By Paul DiNardo, CPA

Behind the scenes, the Hampton Roads Economic Development Alliance (HREDA) works to market Hampton Roads worldwide as the region of choice for business investment and expansion.

HREDA serves as the region’s lead economic development and marketing organization for promoting and recruiting new business to locations in Hampton Roads. Their efforts are paying off.

Over the past few years, Hampton Roads has been the beneficiary of international manufacturers establishing a U.S. domestic presence in Hampton Roads from countries as far away as the United Kingdom, China and Australia.

“It is estimated that 13,000 personnel exit the military each year in Hampton Roads, offering a renewable supply of skilled and disciplined labor.” says Darryl Gosnell, President and CEO of HREDA.

“Access to the labor pool makes our region unique. Hampton Roads has always had a very strong manufacturing base outside of shipbuilding for decades,” he says.

Sometimes the companies first open their doors with only a sales office and distribution center.

Eurus Blower, a manufacturer of positive displacement blowers, located from China in 2008. Cobham Composite Products located to Hampton Roads from the United Kingdom and provides composite products, including aircraft engine components, unmanned aerial vehicle components, and munitions for the civil and defense aerospace industries.

One of the primary draws to the Hampton Roads region was the large base of defense-related industry. “Geography is also very important” says Gosnell.

“We are located in the middle of the east coast with highway and rail access. Our world-class port which links us to the rest of the world is another major asset.”

Hampton Roads currently is home to more than 300 manufacturing companies and 2010 was another active year for the region. HREDA hosted 13 manufacturers visiting the region, seven of which were looking to establish operations from abroad.

“When an expansion or relocation project is identified, HREDA will act as a consultant and facilitator, helping the company investigate our region in a time efficient manner,” says Gosnell. “We’ll provide research, identify available sites and buildings and make introductions to state and local economic development personnel as well as to existing businesses in the region that can assist them.”

Virginia is consistently rated as one of the best states in the country in which to conduct business.

This pro-business climate manifests itself in a whole host of incentives and services to assist business growth and reduce the costs of opening or expanding a business facility with Virginia. Incentives include financial assistance, infrastructure development grants, tax credits and exemptions, customized training and technical support programs.

Tax Benefits for Manufacturers in Hampton Roads
One of the most valuable but often overlooked benefits of a manufacturer operating in Virginia is the lack of a “throwback” rule when determining state taxable income.

If a manufacturer operates only in Virginia, then Virginia taxes 100 percent of the income. But what if a manufacturer operates in more than one state? The taxable income generated is typically shared, or “apportioned,” between the states in which the manufacturer operates based on a formula of sales, payroll and property deployed.

If structured properly, under Virginia’s apportionment rules, a multistate manufacturer could be in a position to apportion sales to states in which they are not required to file an income tax return, effectively apportioning sales to nowhere and escaping taxation!

For the more environmentally conscious manufacturers, there is a green job creation tax credit that can be taken for up for five years. A “green job” means employment in industries relating to the field of renewable, alternative energies, including manufacture and operation of products used to generate electricity and other forms of energy from alternative sources that include hydrogen and fuel cell technology, landfill gas, geothermal heating systems, solar heating systems, hydropower systems, wind systems, and biomass and biofuel systems.

Virginia manufacturers will be eligible to receive an income tax credit equal to 30 percent of all expenditures made for eligible worker retraining.

Eligible worker retraining includes courses at Virginia community colleges and private schools or retraining programs through approved apprenticeship agreements.

The rate of Virginia’s sales tax is 5 percent and among the lowest in the nation.

Manufacturers’ purchases used directly in production, including machinery, tools, spare parts, industrial fuels and raw materials are exempt from sale and use tax. A partial list of other exemptions is as follows:

• Certified pollution control equipment and facilities
• Custom computer software
• Purchases used directly and exclusively in research and development (federal tax credits abound here as well!)
• Semiconductor clean rooms and other tangible personal property used primarily in a semiconductor product.

The New Jobs Program targets expansions of existing companies or new facility locations which involve competition with other states or countries. There must be an increase of 25 net new jobs within 12 months and require a capital investment of as least $1 million.

The Small Business New Jobs Program supports existing Virginia companies which have 250 employees or less. There must be an increase of five net new jobs and requires at least $100,000 in new capital investment.

From time to time, manufacturers and distributors undergo an integration of new technology into their production processes, changing product lines in keeping with marketplace demands, or substantially changing service delivery processes, all of which require an assimilation of new skills and technical capabilities. The Retraining Program provides services and funding to manufacturing companies and distribution centers to assist in upgrading the skills of existing employees identified as essential to the production or distribution of a product.