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Key takeaways
Commercial-stage life sciences companies should generally focus on incentives connected to:
- Site selection and negotiated economic development packages
- Job creation and payroll
- Manufacturing and capital investment
- Sales and use tax exemptions
- Property tax relief
- Workforce recruitment and training
- Infrastructure and utility costs
- Continued research and product-development activity
Commercialization changes the incentive landscape for a life sciences company.
The organization may still conduct substantial research, but its most significant investments increasingly involve manufacturing capacity, supply-chain resilience, specialized talent, distribution, facilities and market expansion. A single project may include hundreds of employees, sophisticated production equipment, clean rooms, utilities, real estate and extensive workforce training.
At this stage, state and local incentives can become an important component of investment planning. Depending on the nature of the incentive, they may reduce project costs, while also affecting the long-term economics of a facility.
The greatest value is usually captured when incentives are evaluated before the company commits to a location or begins the project.
The appropriate mix will depend on the nature of the project. A biologics manufacturing facility, medical device operation, distribution center, and corporate headquarters may qualify for very different programs even when operated by the same company.
Treat incentives as part of the investment model
Incentives should not replace fundamental business considerations such as availability of qualified workforce, access to suppliers, logistics, regulatory requirements (including tax regime) and proximity to customers. They should, however, be included in a project’s comparative financial analysis.
A well-structured review may evaluate:
- Upfront cash grants
- Income, franchise or payroll tax credits
- Sales and use tax rebates or exemptions
- Property tax abatements
- Training reimbursements
- Infrastructure support
- Utility incentives
- Financing assistance
- Permitting and development support
The benefit should be modeled over the expected life of the project. A large announced award may be less valuable than it appears if it is paid over many years, requires aggressive hiring commitments or depends on tax liabilities the company may not generate in the relevant state.
Conversely, a sales tax exemption or property tax abatement may not receive the same publicity as a cash grant but could create substantial and predictable savings.
Prioritize manufacturing exemptions
Commercial-stage projects are frequently capital-intensive. Equipment for biologics, pharmaceuticals, medical devices, diagnostics, and other life sciences operations can represent a significant portion of project cost.
Many states provide full or partial sales and use tax exemptions for qualifying manufacturing machinery and equipment.
Some potentially eligible purchases
- Production equipment
- Clean-room systems
- Quality-control equipment
- Packaging machinery
- Computers and process-control systems
- Repair and replacement parts
- Utilities consumed in production
- Equipment used in pilot or pre-commercial manufacturing
The boundary between research, pilot production, commercial manufacturing and general business activity can be difficult to apply. Companies should review equipment lists and process flows in detail rather than assuming that every purchase within a manufacturing facility is exempt.
Purchasing systems are equally important. An exemption that is technically available may not produce its intended benefit when procurement teams lack the appropriate certificates or vendors charge tax by default.
For large projects, companies should establish taxability rules before purchase orders are issued and create a process for reviewing invoices during construction and equipment installation.
