Key insights
- In the face of tariffs, many companies are considering onshoring operations.
- When expanding existing U.S. operations or establishing new U.S. operations, many states and local governments offer incentives to offset investment costs.
- Discussions with government officials must begin early in the process.
Explore government incentives for onshoring efforts.
Now that many companies are facing tariffs and higher production prices, a key consideration is onshoring operations, which typically involves relocating production done outside the United States to domestic facilities. This means budgeting for and executing on capital expenditures in land, machinery, equipment, increased headcount, and training.
With some advance planning and early conversations, many state and local laws allow for financial and other incentives to encourage investment in their region and to offset the expenses associated with domestic growth.
What state and local incentives are available for onshoring opportunities?
Statutory tax credits
Statutory tax credits are available to companies that meet a fixed set of criteria prescribed by law. Typically, state tax credits are applied at the entity level against their income tax and may be either carried forward if not fully utilized in the year generated or taken as a refund.
Negotiated incentives
Negotiated incentives include abatements against property tax, financing arrangements, utility tax abatements, assistance with providing roads and services to a site, in-kind grants, deal closing funds, employment credits, and assistance with identifying eligible workforce candidates and supporting training. These incentives can sometimes offset the cost of up to 30% or the project or more.
How to qualify for onshoring incentives
To make these benefits available to businesses, much of the enabling legislation contains a “but for” clause, meaning that “but for” the incentives award by the state or local government, the project would not be feasible in their geography.
Once an agreement has been signed with a landlord, a purchase has been made, an announcement made publicly, or ground has been broken in an area, the “but for” clause is voided and many incentives are no longer available. Hence the need to start identifying potential incentives early in the decision-making process to increase onshoring opportunities.
Additionally, businesses must review their commitments and covenants with governments regarding investment or hiring so they don’t expose themselves to clawback provisions, which would require them to return the benefits if the benchmarks are not reached.
How CLA can help with incentives for onshoring
Onshoring opportunities can bring incentives for companies, but the process can be complex and must start early. Work with a qualified tax professional to help understand the impact of locating in different states and localities, as well as the potential benefits that may apply.
If your business is considering onshoring, CLA’s tax team can help you explore available opportunities and prepare and support your business through the negotiation process.
Contact us
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