Over the past year, as a result of the Tax Cuts and Jobs Act (TCJA), we have seen tax incentives and corporate tax liability become an increasingly important factor in our clients’ site selection process. In changing the corporate tax rate, TCJA impacted the pricing of tax credits and added complexity to multi-state tax evaluation. TCJA also changed the rules around taxability of incentives through modifications to IRC Section 118.
The results from this year’s Area Development Corporate Survey are consistent with our observations in the market. The survey ranked the importance of the corporate tax rate in site selection decisions at No. 4, a jump of four spots from No. 8 in 2017. Incentives that help mitigate tax liability have become increasingly valuable to companies, with 62 percent of respondents in the survey considering tax incentives the most important type of incentive when making a location decision (compared to cash grants at 20 percent).
Another major component of TCJA was the creation of the Opportunity Zone program. According to the survey, 32 percent of companies planning new domestic facilities are considering locating in a newly created Opportunity Zone. By doing so, companies are able to benefit from multiple federal tax advantages including deferring or reducing their capital gains tax burden and receiving a step-up in basis.
With a new tax code impacting incentives and location decisions, the inclusion of a tax strategy and analysis has become critical to optimizing site selection and expansion decisions. This is a reality that we have experienced first-hand with our clients in 2018 and also rings true when reviewing the Area Development Corporate Survey results.