The pomp and circumstance of a new economic development project is significant, but eventually it fades into a picture in a lobby display commemorating a ribbon cutting with the mayor or the first ceremonial shovel of dirt. What happens after all the excitement disappears?

A lot depends on what follows. U.S. companies do not claim 50 percent of all economic incentives offered due to noncompliance or lack of compliance reporting. Clients can leave many thousands of dollars on the table by not understanding how economic credits and incentives work and therefore not submitting the appropriate documentation to realize those benefits.

Compliance reporting and documentation are not nearly as exciting as the press release, jobs announcement or mayor’s visit. However, this critical piece of the economic incentives process is how companies ultimately receive the financial benefit they worked so hard to achieve in the first place.

Compliance reporting is different in every state and municipality. From training grants to tax abatements to payroll and income tax credits, the compliance reporting submitted by a company can make or break the incentive agreements that were established upfront.

Knowing what is required and completing documentation in a timely fashion maximize the company’s opportunity to receive its incentive reward. Alternatively, failure to file compliance reporting can lead to funding clawbacks and reduced or entirely negated incentive offers, which never bode well for future opportunities and growth.

Why is compliance reporting so critical?

Most economic credits and incentives are performance based, meaning the company pledged to add jobs to and/or investment in a community. In return for that future investment, the community offered incentives as an inducement to settle there. The company must then prove it accomplished its commitment through compliance reporting.

For example, an expanding company may be looking to add jobs and expand its current plant for additional equipment lines. If the company receives a job creation incentive, it must submit its payroll to the state economic development authorizing body by a certain time (often a month or two in advance of tax-filing deadlines) for approval to show it met the terms of the agreement. After that, the business must send an official tax form claiming any credit or reimbursement to the state’s taxation department to confirm that deduction.

Similarly, for new buildings and/or equipment, many states require companies to file personal property exemptions at the county level, which could also involve several county-level offices (assessor, auditor and/or treasurer). These filing deadlines are similar to, but can be different from, the state’s filing deadlines and will involve different reporting to each entity.

But what happens in a year like 2020, where so much uncertainty led to changes in future plans?

In most cases, communities are willing to work with companies through unforeseen changes or alterations in plans. Communities can extend or adjust the incentive schedule so the growing company can still realize the full benefit of its negotiated incentives.

Upfront and honest communication with the economic development decision-makers is key to seeing a positive outcome to these scenarios. Little or no communication can hamper the community’s ability to assist the company through difficult times. Having a trusted advisor to help navigate this process can provide tremendous value.

Compliance may be a time-consuming and less exciting step to earning value through incentives, but it is arguably the most important. Be sure to take a detailed approach, stay on top of paperwork and prioritize communication with the state and local government agencies offering the incentive. Also, loop in your CPA to be sure you explore all options.

With a proactive strategy, businesses can ensure they don’t miss out on this crucial tax-savings asset and its impact on their bottom line.