A Look at EDGE Tax Credit Ramifications
The State of Indiana offers a number of incentives for companies who invest in Indiana and create jobs for its Indiana residents. Indiana’s Economic Development for a Growing Economy (EDGE) tax credit program is currently Indiana’s primary job creation incentive. Typically the EDGE Tax Credit Agreement is designed for companies to receive a certain dollar amount to be used for the purchase of property, plant, and equipment when moving or establishing their business in Indiana. The amounts granted to the company are in the form of a forgivable loan. Companies must meet a specific threshold of net new Indiana jobs and other terms in order to forgive the liability and earn the grant award. Accounting for the EDGE credit will differ for bookkeeping and tax purposes.
From a generally accepted accounting standards (GAAP) viewpoint, the grant monies received will be recorded as a liability when received, with the offset to cash. Only when the amounts are forgiven by the Northwest Indiana Regional Development Authority (RDA) is the liability reduced and income recognized. Costs incurred to acquire equipment or make leasehold improvements would be capitalized on the balance sheet and depreciated. Other costs would typically be expensed in the period incurred. GAAP requires certain financial statement presentation and note disclosure related to such benefits as well.
From a tax standpoint, proper planning is essential in order to determine the proper structure of the entity receiving the benefits, the allocation of recognized grant dollars to purchased property and equipment, and the depreciation methods to be utilized. Additionally, companies that relocate their operations to Indiana from another state may face apportionment issues for tax purposes. Developing a tax strategy early on can be critical to minimizing a company’s tax liability while still remaining compliant.
Proper accounting and tax treatment of Indiana’s EDGE credit is essential for reporting purposes and to ensure tax compliance in the most tax advantageous way. Selden Fox has the experience and expertise to advise companies on bookkeeping and tax compliance related to Indiana’s EDGE credit.