We've been in the high-technology age for the better part of 20 years. Technology is a part of numerous everyday activities, from medicine to desktop computers to cars. As technology companies in these industries gain more economic clout, states are competing to attract them in a push to become the next hub for technology.
This means targeted incentives for tech companies looking to develop or expand. For years, Silicon Valley has been known to be the nucleus for technological innovation, but that's about to change as states are unrolling their own campaigns in an effort to attract high-tech companies.
Many communities and states across the country already offer tax incentives as part of an overall effort to stimulate economic growth and job development. Tax and financial incentives play an important role in site selection, and have become a deciding factor for businesses looking to develop or relocate.
Toward this end, legislatures are enacting incentives that will focus on creating skilled and technical positions in the high-technology sector, which will, in turn, create a larger tax-base and a more educated work force.
Examples of incentives that various states will offer to technology companies are low-interest financing, training grants, less regulation, negotiated incentives, tax credits and a friendlier business environment.
One characteristic of the high-technology industry is that it thrives on human knowledge and innovation rather than on physical assets and production. Because most technological advances are a result of extensive research, we can expect to find more and more states offering tax credits based on Research and Development expenses.
Currently, about half of the states offer a tax credit for R&D. Many of these are modeled after the federal R&D credit. In general, a company may claim a credit against their tax liability for increased research expenses.
As R&D plays a bigger role in the technology industry, states respond by customizing these incentives specifically for those companies.
An excellent example of an innovative program for high-technology is New Jersey's Business Tax Certificate Program. One catch with most R&D credits currently offered by states is that high-tech start-up companies are usually in losses in the their initial years.
Accordingly, they have no income and therefore do not pay taxes. At the same time, they are spending millions to research and develop their product, which may take years to bring to market. During these crucial years, the company may earn extensive R&D credits, but will have to wait until it turns a profit in order to use them.
New Jersey's Tax Certificate Program solves this problem by allowing companies to turn their tax losses into hard cash that will help grow their businesses. Qualifying businesses are allowed to 'sell' their unused net operating loss and unused research and development credits to any corporate New Jersey taxpayer for at least 75 percent of the cash value.
They can then use the proceeds for working capital or to fund further research. To qualify, a selling company must be involved in technology or biotechnology and have fewer than 225 employees. This is just one example of the type of creative incentives that may be available to an expanding business.
As competition to become the next high-technology frontier heats up, developers will certainly have an edge in negotiating the best package that benefits both them and the community.
Means the article is accessible only to our magazine subscribers.
