Credits and incentives for the aerospace and defense industry
Credits & Incentives talk with Deloitte
“Credits & Incentives talk with Deloitte,” is a monthly column by Kevin Potter of Deloitte Tax LLP, featured in the Journal of Multistate Taxation and Incentives, a Thomson Reuters publication. This column outlines some of the credits and incentives which may be available to aerospace and defense (A&D) companies including research and development (R&D) credits, employment incentives, and real estate and capital investment incentives.
While this column has often focused on a specific credit or incentive, this month's column provides an overview of the credits and incentives available to companies in the aerospace and defense industry sector.1 A&D companies, as a part of their regular business cycle, can avail themselves of both statutory as well as discretionary incentives associated with activities such as research and development, employee hiring and training, real estate and capital asset investment, and sustainability initiatives. In addition, the recent spike in mergers and acquisitions (as noted in Exhibit 1) potentially may create additional credit and incentive opportunities related to post-merger integration efforts.
Exhibit 1. Global aerospace and defense sector mergers and acquisitions activity (2008 to 2015)
Tax incentives tied to each of the business activities noted above are used by states (and localities) to encourage companies to relocate or expand in their jurisdiction with the goal of seeking an economic improvement to the local economy. A&D companies considering, or that have engaged recently in, mergers or acquisitions may be particularly viable candidates for such incentives, as a review of existing and future locations is a regular element of the post-merger integration process. It is also worth noting that, in certain instances, large scale A&D projects may be the catalyst for a state to enact company-specific incentive legislation.
1 The A&D industry sector or A&D companies refers to companies that manufacture or provide services for defense products, such as aircraft, watercraft, weaponry, and information systems, and companies manufacturing aircraft and spacecraft. Typically, the federal government is the largest purchaser of domestic A&D products and services.