Manufacturing is a critical component of the U.S. economy.
In 2020, the sector directly contributed $2.2 trillion to the nation’s income, accounting for 10.8% of total GDP. If you include direct and indirect value-added activities (such as purchases from other industries), this rises to 24%.
Manufacturing is an equally critical employer. Indeed, current population survey statistics show that there are 15.7 million employees working in U.S. manufacturing roles–10% of the country’s entire working population.
It is no surprise, therefore, that the industry is at the cutting edge of innovation.
Within this active and pioneering landscape, many firms are embracing Industry 4.0 with open arms, recognizing it as the future of the sector and vital to unlocking competitive advantages.
Resultantly, it is an industry attracting significant private investment, and states are jostling in an attempt to get their slice of the pie, doing so by providing a range of different incentives, from tax credits to grants.
It’s easy to see the logic from the state perspective when looking at the economic spillover. Indeed, one paper estimates that the average automobile manufacturer receiving state subsidies promises to create 2,700 jobs and receives $290 million–more than $100,000 per role created.
Here, we’ll take a look at some of the U.S. states offering the most attractive incentives for manufacturers.
As the most populated state in the country, it is of little surprise that California is a hotbed of manufacturing innovation, having successfully drawn in large numbers of manufacturers through a series of initiatives.
Notably, California provides a dedicated incentive in the form of the Manufacturing and Research & Development Equipment Exemption. Available to all manufacturers and businesses engaged in research and development activities relating to biotechnology, physical sciences, engineering and life sciences, a partial exemption in state sales and use tax is provided, capped at $200 million a year.
The state also promotes green manufacturing practices through its CalRecycle programs that include grants and low interest loans for the development of critical infrastructure. Examples include manufacturing projects that proactively reduce landfill waste and minimize carbon footprints, with $11 million in grants having been provided in FY 2018-19.
This is alongside a range of general incentives that manufacturing firms can tap into. All qualifying companies may receive corporate tax income credits up to 24% of their basic research expenses, and 15% on R&D expenses.
Equally, the state offers discounted electricity rates to companies bringing new jobs and loads of at least 200kW annually. Typically, these discounts are between 12-30%, spanning a five-year period.
New York also offers a variety of dedicated incentives for manufacturers.
Through the Manufacturer’s Real Property Tax Credit initiative, qualifying firms can apply for a credit equal to 20% of the real property taxes paid on their business properties in each given tax year. Further, the state’s Investment Tax Credit (ITC) scheme provides 5% credit to those companies that placed qualified property into service during any given tax year, with new companies able to receive this as a refund instead of carrying it forward.
Beyond property, New York also runs the Excelsior jobs program that provides five refundable tax credits for up to 10 years. This includes a credit of up to 6.85% of wages per net new job and a credit valued at 2% of qualified investments, among others, with qualified green projects receiving even more favorable percentages.
There are also special benefits for those operating within the food and beverage industry specifically, namely through the Alcoholic Beverage Production Credit.
Those companies producing 60,000,000 or fewer gallons of beer or cider, 20,000,000 or fewer gallons of wine, or 800,000 or fewer gallons of liquor within a tax year may be eligible to receive a credit equal to 14 cents per gallon for the first 500,000 gallons produced in New York state, with 4.5 cents per gallon credits offered thereafter.
As the second-largest state, Texas has a buoyant manufacturing sector with plenty of commercial space available and a series of attractive incentives for businesses.
As the largest deal-closing fund of its kind, the Texas Enterprise Fund is one that particularly stands out, providing cash grants to companies considering new projects in an attempt to win out over other competing states. Indeed, it is critical in helping the state to secure new projects that stand to offer significant capital investment, employment opportunities and other benefits.
The Industrial Revenue Bonds scheme also benefits manufacturing firms more specifically, used to provide tax-exempt financing (of up to $10 million for $20 million-plus projects) for land and property to manufacturing and industrial developments.
This is a central draw alongside Chapter 313 within the Texas Economic Development Act. Specifically, Chapter 313 was instated to incentivize leaders of capital-intensive investment projects, such as large-scale manufacturing and research and development facilities, to select the state. Meanwhile, like California, Texas offers tax exemptions on utilities to manufacturing companies that manufacture, process, or fabricate tangible property.
Those companies operating in the advanced manufacturing sectors are deemed to be eligible for two different programs run in the state of Florida.
The first of these is the Capital Investment Tax Credit (CITC) that aims to bolster the state’s capital-intensive sectors. Here, an annual corporation tax credit is provided for 20 years for qualifying projects that invest $25 million and create at least 100 jobs.
The second is the High Impact Performance Incentive (HIPI) that instead provides grants to businesses operating in high-impact sectors, such as transportation equipment manufacturing. Eligible companies must make a cumulative investment of $50 million, with this money being used to create a minimum of 25 full time jobs in the region over three years.
Beyond these two flagship initiatives, the state also provides a series of other special incentives. The Rural Community Development Revolving Loan Fund and Rural Infrastructure Fund has been deployed to “meet the special needs that businesses encounter in rural counties,” for example. And the Brownfield Redevelopment Bonus Refund is used to “encourage Brownfield redevelopment and job creation,” with applicants receiving tax refunds of up to $2,500 for each job that they create.
Indiana is often touted as the beating heart of U.S. manufacturing. According to 2020 figures, the industry accounted for more than a quarter (27.84%) of the state’s total output, employing 17.07% of its working population, with more than 8,500 manufacturing firms operating in the Hoosier State.
Indeed, Indiana lays claim to the highest concentration of manufacturing jobs in the country, with 80% of the world’s RVs manufactured in the state.
To sustain such a position, Indiana offers a variety of tax incentives and economic development programs to stimulate the creation of jobs and investment locally.
Its Skills Enhancement Fund supports the training and upskilling required to make capital investment viable for businesses, typically reimbursing half of all eligible training costs over a two-year period.
Further, Indiana offers two tax incentives targeted at encouraging investments in research and development. These initiatives stand alongside its Patent Income Tax Exemption, Redevelopment Tax Credit, Venture Capital Investment Tax Credit, Headquarters Relocation Tax Credit, Hoosier Business Investment Tax Credit and Community Revitalization Enhance District Tax Credit.
Illinois offers a variety of competitive incentives, from tax credits to grant and loan programs, in the aim of attracting businesses of all kinds, including manufacturers.
The latter sector benefits specifically from the Manufacturing Machinery & Equipment Sales Tax Exemption that provides a 6.25% state tax exemption on consumables purchases made in relation to the manufacturing process.
Economic Development for a Growing Economy is a general initiative, acting as one of the state’s primary incentivization programs. Those firms investing $5 million and the creating 25-plus jobs can benefit from 10-year tax credits on their expanded payroll.
Similarly, the High Impact Business scheme is available, providing a sales tax exemption on manufacturing equipment purchases among other activities to those businesses making $12 million investments to create 500 full-time jobs, or $30 million to ensure the retention of 1,500 full-time jobs.
Illinois’ other primary incentive programs include its Tax Increment Financing policy and New Markets Tax Credits, among others, while the state also operates dedicated enterprise zones and the U.S. Empowerment Zone Program, each offering a cohort of benefits to companies.
The Economic Development Partnership of North Carolina offers a range of incentives spanning discretionary grants, building demolition and reuse, public infrastructure, transportation, workforce training and development and tax exemptions, among other programs.
Within this broad net, manufacturers can benefit directly from several dedicated tax exemptions.
The state offers a Machinery and Equipment, Sales and Use Tax Exemption for general manufacturing machinery, with an additional Raw Materials, Sales and Use Tax Exemption ensuring that component parts or ingredients of manufactured products are also exempt (this including those packaging items for wholesale and retail products delivered to end customers).
A third sales and use tax exemption can be found on electricity, fuel and natural gas when they are used in manufacturing operations, while the state’s Inventory, Property Tax Exclusion ensures that North Carolina and its local governments do not levy a property tax on inventories.
In Massachusetts, manufacturers are eligible for a variety of tax benefits. Be it exemptions on local personal property taxation, sales/use tax exemptions on properties purchased for manufacturing, or a 3% investment tax credit for newly purchased machinery and equipment, there are several reasons why the Bay State’s manufacturing industry is thriving.
Indeed, it is estimated that manufacturers account for 9.39% of the total output in the state that is home to 243,000 manufacturing employees (as of 2019).
Pharma and medicine is the largest sub-sector, driven by the Massachusetts Life Sciences Initiative that offers such companies a 10% credit on depreciable property as well as a special sales and construction sales tax exemptions. Equally, the Life Science Company Jobs Credit provides corporate income tax credits to those firms creating a minimum of 50 new employment opportunities.
Beyond life sciences, a greater variety of manufacturers may also tap into a two-category R&D tax credit, the first (10%) relating to qualified expenses, and the second (15%) relating to basic research payments.
The state also offers critical grants via two key programs–the Massachusetts Transition and Growth Program, as well as the Regional Economic Development Organization Grant Program.
The city of Mason, Ohio, lists advanced manufacturing as one of its targeted business sectors, providing a variety of incentives via REDI Cincinnati, CincyTech, TechOhio, VentureOhio and JobsOhio.
The latter of these agencies is responsible for the JobsOhio Economic Development Grant for projects requiring significant capital investment in the areas of manufacturing, R&D corporate headquarters, distribution and advanced technology.
JobsOhio also offers a Research & Development Center Grant to organizations with $10 million in annual turnover and a five-year operating history, as well as its Revitalization Program that offers funding of up to $1 million to those looking to redevelop the state’s underutilized sites.
Tax credits and exemptions are equally in abundance, some of the most notable including the Research & Development Investment Tax Credit, Job Creation Tax Credit and Sales Tax Exemption on machinery and equipment used in manufacturing processes.
Recent incentives offered by the state of saw Coca-Cola Bottling Company UNITED commit to a $42 million investment that will be used to expand its bottling facility in Baton Rouge–a project that will not only safeguard 550 jobs, but equally create an additional 15 with an average salary of $43,000.
The state is providing the firm with a competitive package that includes a $300,000 modernization grant, as well as support from LED FastStart–Louisiana’s workforce development program that delivers customized employee recruitment, screening, training development and training delivery at no cost. Further, the firm is also expected to utilize the state’s Quality Jobs Rebate and Industrial Tax Exemption Program.
The former offers up to a 6% rebate on annual payroll expenses for up to 10 years as well as a state sales/use tax rebate on capital expenses or 1.5% project facility expense rebate for qualifying expenses.
The latter, meanwhile, offers an attractive tax incentive in the form of an 80% property tax abatement for an initial term of five years for manufacturers who make a commitment to jobs and payroll in the state, with option to renew for an additional five.