State governments are always innovating on how best to attract new businesses (and jobs) to their states. Who wouldn’t want the next Tory Burch or Lisa Price hailing from their state? One tool that states can use to incentivize businesses launching and growing in a particular locality is tax credits.
Tax credits incentivize investment in small businesses by giving investors a credit they can deduct from their state tax bill. For example, if a state wants to encourage investment in women-owned small businesses and they implement a 30% small business investment tax credit, the woman-owned business gets an investment of $100, and the investor gets to subtract $30 from the taxes she owes the state. It’s a win-win! This is one way to reduce the cost of capital to small businesses and makes it easier for investors to invest.
Many states and cities have implemented innovative tax credits in order to create a supportive environment for small businesses. Let’s take a look:
From Philadelphia: Jump Start Philly – exempts qualifying business from paying the Business Income and Receipts Tax during the first two years of operations. Additionally, fees are waived for eligible new businesses for a variety of licenses and registrations, including the Commercial Activity License, the main license you need to operate in the city. The City of Philadelphia also offers eligible businesses that create jobs in Philadelphia, a credit of $25,000 per job created, or 2% of the annual wages paid.
From California: Small Business Loan Guarantee (SBLGP) – The California Small Business Loan Guarantee Program (SBLGP) assists businesses with the creation and retention of jobs while encouraging investment into low- to moderate-income communities. The SBLGP enables small businesses to not only obtain a loan it could not otherwise obtain but more importantly helps to establish a favorable credit history with a lender so the business may obtain loans in the future on its own without the assistance of the program
From New York: Research and Development (R&D) Tax Credit – Investments in R&D facilities are eligible for a 9% corporate tax credit. Additional credits are available to encourage the creation and expansion of emerging technology businesses, including a three-year job creation credit of $1,000 per employee and a capital credit for investments in emerging technologies.
From Massachusetts: Life Sciences Tax Incentive Program – Awarding up to $25 million in tax incentives each year, the Mass Life Sciences Center provides tax incentives to Massachusetts-based companies engaged in life sciences research and development, commercialization, and manufacturing.
From Oregon: Dependent Care Tax Credit is a state tax credit for dependent care assistance provided to employees. Oregon´s tax credit permits an employer to offset 50 percent of its child care expenditures against its state tax liability. The credit allows an annual limit of $2,500 per employee.
One federal tax credit: New Markets Tax Credit which attracts private businesses and development by offering tax credits worth 39% of the value of the investment in underserved communities, claimable over seven years. For example: Invest Detroit has received three NMTC allocations totaling $98 million, and has invested in various projects in Detroit.
Do women entrepreneurs benefit from tax incentives? What tax credits would be helpful to women entrepreneurs? What other examples are there – at the local, state, or federal level? The Council is interested in exploring these opportunities.