Knowledge Center

Monday, March 02, 2015

The Transferability and Monetization of State Tax Credits

Journal of Multistate Taxation and Incentives, Volume 25, Number 1, March/April 2015

By Jennifer A. Zimmerman


The transferability of state tax credits enables a company or corporation with a low tax burden to utilize part of the credit and to sell the remainder of the credit to a company facing a larger tax liability.

The transferability and monetization of state tax credits is a relatively new concept. State tax credits evolved from two federal tax credit programs created in the 1980s. States utilize tax credits in order to promote or encourage investments in economic development and increasingly to prevent existing jobs and businesses from moving out-of-state. Tax credits offer a "dollar-for-dollar reduction" of a taxpayer's tax liability.

The problem encountered early on in the promotion of these credits was what to do if the credit cannot be fully utilized by the taxpayer. Sale, or transferability, of tax credits was one possible solution. While on the federal level there is a large pool of potential tax credit buyers, this is not necessarily true on the state level...

The full article is available to download and read.

JENNIFER A. ZIMMERMAN is a lawyer with Horwood Marcus & Berk Chartered in Chicago, Illinois, and concentrates her practice in state and local tax planning and the resolution of state and local tax controversies for multi-state and multi-national corporations. She thanks Megan E. Toal, a law clerk in her third year at Loyola University Chicago School of Law, for her assistance with this article.

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