A Taxing Situation

Nearly $40 million in potential tax credits have poured into downtown Springfield in the past two years. Developers at the Heer’s, Frisco and Sky Eleven buildings all jumped on the government credit train, but there’s more to tax credits than just rehabbing dilapidated buildings.

The Show-Me State currently offers more than 60 tax credits to businesses and individuals for an array of reasons. Individual credits include the adoption tax credit and children in crisis credit. Missouri offers business credits such as the charcoal producers tax credit, wine and grape production credit, processed wood energy credit and business modernization and technology credit. There also are more obscure breaks such as the dry fire hydrant credit, public safety officer surviving spouse credit and sporting contribution credit.

Josh Brock, a senior accountant with Abacus CPAs LLC, said unlike tax deductions and exemptions, which reduce the amount of taxable income, tax credits reduce the actual amount of tax owed.

“Tax credits are a dollar for dollar credit,” he said. “There’s been a lot of talk lately about development credits, but a lot of our clients work with tax credits every year. They are very popular, especially when it comes to charitable giving.”

Nonprofit organizations such as Springfield’s Child Advocacy Center utilize tax credits to leverage contributions from donors.

“In 2012, they were still ironing out the legislation, but we started to tell our donors about it and that summer we raised $200,000 in short order,” said Barbara Brown-Johnson, executive director of the center. “We can offer up to a 50 percent tax credit for their donation.”

State tax credit proponents say the tax break helps provide needed services to communities, while those who tout tax credit reform say Missouri’s seemingly ever-growing credit load is decreasing the state’s bottom line.

Obtaining tax credits
Experts says obtaining tax credits isn’t necessarily hard, but it isn’t necessarily easy either. Each credit has a distinct set of rules for compliance, but Brock said typically credits are offered for economic development or community services the government values or would like to see increase.

“It’s an incentive to do something you or your business might not have done otherwise,” he said.

Elliot, Robinson & Co. LLP Partner Tom Everett specializes in job tax credits geared toward manufacturers.

“It’s one of the first things I look for,” he said. “It’s 100 percent savings for something you are already doing.”

Everett said the CPA firm works with hundreds of clients within a 100-mile radius of Springfield, including Watson Metal Masters Inc. and Penmac Staffing Services Inc.

“The most used state credits I see are Missouri Works and the enhanced enterprise zone credit,” he said. “Despite their popularity, some business owners still don’t know about tax credits.”

Everett said many manufacturers with a large employee base qualify for some sort of tax credit, and combining state and federal programs can significantly beef up an employer’s bottom line. But companies must first navigate a sea of tax code.

“Most credits are designed because the government wants to incentivize businesses to do something they need,” he said. “If that was something a business was thinking of doing anyway, it only makes sense to work through it with your CPA and fill out the application.”

Fellow Elliot, Robinson & Co. partner Jake Sanders handles low-income housing and historical tax credits for the firm. Working with developer The Vecino Group on projects such as the Frisco building, he said these types of credits often have an added step in the process: a yearly audit.

“There is a need for low-income housing across the state and tax credits make it possible to offer those low rents,” he said. “Owners must undergo an annual audit to ensure they are sticking to the compliance rules of the credit. Falling out of compliance is called recapture, and money could be owed back at that point.”

While Sanders said each situation differs, typically credits he deals with pay 85 cents on the dollar.

Another way to obtain tax credits is through charitable donation. At the Child Advocacy Center, Brown-Johnson said the organization raised $500,000 in 2013 for a satellite center in West Plains by leveraging neighborhood assistance program tax credits through the Missouri Department of Economic Development. The nonprofit also utilizes the state’s Champion for Children credit, a benevolent credit named after Norma Champion, formerly known as the children in crisis tax credit.

“Last year, the state reauthorized the champions for children credit for three types of organizations: child advocacy centers, crisis nurseries and court appointed special advocates,” she said, adding the pool of $1 million was split among organizations statewide. “When someone is thinking of donating, we have these credits as a tool.”

In total, CAC raised $224,920 in 2013, utilizing just more than $112,000 of the $1 million Champion for Kids tax credit pool.

CASA of Southwest Missouri Development Director Beth Atchison said the nonprofit, which advocates for abused and neglected children, raised about $200,000 through tax credit sales in 2013. Andrea Vert, executive director of area crisis nursery Isabel’s House, said the organization raised about $300,000 in 2013.

“Tax credits are vital to our operation,” she said.

Help or hindrance?
Brown-Johnson said the public-private partnership helps everyone involved.

“The donor is getting a credit on their bottom line, we get the funding we need and the state saves by not having to allocate as much funding our way,” she said.

But not everybody believes tax credits are worth their weight. Following critical audits to tax credit programs such as historic preservation, low-income housing and brownfield remediation, many called for tax credit reform.

Missouri Auditor Tom Schweich found only 49 to 85 cents of each historic preservation credit dollar goes directly toward renovation expenses and only 42 cents of every tax-credit dollar issued actually goes toward the construction of low-income housing, according to Springfield Business Journal archives. In reviewing projects that received a brownfield remediation credit, audit staff found developers projected nearly 2,500 jobs would be created, but only 116 full-time and 332 part-time positions materialized.

Peeling back any potential political agenda, local CPAs say without tax credits many projects simply wouldn’t get done.

“If you cut off credits right now, the cash flow will stop right now,” Sanders said. “It may affect the bottom line in two or three years, but right now that sales tax and property tax stream is cut off. This is guaranteed money right now.

“It’s hard to find developers for some of these larger buildings. Springfield might be running out of historic buildings to rehab, but the rest of the state is littered with them. Without these credits, they continue to sit there and deteriorate.”