CBIZ Construction Breakfast Series - Tax Incentives & Avoiding Tax Controversy

1. Tax Incentives & Avoiding Tax Controversy
CONSTRUCTION BREAKFAST SERIES PT2

2. Today’s Speakers
Lynne Cobin
Supervising Senior Associate
Tax Incentives
Lynne is a Supervising Senior Associate for the Northeast
Region based in our Kansas City office. She helps
companies maximize tax incentives through state and local
programs. In addition to Kansas and Missouri, she
concentrates on the Northeast states, providing assistance
on the various programs offered at the state and local level.
Michael leads a team that focuses on complex issues in
state and local taxes in various industries, including
manufacturing, distribution, construction, transportation,
telecommunications, and software development. Michael is
responsible for managing and driving the success of multiple
engagements, saving clients of the firm significant money
through refunds, credits and restructurings. He focuses on
complex and/or specialized issues, develops and maintains
productive relationships with clients and develops strategies
that comply with the highest professional standards. Michael
joined the organization in January 2004.
Michael B. Moore
Managing Director
CBIZ MHM, LLC

3. Kansas & Missouri
Credits & Incentives
CBIZ MHM, LLC | TAX INCENTIVES

4. CBIZ MHM, LLC

5. Our Tax Incentives Team
• National practice
• Expertise in many states
 Team of 8 professionals devoted to
Tax Incentives
 Legislative watch
• Active projects in over 20 states

6. Evaluating Incentives Potential
Is your company considering:
• Acquiring new space, a new building,
or signing a new lease?
• Opening and/or building a new facility?
• Making significant capital investment?
• Increasing head count?
• Incorporating new technology?
“It’s never too early, but it’s often too late.”

7. Tax Incentive Target Markets
States typically target for-profit, business to business industries:
• Manufacturing
• Wholesale / Distribution
• Financial Services
• Engineering / Architecture
• IT
• Biomedical / Research
• Professional Services
• Headquarters (regardless of
industry, national HQ may
qualify)
• Businesses that generate
greater than 50% of their
revenue from out of state
• Businesses with state income
tax liability
Ineligible Industries typically include Non-Profits, Retail,
Religious and Government Organizations, and Casinos

8. Types of Incentives & Qualifying Criteria
• Cash
• Training grants
• Tax credits
• Retention of withholding
• Sales tax exemption
• Utility cost reduction
• Property tax abatement
• Forgivable loans / free land
 Job creation
 Higher than average wages
 Capital Investment increases
 Healthcare subsidized by company

9. What We Do For Our Clients
Phase One
• Meet with client to determine
overall growth initiatives
• Negotiate incentive packages with
state and local governments
• Help evaluate the offers
• File Notice(s) of Intent

10. What We Do For Our Clients
Phase Two
• Prepare and file all up-front paperwork and applications
 Tax credit document(s) preparation
 Withholding program application(s) preparation
 Training grant application(s) writing
• Provide Strategy: When to start collecting on the various
programs

11. What We Do For Our Clients
Phase Three
• Program Compliance:
 Prepare and file quarterly and annual reporting for all programs
 Training grant reimbursement reporting
• Program documentation to tax preparer
• Ensuring that you maximize your incentives

12. Job Creation Incentives by State – Missouri
Criteria for Missouri Programs
Category
Min #
Jobs in 2
Years
Avg Wage
Required
Min. Capital
Investment
Benefit
Zone Works 2 net new 80% of CAW $100,000 Retain 100% of WH
Rural Works 2 net new 90% of CAW $100,000 Retain 100% of WH
Statewide Works 10 net
new
90% of CAW n/a • Retain 100% of WH
• Max. Up to 9% of payroll
Mega 120 Works 100 net
new
120% of
CAW
n/a • 6% of payroll
• Max. Up to 9% of payroll
Mega 140 Works 100 net
new
140% of
CAW
n/a • 7% of payroll
• Max. Up to 9% of payroll
24 active projects

13. Job Creation Incentives by State – Kansas
Criteria for Kansas Programs
Category
Min #
Jobs in 2
Years
Wage
Required
Min. Capital
Investment
Benefit
Rural Counties 5 net new 100% of
CMW
n/a Retain up to 95% of WH
Metro Counties 10 net
new
100% of
CMW
n/a Retain up to 95% of WH
High Impact 100 net
new
100% of
CMW
n/a Retain up to 95% of WH
37 active projects

14. Additional Kansas Benefits
High Performance Incentive Program (HPIP) Benefits
• 10% state income tax credit for investment
• Sales tax exemption for purchase or lease of equipment and
tenant or building improvements
• Training tax credit – up to $50,000 per year
Kansas Job Creation Fund
• A discretionary grant through the Kansas Department of
Commerce for major economic development projects
CBIZ prepared 76 HPIP applications in 2016.

15. Training Grant General Guidelines
• What is a training
grant?
• Training grants for
new jobs
• Training grants for
existing jobs
• Types of expenses
that qualify
Missouri Training Grants Kansas Training Grants
Average
Award
$500 - $700/head
($15,000/project avg.)
$250-400/head
Wage
Threshold?
>/= County Average Wage >/= County Average Wage
Investment? Minimum 5 x request Preferred, but not required
Match
Required?
50% (but can be via trainee
wages)
0 - 50%
Term 12 months 12 months

16. Our Clients

17. Our Fees
Results Based
or
Hourly

18. Thank you!

19. State & Local Taxes
CBIZ MHM, LLC | SALT

20. State & Local Taxes
• Revisit Unemployment Insurance Taxes
• Implications of Exemption Certificates
• Local Project Rates and Caps
• Taxable Services

21. Unemployment Insurance Taxes
Unemployment Insurance is a joint program financed
through employer payroll taxes at the federal and state
levels.
The Federal Unemployment Tax Act (FUTA) allows the IRS
to accumulate unemployment insurance taxes in order to
fund state level workforce agencies.
State Unemployment Tax Act (SUTA) is the state level
counterpart of FUTA which funds the benefits sent to
unemployed workers.

22. Employer Defined
There are two ways to determine if a company is subject to pay
Federal Unemployment Tax on wages of non household or agricultural
employees:
1. If wages of $1,500 or more were paid in a calendar quarter, or
2. If an employee was working at least part of a day in 20
different weeks of a calendar year
This definition also applies to State Unemployment Tax unless
otherwise defined by the state.

23. Multi-State Workers
Payroll departments generally place a worker in the state that the
employer is based. But tests of coverage assist in determining
which state is able to claim coverage of the multi-state worker.
Each question should be answered in the outlined sequence to
determine the proper state to report the multi-state worker. If the
answer to the question is no, then the next test should be
considered. Once a question is answered yes, then the jurisdiction
has been established and no further test is required.

24. Tests of Coverage
• Are the worker’s services localized in any state?
• Does the worker perform some service in the state
in which his or her base of operations is located?
• Does the worker perform any service in the state in
which the services are directed and controlled?
• Does the worker perform any services in the state
in which he or she lives?

25. Reciprocal Coverage Arrangement
If the four tests of coverage did not determine a state
where the worker is covered, then most states will
allow a reciprocal coverage arrangement.
The states that are not covered in this arrangement
are Connecticut, Kentucky, Mississippi and New York.
An employer will have to work with these states on an
individual basis to determine state of coverage.

26. Reciprocal Coverage Arrangement (cont.)
State laws allow the employer, the worker, and all states involved to
sign an agreement in order to cover the worker and his or her services.
Each state has different requirements for obtaining the coverage.
An employer can use the state that:
• Any part of service is being performed
• Worker’s state of residence
• Employer maintains a place of business

27. Services Performed Outside the US
State laws allow the employer, the worker, and all states involved to
sign an agreement in order to cover the worker and his or her services.
Each state has different requirements for obtaining the coverage.
An employer can use the state that:
• Any part of service is being performed
• Worker’s state of residence
• Employer maintains a place of business

28. Implications of Exemption Certificates
• Depending on the state, applicable when the service is
performed on property owned by an exempt person
such as a government, a religious or charitable entity, or
other tax exempt organization.
• The flow-through exemption generally only to materials
to be incorporated in the project when it is applicable
• Always consider procedural issues at the inception to
avoid unexpected taxation.

29. Flow-Through of Industry Exemption
Many states provide for exemptions to specific industries (e.g. manufacturing
equipment) when the entity makes the purchases direct from the vendor.
Many states have unique scenarios:
• Missouri – exemption flows through contractor
• Kansas – exemption flows through contractor
• Iowa – contractor is considered “reseller” and utilizes resale certificate on
purchase
• Nebraska – depends on contractor type

30. Flow Through of Entity Exemptions
Many states provide for exemptions to specific industries (e.g.
manufacturing equipment) when the entity makes the purchases direct
from the vendor.
Many states have unique scenarios:
• Missouri – exemption flows through contractor
• Kansas – exemption flows through contractor
• Iowa – contractor is considered “reseller” and utilizes resale certificate
on purchase
• Nebraska – depends on contractor type

31. Commonly Missed Exemption Implications – KS/MO
• Kansas generally does not accept Missouri exemption certificates.
• Missouri generally accepts Kansas exemption certificates so long as
the item purchased is exempt under an equivalent exemption in
Missouri.
• Kansas exempts, but Missouri does not, the rental of equipment
used by a contractor under a project exemption certificate.

32. Local Tax Cap - Arkansas
A purchaser that pays local sales or use tax in excess of the local
tax due on the first $2,500 of gross receipts or gross proceeds
from the purchase of a travel trailer or from a "qualifying
purchase" in a single transaction may claim a rebate or refund of
the excess amount of local tax paid on each single transaction.
Rebate requests for qualifying business purchases made on or
after October 1, 2015, must be submitted no later than one year
from the date of the purchase or the date of payment of the tax to
the seller, whichever is later (six months previously).

33. Local Tax Cap - Tennessee
Local taxes go up to 2.75%. The max local tax that imposed on
any "single article" of tangible personal property depends on
adoption of the "local option base." If adopted, all city or county
taxes collected in the county may be applied at a rate not
exceeding 2.75% on the first $1,600 of any single item. If not
adopted, tax is limited to $5 if the combined local rates are 1% or
less, and $7.50 if the local rates are greater than 1%.

34. Rural Local Tax Rates
Expansions of communities often create construction projects
outside city limits. However, when the address is adjacent to that
city there is often confusion regarding the applicable tax rate for
deliveries to the job-site.
Since local rates can vary significantly depending on the
jurisdiction the “ship to” clarification on invoices may cause
significant liabilities or overpayments on large projects when not
accurately reflecting the actual project location

35. States in Which Contractor “Charges” Tax
These states currently tax construction services:
• Arizona
• Connecticut
• Hawaii
• Kansas
• Mississippi
• Nebraska (historically)
• Washington

36. States in Which Contractor “Charges” Tax
Although only a handful of states tax construction labor, almost
half tax installation and/or repair labor to tangible personal
property.
Recognize that combining these factors may taint the entire
transaction, significantly increasing the overall cost of taxes (e.g.
Texas).
Contract terms impact liability and flexibility.

37. General “Conclusion”?
If you are entering a new state for your activity we recommend
consulting our state and local tax specialists for a quick walk-
through of the types of activities you will be performing and how
those compare to that state’s taxing structure.
And if you are selected for an audit keep in mind that construction
activity is very difficult to test utilizing samples; our team has
worked on many audits that included flaws in the sample patterns
sufficient to settle well below pre-determined values.

38. Questions?
Betty Nelson-Ekey
Managing Director
Tax Incentives
Michael B. Moore
Managing Director
CBIZ MHM, LLC
816.945.5546
bnelson@cbiz.com
816.945.5648
mmoore@cbiz.com