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January 30, 2019 | Posted in:

Pennsylvania Incentives for Manufacturers

The manufacturing industry in Pennsylvania is growing. According to the National Association of Manufacturers, the manufacturing industry in the State had a total output of $87.65 billion in 2017 compared to $79.62 billion in 2014. The State encourages manufacturing in many different ways, including tax credit incentives. One such incentive out there is the Manufacturing Tax Credit program, which is a credit against personal and corporate income tax.

In order to qualify for the credit, a business must demonstrate the following:

  • Create an increase in annual taxable payroll by at least $1 million through new full time jobs
  • Maintain the increase in payroll and full time jobs for a five year period
  • Maintain existing operations in Pennsylvania for at least five years
  • The business must be engaged in manufacturing

For purposes of this credit, manufacturing is defined as the mechanical, physical, or chemical transformation of materials, substances, or components into new tangible personal property for sale. Any manufacturing business that substantially increases its annual taxable payroll through new hires in a year may be able to obtain this credit. Note, however, that the new hires must be full time employees with an average wage at least equal to the county average wage where the job is located. Also, the new employees must be provided health benefits by the employer.

The tax credit must be applied for with the Pennsylvania Department of Revenue. The application will require documentation showing the increase in payroll and the creation of new jobs. If approved, the tax credit will be calculated as 5% of the increase in payroll expenses for the year. For example, if a company increases its payroll by $2 million and is approved by the State, it will receive a maximum tax credit of $100,000. The credit is not refundable, so if you have no income tax you will not be able to use it. However, any unused credit amount may carry forward up to three years or sold to a third party. If you purchase a manufacturing tax credit from someone, the carry forward doesn’t apply. It will have to be used in the year of purchase.

If you think you’re eligible for the tax credit, it’s important to submit an application to the State as soon as possible. Tax credits are allocated on a first come, first served basis and the tax credit program has a $4 million cap in any year. This means after the State approves the $4 million of tax credits it won’t issue any credits until the following year.

For a growing manufacturing company, this credit could help spur growth through tax savings. To learn more about how Alloy Silverstein can help you with this credit and other tax incentives, contact us here.

Author:

Associate Partner
 
Ren III provides tax, accounting, and advisory services to a broad range of clients, with a specialty for manufacturers, title insurance companies, and professional service providers.
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JB Financial Associates is now Alloy Silverstein.
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