Many States Offer Transferable Tax Credits From One Taxpayer to Another

Calendar Icon Updated January 15, 2019
Tax Credits

While tax credits are best known as a Federal government form of tax relief, more than 40 states also offer tax credits to ease family and business tax burdens as well.

Many of these are geared specifically to the local needs within a state to maintain business viability, relieve housing issues, or even assist in maintaining historic buildings. Both the amount and breadth of these tax credits varies greatly from state to state.

For example, in California, since 2009 the state has provided $100 million in tax credits to television and film productions in response to a slowdown of film and TV production in the state. While California is the most notable example in this area of business, nationwide states are providing $1.4 billion in tax subsidies and grants to lure prestigious productions to their locales.

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Due to the rapidly changing nature of business, in some instances, the owner of a tax credit will not need to use them to reduce their tax burden. This may apply to someone who already has a low tax bill, a nonprofit charity or a start-up business with no tax burden whatsoever.

The good news is that some states allow these tax credits to be transferred to another taxpayer who may be facing a higher tax burden, giving them the opportunity instead to reduce their state tax burden and increase their bottom line cash flow. Typically, tax credits for entertainment, real estate development and green energy projects are the ones that states make transferrable.

The types of tax credits that can be bought and sold vary from state to state. Buying and selling prices can range from 70 to 90 percent on the dollar for each tax credit purchases.

Because the number of states offering transferable tax credits continues to increase, a market has been created for tax credit brokers. These brokers assist companies in matching sellers with buyers, or in some instances, they will buy the tax credits themselves and then market them to other companies for a fee. 

The buying and selling of these credits can be highly complex, and as such, it is highly regulated that before a transaction takes place, both parties will understand the benefits and the consequences of the transaction. 

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Eligibility Team

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