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Tax Considerations for Opening a New Location

by | Aug 16, 2023 | Small Business, Taxes | 0 comments

Opening an additional location for a business is a significant choice that can have long-term consequences for your company. Finance executives have a critical role in making the best choice, particularly in terms of cost.

Work with Human Resources

Firstly, the HR and finance teams ought to work together closely before, during, and after the launch of a new site. HR should have a good sense of what the company requires in terms of interior space within the new facility (size requirements, what the building should look like and feel like, the number of employees who will be at the new location) and whether they need to transfer people from other facilities. This data can assist finance leaders define the scope of the project as they do study in various areas.

After you’ve established the new site, finance and tax must keep HR up to speed on the demands and compliance reporting associated with any agreed incentives, because HR is in charge of the data required to fulfill many of these obligations.

 Taxation Jurisdictions

State and municipal income tax rates are a significant consideration when comparing tax jurisdictions. Some locations, such as those that do not have an income tax, are more tax-friendly. However, ADP tax director Paul VanHuysen advises firms to analyze the big picture, including what the company would owe in property, employment, sales and use, franchise tax, and other non-income taxes.

It is also critical to analyze potential tax breaks in various sectors. “When you factor in the tax benefits for which the firm is eligible, a higher-rate area may be a more favorable deal,” VanHuysen says.

 Tax Benefits

There are two types of tax breaks: statutory and negotiated. Statutory incentives are often not unique to a firm’s company and are offered to eligible enterprises in a specified area. For example, a qualified firm that generates 50 jobs in a certain location may be qualified to receive a state or municipal job creation tax credit.

Negotiated tax incentives are more specific to the firm and suited to a specific circumstance. They are often aimed to drive development from your state or local government while you are evaluating where your business should relocate, even if you haven’t publicized the news or chosen a place yet.

According to VanHuysen, tax credits are not often the center of discussions. State and municipal governments may also provide nontax incentives like cash grants, salary subsidies, subsidized land, training grants, and utility reductions.

When looking for new positions, financial management and HR must be on the same page, especially when it comes to tax breaks.

 Do a Cost-Benefit Analysis

Tax research is necessary for your business since it is a key aspect of the choice. However, it is not the sole factor in a decision.

When researching a location, you should evaluate the prevailing pay rates, existing labor pool (particularly if you want specialized labor), local supplier network, infrastructure, and a variety of other considerations. When all factors are considered, a higher tax jurisdiction may be the superior option. However, in order to make an educated conclusion, your firm must first gather the necessary tax information in order to properly model the possibilities.

 Involve all Necessary Parties

“Picking a new location works best when you have all of the necessary parties at the table as early as possible in the review process,” explains VanHuysen. He suggests that officials from finance, tax, human resources, real estate, and government relations convene to examine feasible alternatives. “If there’s one department that’s usually brought in late, it’s tax, and this can have significant financial consequences,” he adds. “For example, say government relations negotiates a fantastic tax credit package with a state government, only to learn later from the tax department that it will not help the organization because they have significant carryovers and won’t have much of a tax liability to offset in that jurisdiction.”

In this situation, it would be beneficial if government relations understood ahead of time that any talks would center on nontax incentives. Your firm may make a better informed decision by bringing in tax early.

You may help your new location succeed by following this advice.


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