A war is being waged between states, counties, and even some cities with businesses coming out the big winners.

The weapons are tax breaks, which states have traditionally offered to lure new businesses and retain existing ones. Now, counties and municipalities are becoming more prominent players in the economic dating game.

Robust state and local economies are leading to the generous incentive packages. Last year alone, the state of California granted nearly $9 billion in corporate, sales and other tax exemptions in an effort to promote economic growth, according to the state controller's office.

That's more than the annual budget of many states.

However, nearly half of all businesses eligible for tax exemptions don't take advantage of them. The No. 1 reason cited by those firms is that they weren't aware such credits existed.

That's not too surprising when you consider there are now more than 100 business-related credits and incentives on the books in California, and lawmakers are adding new ones every year.

Business owners also say they don't pursue tax credits because they believe their company is too small to qualify, or that the paperwork is too cumbersome to make it worthwhile. Both of those assumptions are generally false and can cost companies millions of dollars in tax savings.

For example, a food processing company in Southern California recently invested a substantial amount of capital in new machinery and equipment but failed to apply for any tax credits. An analysis of the fixed-asset additions and possible amendment of prior California tax returns reflected potential cumulative tax savings of $52,000.

Another local business that manufactures solar paneling also failed to take credit for equipment placed into service during 1997. After a thorough assessment, the company was able to claim tax credits exceeding $700,000.

Most tax incentives offered by the state fall under the following categories:

- Tax profile. These are probably the most well-known credits and take into account corporate income and franchise taxes, apportionment and allocation of income, and property taxes.

- Targeted tax incentives. These include manufacturers' investment credits, research and development credits, net operating loss carryover, child-care credits, and enterprise zone considerations.

- Employee training. Covered here are such things as job-referral and placement programs, and employment training panels.

- Financing assistance. The state offers a variety of business financing opportunities, including industrial development bonds, pollution-control financing, environmental loans, community development block grants and infrastructure financing.

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