Tax Credits for Manufacturers: Incentivizing Capital Expenditures

Several states offer investment tax credits to encourage manufacturers to modernize and invest in their operations. These tax credits and incentives help reduce the financial burden of large capital investments, allowing manufacturers to modernize their operations, improve efficiency, and remain competitive in a global market.

Manufacturing organizations regularly require substantial machinery, equipment, and infrastructure investments to improve productivity and efficiency; however, these capital expenditures can be expensive, particularly for small and mid-sized manufacturers. Tax credits and incentives serve as an essential policy tool to:

• Encourage Investment: Tax credits make capital investments more financially feasible by offsetting new equipment costs.
• Promote Economic Growth: Investment in manufacturing creates jobs, increases production, and promotes economic development in local communities.
• Enhance Competitiveness: Modernizing facilities and upgrading technology helps manufacturers stay competitive in domestic and global markets.
• Support Job Retention and Creation: Many tax incentives come with employment requirements, compelling organizations to contribute to job growth while benefiting from tax relief.

This article focuses on three key programs:

1. New York State Investment Tax Credit (NYS ITC)
2. Massachusetts Investment Tax Credit (MA ITC)
3. New Jersey Manufacturing Equipment and Employment Credit (NJ ME&E Credit)

Each tax credit supports manufacturers by lowering their tax liabilities in exchange for investments in machinery, equipment, and other critical assets.

New York State Investment Tax Credit

General business corporations, individuals, a beneficiary or fiduciary of an estate or trust, a member of a partnership, or a shareholder of an S corporation may claim the NYS ITC. A business must be in New York State, purchase and place in service tangible personal property used in manufacturing, research, and development, or agricultural production with a useful life of four years or more to qualify for the credit.

The credit is calculated at 5% of the cost of the qualifying property, and organizations may claim it the year the property is placed in service. If the taxpayer cannot utilize the credit in the year it is earned, it may be carried forward for up to 15 years. Qualified new businesses may claim a refund. Additionally, businesses certified in the Excelsior Jobs Program enjoy a refundable credit worth 2% of qualified expenses.

Businesses claiming qualified research and development expenses may calculate the credit at 9% of the cost of qualified property. Research and development property is tangible property used for research and development in the experimental or laboratory sense – excluding property used for ordinary testing or inspection of materials or products for quality control, efficiency surveys, management studies, consumer surveys, advertising, promotions, or research related to literary, historical, or similar projects.

New York State Employment Incentive Credit (NYS EIC)

Businesses that qualify for the NYS ITC may also be eligible for the NYS EIC if they increase employment in the state. The EIC provides additional tax relief over two years after claiming the ITC. If employment increases by at least 1%, an additional 1.5% to 2.5% credit on the original ITC investment amount is available.

Massachusetts Investment Tax Credit (MA ITC)

Massachusetts offers an Investment Tax Credit calculated at 3% of the cost of qualified tangible property used in manufacturing, research and development, or agriculture. The MA ITC reduces the corporate excise tax liability, incentivizing capital investment within the state.

A corporation must be classified as a manufacturing corporation or an R&D organization under Massachusetts tax laws, invest in qualified tangible property, such as machinery and equipment, and confirm that the property is used exclusively in Massachusetts to qualify for the MA ITC.

If the credit exceeds the tax liability, businesses can carry forward unused credits for up to three years. Unlike the NYS ITC, the MA ITC is not refundable.

New Jersey Manufacturing Equipment & Employment Investment Tax Credit (NJ ME&E)

To qualify for the credit, New Jersey’s Manufacturing Equipment and Employment Investment Tax Credit is worth 2% of the cost of qualified equipment placed in service in the tax year, up to a maximum credit of $1 million. A business must purchase and place in service in New Jersey-qualified equipment, which is equipment acquired by the taxpayer for use directly and primarily in the production of tangible personal property by manufacturing, processing, assembling, or refining, and that has a useful life of at least four years.

Taxpayers qualifying for the NJ ME&E Tax Credit for qualified property are allowed an employment investment tax credit against their corporation business tax for the taxpayer’s employment increase in the two tax years following the investment. The employment investment tax credit is $1,000 multiplied by the increase in the average number of qualified employees.

The combination of investment and employment credits cannot exceed 50% of the taxpayer’s liability, and the liability cannot reduce the tax due below the statutory minimum. Unused credits can be carried forward for seven years.

Economic Sustainability for the Long-term

The NYS ITC/EIC, MA ITC, and New Jersey MW&E Credit are tools for encouraging business investment in their respective states. While they share common objectives — stimulating capital investment, supporting economic growth, and fostering job creation — they have unique eligibility requirements and benefits that cater to different business needs.

• New York’s ITC/EIC is one of the most robust programs, offering high credit percentages and incentives for job creation.
• Massachusetts’ ITC focuses on manufacturing and R&D but has a lower credit percentage.
• New Jersey’s M&E Credit directly targets manufacturing equipment investments, helping modernize production facilities.

These programs strengthen the regional economy, attract organizations, and promote long-term economic sustainability. If you are a manufacturer operating in these states and ready to maximize your tax benefits and investment potential, seek an advisor who can help tailor a specific plan to your organization. Contact us today to evaluate which credits are right for you and discuss how we can support you.