 1,100

Amazon.com, Inc. IN Distribution center 150 1,050

Bridgewater Associates CT Financial services 750 1,000

Airbus AL Aircraft 600 1,000

Panasonic Corporation NJ Consumer electronics, technology 190 1,000

Philadelphia Energy Solutions PA Oil 140 1,000

Southwest Airlines TX Airlines 100 1 000


Source: EY USIM based on Conway data and EY research.

Southwest Airlines TX Airlines 100 1,000

Top 20 projects ranked by capitalinvestment, 2012,Company Name State Product

Investment(in US$ millions) Jobs

Sempra Energy/Cameron LNG LA LNG 6,000 130Chevron Phillips Chemical Co. TX Petrochemicals 5,000 400p ,Sasol Limited LA Industrial Gas Manufacturing 4,387 403Samsung TX Semiconductors 4,000 500Intel OR Semiconductors 3,000 NAGlobalFoundries NY Semiconductors 2,300 250Shell Oil Company PA Petrochemicals 2 000 450Shell Oil Company PA Petrochemicals 2,000 450Formosa Plastics Corp. TX Plastics 1,700 225Dow Chemical Co. TX Ethylene 1,700 150Port Neal Corporation (CF Industries) IA Fertilizer Manufacturing 1,690 100Williams Partners WV Natural Gas 1,340 100Iowa Fertilizer Co./Orascom Construction Indus. IA Fertilizer Manufacturing 1,300 165Walter Energy (Blue Creek) Inc AL Bituminous Coal 1,200 450Cenex Harvest States ND Fertilizer Manufacturing 1,200 150Ineos USA LLC TX Ethylene 1,000 NACelanese Corp TX Methanol 1 000 NACelanese Corp. TX Methanol 1,000 NABaxter International GA Biological Products 1,000 1,500Dow Chemical Co. TX Propane Dehydrogenation Unit 1,000 70Apple/iDataCenter NV Data Center 1,000 35Ohio Valley Resources LLC IN Fertilizer Manufacturing 952 80


Source: EY USIM based on Conway data and EY research.

Federal developments

Federal tax credit update and hot topics

► Fiscal Cliff bill (American Taxpayer Relief Act of 2012)► Work Opportunity Tax Credit, empowerment zone,

Indian employment tax credit (extended thru 2013)► R&E extended through 2013► Extend Sec. 45 Production Tax Credit for wind► Modification of Sec. 45 PTC and 48 Investment Tax

Credit – “begin construction before end of 2013”► Alternative fuel credits updated ► New markets tax credit

► $3.5 B allocation to Community Development Entities in 2013► Available for economic development projects

► $5.B proposed for 2013 application round► Other hot topics ► IRC §179D: tax deduction for energy► IRC §179D: tax deduction for energy

efficient commercial buildings and government allocation► IRC § 45O agricultural chemicals security credit


► IRC § 45F child care credit

President’s proposed 2014 budget

► Work Opportunity Tax Credit (make permanent)► Indian Employment Credit (make permanent)► Indian Employment Credit (make permanent)► Promise Zones► $5b New Markets Tax Credits

E h d k t R&D T C dit► Enhance and make permanent R&D Tax Credit► Other:

► Make permanent and enhance of § 179D tax deduction ► Additional $5b § 48C Advanced Energy Manufacturing Credits► Make permanent renewable energy production credit► Tax credit for new manufacturing communities► $2.5b of § 48C Advanced Energy Manufacturing ► Pathways to Work

► Tax reform potential considerations


Investments in federal and state tax credits

► Companies are increasingly buying federal and/or state tax credits► Often generates immediate cash flow benefits with relatively► Often generates immediate cash flow benefits with relatively

low risks and minimal compliance-tracking requirements► Common monetizable tax credits include:

► Low Income Housing Tax Credit, historic, energy and film credits

► Investment considerations► Duration of the credit stream and payment schedule ► Recapture risk, tax liability risk ► Types of tax credit can offset (state level premiums tax) ► Whether other tax benefits are included (depreciation

deductions), yield/IRR, GAAP/IFRS treatment


), y ,

State developments

How are states responding?

1. Eliminations/moratoriums

2.Enforcement/clawbacks

3. Increase in programs

4 Wh l l difi ti4. Wholesale modifications


Northeast regional update

► New Jersey► Grow N.J. and Hub credit – funding updateg p► Incentives programs restructuring

► Connecticut► Neighborhood Assistance Act credit► Neighborhood Assistance Act credit

► New York► Youth Works tax credit► Hire a Vet tax credit► Hire a Vet tax credit► Minimum Wage tax credit► Excelsior – funding update

► New Hampshire► New Hampshire► Education tax credit► R&D credit threshold update


Northeast regional update

► Massachusetts► Brownfield credit expanded and extendedp► Community Investment tax credit► Mass. life sciences initiative update

► Rhode Island► Rhode Island► Motion picture production company credit► Musical and theatrical production tax credit


Mid-Atlantic regional update

► Delaware► Strategic fund, based on payroll tax attributable to increased g , p y

employment tax ► Pennsylvania

► Several tax proposalsp p► Lower corporate net income to 6.99% ► Increase net operating losses cap to $4M or 25% of PA income.► Continued phase-out of capital stock and franchise tax, ends 2013

► PA first program, a closing fund for major projects ► PA redevelopment assistance capital program► New keystone opportunity zones likely to be identified



► Maryland► Renewed $10 million in annual statewide funding for the Maryland► Renewed $10 million in annual statewide funding for the Maryland

Economic Development Assistance Fund► Established investmaryland, a new venture capital fund with a budget

of $84 millionof $84 million ► Expanded onemaryland tax credit to Washington County► Established Maryland Employer Security Clearance Costs Credit

N i d l t i ti f d ( t d l )► New economic development incentives funds (grants and loans) established at the local level



► Virginia► New funding provided for life sciences ($5MM)► New funding provided for life sciences ($5MM)► Continued funding for the Governor’s Opportunity Fund ($11.8MM each year)► Change to the Virginia Investment Partnership grant► Change to major business facility job tax credit► Change to major business facility job tax credit► Sales tax exemption for large data centers now allows operators to tenants’

job creation and capital investment to count toward thresholds and tenants may take advantage of the exemption ► 2013 legislation allows localities to establish data center equipment as a separate

classification for purposes of personal property taxation ► Extended the Port Tax Credit to 2017

L l t fl ibilit t d f t t i d f M f t i► Local government flexibility to defense contractors in defense Manufacturing production and support services zones


International developments

How actively is your company involved in capturing international business incentives and tax credits?

4%

0% 10% 20% 30%

Very active

16%

y

Active

22%

23%

Minimally involved

Not capturing international incentives

27%

incentives

Don't feel they apply

8%Don't know

Percent of 601 respondentsSource: Ernst & Young Credits and Incentives Study (2011)


pg y ( )

Global landscape

► Efficiency-focused incentives► Renewable resources, energy efficiency and sustainability► Technology upgrades and implementations► Technology upgrades and implementations

► Expanded incentive value► Competition for business investment in a tighter economy has led to larger

incentive budgetsg► Disaster relief

► In the aftermath of recent natural disasters (Thailand, Japan) governments have taken concerted measures to boost their economies

► Industry targeting► Industry targeting► Governments have begun pursuing the intentional development of a

competitive advantage in particular sectors by offering incentives to players throughout the supply chainp y g pp y

► Small- and medium-sized enterprises (SMEs)► SMEs have become a particularly attractive target for incentives in recent

years due to the impact that growth in this sector can have on employment d i ti


and innovation

Corporate trends and leading practices for incentives

Credits and incentives – an advantage for business

► US state and local governments offer over 3,000 credit and incentive programsp g

► Virtually any substantial job creation or investment project can benefit in most geographies, but applicable requirements must be satisfied, such as:► Advance negotiation or qualification► Effective implementation► Program administration and complianceg p

► Is your business taking advantage?


Why doesn't every business take advantage?g

Top five barriers

Survey results: barriers to securing business incentives and tax credits

Top five barriersOperations too busy to execute on the requirements 35%

Program requirements too burdensome 34%

Lack of timely information on transactions 27%

Company in a loss position and cannot take advantage of tax credits 25%Co pa y a oss pos o a d ca o a e ad a age o a c ed s 5%

Difficult to coordinate within the various company departments 14%

Percentage of 593 respondents


The key to success: being part of the decision process

Tax should be an important part of the core project team

Treasury

Finance Tax

Executive sponsor(s)

Facilities/real estate Sustainability

andproject team

Generalcounsel

Operationscounsel

Human resources

Government relations


Other leading practices and trends

► Audit activity and clawbacks on the increase

► Focus on incentives management technology and organization

M i f d ll i ti d i► More companies focused on overall incentives process design


Questions and answers

Thanks for participating

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Ernst & Young refers to the global organization of member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit www.ey.com.

Ernst & Young LLP is a client-serving member firm of Ernst & Young Global Limited operating in the US.

© 2013 Ernst & Young LLP.All Rights Reserved.

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This publication contains information in summary form andThis publication contains information in summary form andis therefore intended for general guidance only. It is not intended tobe a substitute for detailed research or the exercise of professionaljudgment. Neither Ernst & Young LLP nor any other member of theglobal Ernst & Young organization can accept any responsibility forloss occasioned to any person acting or refraining from action as aresult of any material in this publication. On any specific matter,reference should be made to the appropriate advisor.

Documents

NY Fed and state incentives and credits F - EY - United StatesFILE/Fed_and_state_incentives_and_credits.pdf · Views expressed in this presentation are not necessarily those of