Banking and financial institutions are a large part of the world economy. But what states provide benefits to this all-important service sector? After a search, one finds a healthy amount of incentives available.

Consider states such as Connecticut, Delaware, Illinois and Indiana, which offer benefits targeted directly at the banking industry.

Connecticut has a Financial Institutions Facilities Credit. This credit is allowed against the corporation business tax for a financial institution that opens a facility in Connecticut.

The facility has to encompass a specific number of square feet, and the credit amount, both per year and over the lifetime of the credit program, varies according to the number of full-time employees. The credit period lasts for 10 years, but can be extended an additional five years if the financial institution employs at least 3,000 qualified employees in the 10th and subsequent years.

Delaware has a New Employment Credit for the industry. Banking organizations are entitled to a credit of $400 per new qualified employee in excess of 50 more than the number of employees employed by the entity during the base year, provided the company invests at least $15,000 for each employee claimed.

The credit may be claimed only for full-time employees who are eligible for health insurance benefits. In addition, each new employee must have been employed by the business for six months or more.

The credit allowed or carried forward may not exceed 50 percent of the tax otherwise imposed on the company. Unused credits may be carried over to each of the nine succeeding years.

There is an income subtraction modification available to financial organizations in Illinois. Interest from a loan to a borrower qualifies, as long as the loan is secured by property that is eligible for the state's enterprise zone investment credit.

To determine the part of the loan, or loans, secured by property eligible for the enterprise zone investment credit, divide the entire principal amount of the loan(s) between the taxpayer and the borrower into the basis of the investment credit property securing the loan(s).

The subtraction modification equals that part of the total interest paid by the borrower on the loan attributable to the eligible property. This helps to reduce the amount of taxable income incurred by the financial institution.

Indiana has a Loan Interest Credit. Taxpayers are entitled to a credit against state tax liability for interest received on a qualified loan in that tax year. The amount of the credit is equal to the amount of interest received by the taxpayer during the tax year from qualified loans, multiplied by 5 percent.

A "qualified loan" means a loan made to a company that uses the loan proceeds for:

n Doing business in an enterprise zone

n An improvement that increases the assessed value of real estate located in an enterprise zone

n Rehabilitation, repair or improvement of a residence

The states mentioned above include banks and financial institutions in their other incentive programs (enterprise zones, investment tax credits, etc.). Other states, such as California, Florida, Idaho, Kansas, Missouri, Rhode Island, North and South Carolina, also offer their enterprise zone and investment incentives to the banking industry.

The bottom line is that many states see it as a good investment to offer incentive programs to banks.

Paul Westbrook is senior tax manager with Mintax, a consulting firm specializing in business incentives. You can contact the company, headquartered in East Brunswick, N.J., at (732) 723-9000.