Tax incentives and credits are usually statutory provisional rights with certain specific qualifying criteria designated for economic development of particular targeted businesses. Tax incentives are further classified as profit or cash flow incentives. Nontax incentives can vary according to the facts and circumstances of the economic impact of the project and overall economic vitality of the community. For our purposes we will highlight examination and analysis of tax incentives for true economic value. A brief description of each follows.
Multistate taxpayers determine income taxes by a process known as allocation and apportionment.
Allocation is the direct assignment of certain types of income, usually designated nonbusiness income, to a state on the basis of rules that vary according to the type of property that gave rise to the income. Apportionment is the assignment of a portion of multistate business income to a state by means of a formula based on such objective factors as sales, property, or payroll. Once taxable income has been properly classified, income taxes are computed using prescribed statutory rates. Franchise taxes are commonly calculated according to the amount of issued and outstanding capital stock, surplus, and undivided profits or actual investment in tangible property in a state. Sales and use taxes are imposed on the vendor, consumer, or both.