State and Local Incentives

The State of Indiana has a variety of programs that are used to support attracting and retaining businesses in Indiana.  The predominant programs currently used are the EDGE Tax Credit Program, the Hoosier Business Investment Tax Credit Program and the Skills Enhancement Fund.  These programs, as well as the other Indiana state programs, are outlined below. Additionally, local governments may use tax abatement or tax increment financing (TIF) to help spur economic development or redevelopment.

State Tax Credit Programs

The Indiana Economic Development Corporation (IEDC) and the Indiana Department of Revenue administer multiple tax credit programs that are available to encourage businesses to invest in Indiana.  There are two primary tax credit programs which the IEDC utilizes for competitive expansion or attraction projects:

EDGE Tax Credit – Refundable Corporation Income Tax Program
The Economic Development for a Growing Economy (EDGE) Program was created by the Indiana General Assembly (see IC 6-3.1-13).  EDGE is an incentive for businesses that is calculated as a percentage (not to exceed 100%) of the expected increased tax withholdings generated from new jobs.  The EDGE credit certification is phased in annually for up to 10 years based on the outlined employment projections provided by the company at the time the incentive is committed.  Company recipients of the credit are required to report actual capital investment and individual employee information each calendar year during the term of the contract.

To be eligible, the project must result in a net number of new jobs that were not previously performed by the recipient’s employees.  IEDC will also require that the project be economically sound and beneficial to Indiana’s economy.  Companies must show that the receipt of the tax credit is a major factor in its decision to make the investment and create jobs in Indiana.

Program Advantage:  The tax credit is refundable.  A refundable tax credit results in money being distributed to a taxpayer even if there are no other taxes left to credit for the offset.  Essentially if the credit exceeds the taxpayer’s state income tax liability for the taxable year, the excess is refunded to the taxpayer.
For more information:  See:  EDGE Program Overview.

Hoosier Business Investment Tax Credit
The Hoosier Business Investment Tax Credit (HBITC) is created by the Indiana General Assembly (see IC 6-3.1-26).  HBIC is a credit calculated based upon a company’s qualified capital investment against the company’s state tax liability.  Eligible capital investment includes new machinery and building costs related to the project.
Like with EDGE, IEDC makes determinations about the HBITC award, and applicants must show an investment as well as an expansion of its Indiana workforce.  A company’s credit award may be up to ten percent of the qualified capital investment and may be carried forward for nine years.   IEDC makes the determination about the credit percentage awarded to a company as well as the carry-forward term based upon the project information provided by the company about investment and job creation projections.

The HBITC may be certified annually, based upon the phase-in of eligible capital investment, over a period of two full calendar years.

The HBITC program also requires IEDC to determine that the project is economically sound and is beneficial to Indiana’s economy.  Companies must show that the receipt of the tax credit is a major factor in its decision to make the investment and create jobs in Indiana.  However, HBITC also requires:
  • The new jobs created (excluding highly-compensated employees) are at least equal to 150% of the hourly minimum wage or its equivalent.
  • The company must maintain operations at the project location for at least ten years during the term of the HBITC.
Program Advantage:  The tax credit program may work better for large investments with smaller job commitments and can be used in conjunction with EDGE.  Although the HBITC is not refundable like EDGE, the program may be better for projects that have substantial investment in Indiana as a result of the expansion or attraction project.  Also, this program may be used in conjunction with EDGE if IEDC determines that such an award is appropriate for the project.

For more information:  See:  HBITC Program Overview.

Other IEDC Tax Credit Programs:
Although EDGE and HBITC are often used by IEDC, there are other tax credit programs that may benefit your company.

Industrial Recovery Tax Credit
The Industrial Recovery Tax Credit (IRTC) provides an incentive for companies to invest in older facilities.  The Program is created by the Indiana General Assembly under IC 6-3.1-11.  After the local municipality designates the building as an industrial recovery site, companies may be eligible for a tax credit calculated as a percentage of a qualified rehabilitation expense.

To be an eligible building, it must have been in existence for at least fifteen (15) years, have been at least 75% vacant for one or more years, and have at least 50,000 interior square feet.  A credit is applied by multiplying the new investment against a percentage, which is set out below:
  • If a plant was placed in service between 15 and 29 years ago, the applicable percentage is 15%;
  • If a plant was placed in service between 30 and 39 years ago, the applicable percentage is 20%; and
  • If a plant was placed in service at least 40 years ago, the applicable percentage is 25%.
The tax credit is not refundable, but the taxpayer may carry the credit forward to the next year.  The credit is applied in order against the following corporate tax liabilities:  (1) adjusted gross income tax; (2) insurance premiums tax; and (3) financial institutions tax. 

Program Advantage:  The IRTC is an incentive for companies to invest in older facilities, and typically these buildings are already priced competitively.  Additionally, the IRTC could be combined with other programs, like EDGE to make a very competitive project package.   The IRTC program helps make an investment in an older facility a “win” for the company and also a “win” for the municipality and the state.  While it often takes more work to restructure existing space to meet the needs of a new company, more and more companies are focusing upon completing projects quickly and affordably, and therefore, are often looking for existing facilities.

For more information, see:  IRTC Program Overview.

Headquarters Relocation Tax Credit
The Headquarters Relocation Tax Credit (Headquarters Credit) is available to a business when the business relocates its corporate headquarters to Indiana.  For purposes of the Headquarters Credit, a corporate headquarters is defined as the location of the principal office of the principal executives.  The Program was created by the Indiana General Assembly under IC 6-3.1-30.  Businesses having at least $100 million in worldwide annual revenue and at least 75 Indiana employees are eligible, and the Headquarters Credit is a credit against its state tax liability equal to half of the costs incurred to relocate the headquarters.

Program Advantage:  The Headquarters Credit offsets up to 50% of the business’ cost to relocate.  While relocation is certainly expensive, this credit can help make the decision to move a business easier – particularly when a business compares the long-term advantages of Indiana’s cost of doing business to its surrounding and other Midwest states.

For more information, see: Headquarters Credit Program Overview

Venture Capital Investment Tax Credit
The Venture Capital Investment Tax Credit (Venture Capital Credit) is available to an individual or a business that invests in early stage firms – that is qualified by IEDC as a “Qualified Indiana Business”.  The Program is designed to encourage investment in independently-owned and operated Indiana businesses.  The Program is created by the Indiana General Assembly under IC 6-3.1-24.  A taxpayer wishing to obtain a credit for investing in a qualified Indiana business must apply to the IEDC for certification that the proposed investment plan would qualify for a credit.

The maximum tax credit amount per business is the lesser of the total amount of investment capital provided to the qualified Indiana business in the calendar year, multiplied by 20% or $1 million.  Taxpayers may carry forward the amount that exceeds their tax liability.  After the taxpayer makes the investment, proof of investment must be filed with IEDC.  IEDC may not award more than $12.5 million of tax credits under the Venture Capital Credit program in any calendar year.

For more information, see:  Venture Capital Credit Program Overview.

Research and Development Tax Credit
The Research and Development Tax Credit (R&D Credit) is available to an individual, corporation, a limited liability company or partnership, a trust or a partnership with any state tax liability.  The R&D Credit provides an incentive for business investment in Indiana for qualified company research expenses, based on the increase in Indiana R&D over the prior three years.  The credit equals 15% of qualified research expenses on the first $1 million of investment.  The credit may be carried forward for 10 years, but there is no carry back and may not be refunded.

For more information, see:  R&D Credit Program.

State Tax Structure and Exemption Program
In Indiana, the state corporate income tax will be reduced from 8.5% to 6.5%, phased in by one-half percent reduction over a four year period beginning on July 1, 2012 until it is fully-phased in July 1, 2015.  Additionally, Indiana has no gross receipts tax or inventory tax. 

The Indiana Economic Development Corporation (IEDC) also administers tax exemption programs for businesses that invest in Indiana.  The most active tax exemption program is the Patent Income Tax Exemption program. 

Patent Income Tax Exemption Program
Indiana offers a Patent Income Tax Exemption (Patent Exemption) for taxpayers that are companies with 500 or fewer employees on certain income derived from qualified utility and plant patents.  The exemption is fifty percent of the patent income for a five year period, and then the percentage decreases over the next five year period, ending at ten percent in the tenth year.  The total exemption that can be claimed by a taxpayer is capped at $5 million per year.

State Grant Programs

Skills Enhancement Fund
The Skills Enhancement Fund provides financial assistance for workforce training to manufacturing companies, distribution/logistics providers and headquarters and other businesses that demonstrate a significant portion of their local revenue stems from transactions that are committed to training their workforce.

For more information, see:  Skills Enhancement Fund.
 
Industrial Development Grant Fund
The Indiana Economic Development Corporation provides grants for infrastructure improvements to local units of government, economic development commissions, not-for-profit corporations and other entities established under state statute.  Projects include construction, extension and completion of sanitary sewer lines, storm sewers, drainage facilities, water improvements, roads and street improvements, sidewalks, rail spur and sidings, information and technology infrastructure and preparation of surveys, plans and specifications for the construction of publicly owned and operated facilities, utilities and services.  Typically the grant does not exceed 50% of project costs.

For more information, see:  Industrial Development Grant Fund.

Local Tax Incentive Opportunities

Tax Increment Financing (TIF)
Tax increment financing is allowed under Indiana statute at the option of local units of government.  The General Assembly authorized TIF under enabling legislation in IC 36-7-14 and IC 36-7-25 to benefit areas in need of redevelopment and to encourage economic development and new investment.  TIF provides a means of financing projects by capturing property tax revenues to support economic development or redevelopment within an area in the unit of local government that has been identified by the unit for these purposes.  TIF may be used to finance infrastructure or capital improvements, which are in, serving or benefiting this identified area; however, certain statutes require the projects to be physically connected to the area.  TIF is generated by capturing the new assessed value associated with real property (typically excluding residential property) and certain depreciable personal property of a designated taxpayer (consisting of industrial, manufacturing, warehousing or similar projects).   TIF revenues may be used to repay debt, support pay-as-you go projects benefitting the area, reimburse local government for capital costs in the TIF area, pay for job training and may even be invested into a private facility if the unit of local government determines that the creation of jobs and capital investment serves a public purpose.

Each unit of local government must follow the proper procedures set forth under Indiana statute to establish an economic development area where TIF may be captured and dedicated to projects.  Units of local government may undertake joint economic development or redevelopment projects in contiguous areas and capture TIF (IC 36-7-25-4).

For more information, please see pertinent TIF and procedural statutes:  IC 36-7-14, IC 36-7-25, IC 36-7-11.9 and IC 36-7-12.

Tax Abatement
Tax abatement is one of the most commonly used tools in Indiana by local government to encourage private investment and job growth.  Tax abatement is an exemption for all or a portion of the new or increased assessed value from property taxes for a period not to exceed 10 years resulting from the capital improvement within the municipality.  Tax abatement may be granted for 1 to 10 years.  Typically, abatement was only offered consistent with abatement schedules set forth in IC 6-1.1-12.1-4.  However in 2011, the Indiana General Assembly authorized the use of alternative abatement schedules, based on real and personal property investment, full time jobs created, average wage of new employees compared to Indiana’s minimum wage and the infrastructure requirements for the taxpayer’s investment.  The alternative schedules must specify the percentage amount for each year of the deduction.

Tax abatement on equipment may only be offered for certain types of equipment.  New manufacturing equipment may be eligible if it is classified as qualified machinery and may be new or used as long as it is brought into Indiana from out of state (50 IAC 10-1-3).  Qualifying machinery and equipment” means tangible property used in the direct production, manufacture, fabrication, assembly, extraction, mining, processing, refining, or finishing of other tangible personal property (50 IAC 10-1-6).  Examples of personal property that may be considered qualifying machinery and equipment include, but are not limited to, the following:
  • Computer equipment, if used directly to control equipment directly used in the manufacturing process
  • Laboratory equipment, if used directly to test the tangible personal property being produced
  • Testing and inspection equipment, including quality control equipment, used to ensure the specifications or quality of the tangible personal property being produced, provided the equipment is used as part of the production process; and to test or inspect the tangible personal property being produced
  • Shelves, racks, or other temporary storage facilities or containers used to transport or convey work-in-progress
In order to qualify for abatement, the unit of local government must designate an area as and economic revitalization area which includes a finding that the area is “undesirable for, or impossible of, normal development and occupancy”. 

For more information, please see pertinent Tax Abatement statutes:  IC 6-1.1-12.1 and 50 IAC 10.
Related Links:
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