When Reshoring Manufacturing, Think Tax Breaks and Costs

After decades of offshoring jobs to foreign countries, American manufacturers have started bringing work back home.

Reshoring outpaced offshoring in the United States by 27,000 jobs in 2016, according to a report by nonprofit advocacy group Reshoring Initiative. Favorable stateside economic conditions and the lure of tax breaks should prompt companies to consider reshoring manufacturing operations.

While the grass might look greener in America, companies still need to plan wisely before planting themselves squarely on U.S. soil. From taxes and the labor pool to moving costs, there are many considerations to review before opening a manufacturing operation in this country.

The Tax Advantage

Chinese labor costs have increased while wages and energy costs in the United States have flattened, so it’s financially attractive once again to make products in America.

Manufacturers can take advantage of existing federal and state tax credits and incentives. States work particularly hard to lure new corporate and manufacturing facilities, which creates favorable economic conditions that are attractive to other companies and leads to an influx of new businesses.

Also, property tax abatements and economic development incentives help manufacturers offset the costs of moving, real estate and investments in equipment.

The state of New York offers up to a 5 percent investment tax credit for property put into service for business, while also providing a 20 percent credit on real property taxes to qualifying manufacturers.

South Carolina has a 20 percent credit against corporate income liability based on the cost of the portion of the facility dedicated to HQ operations or direct lease costs for the first five years of operation. Louisiana provides a rebate of up to 25 percent on facilities and relocation costs over five years.

Many tax breaks are negotiable with state and local economic development teams, but tax credits for creating jobs are set by law.

Georgia delivers a tax credit of as much as $4,000 per job for five years, while Florida pays grant funding to manufacturers that create 50 jobs in a three-year period and invest at least $50 million in the state.

For Your Consideration

The costs of reshoring manufacturing operations are daunting, almost reason enough to consider staying put. But tax breaks and the opportunity to reduce overhead will ultimately generate savings that are too good to ignore.

Before relocating, balance those savings against the following:

• Property acquisition and leasing;
• Purchasing new technology or shipping old technology; and
• Relocation of current employees or recruitment of new ones.

Cost savings are a significant incentive, but are rising wages overseas what dictated your move in the first place? If so, also compare labor costs and the availability of labor in several states.

Some states have an influx of skilled workers, while other areas have small pools of qualified laborers — and show no signs of producing workers soon. Unemployment insurance and workers’ compensation costs can also be untenable in some states.

The Big Move

Your company is better served by buying new equipment, especially if tax breaks can cut those investment costs. Review the outlay of costs for each manufacturing component and its related equipment, power requirements and hazard storage and containment areas.

Moving will disrupt business continuity, especially if you’re starting over with American workers. Plan for disruptions of all kinds, including workers who don’t immediately meet expectations and supply chain mix-ups.

Dissect every part of your business before moving forward. Run a cost analysis on every aspect of moving and starting your manufacturing all over in a new location. If your company wants to increase its bottom line on returning its operations to the United States, work with a CPA that has broad experience with tax credits and incentives

The grass may actually be greener on the other side — if you know where to look.