R&D, energy, and hiring incentives are reshaping tax strategy—and some credits can even be sold for cash.
In the complex and often costly world of business taxation, a little-known strategy is gaining significant traction among savvy CFOs and investors: state tax credits. While federal incentives like the R&D credit and Opportunity Zone benefits have long made headlines, a growing number of state programs are quietly offering powerful ways to slash tax liabilities—or even generate cash through transferable or sellable credits.
From California to New Jersey, states are competing aggressively to attract capital, talent, and innovation through targeted incentive programs. These credits reward companies for everything from hiring veterans to installing solar panels, and in many cases, they can reduce state tax bills to zero—or be sold on secondary markets when companies can't use the full benefit themselves.
R&D Credits: More Than Just a Federal Play
Nearly 40 states now offer their own R&D tax credits to stimulate innovation, with several allowing businesses to transfer or sell these credits to other taxpayers. According to the Congressional Research Service, an estimated $60 billion in R&D tax credits went unclaimed in 2019 alone, representing a massive opportunity for businesses that know how to access them.
States Offering R&D Credits: AZ, CA, CO, CT, FL, GA, ID, IL, IN, IA, KS, KY, LA, MA, MD, MN, MO, MT, NE, NJ, NM, NY, NC, ND, OH, OK, OR, PA, RI, SC, TN, TX, UT, VA, VT, WI
Transferable: Arizona, Connecticut, Pennsylvania, New Jersey
Non-transferable: California, Massachusetts, New York, Minnesota, Indiana
A report from the Virginia Joint Legislative Audit and Review Commission (JLARC) found that nine states (including Virginia) offer refundable R&D credits, while three offer transferable credits. Seven of these states restrict refundability or transferability to specific types of businesses, highlighting the varied approaches states take to make these credits accessible. Source
Energy Incentives Go Green—and Liquid
States are aggressively incentivizing green investment through tax credits that often complement federal programs like the Inflation Reduction Act. The U.S. Department of the Treasury recently announced $5 billion in New Markets Tax Credits, with recipient organizations expected to make nearly $1.2 billion in investments in non-metropolitan counties.
States Offering Energy Credits: AZ, CA, CO, CT, HI, IA, MA, MD, MN, MT, NC, NE, NJ, NM, NY, OH, OR, PA, RI, SC, TX, UT, VT, WA, WI
Transferable Energy Credits: New Mexico, North Carolina, Iowa
Non-transferable: California, New York, Massachusetts
According to the IRS, an energy tax credit can only be transferred or purchased in exchange for cash, and the transfer must take place before either party has filed their relevant tax return. Energy tax credits may only be transferred one time, making careful planning essential for businesses looking to monetize these assets. Source
Employment Credits: Hidden Gems in the Tax Code
While less glamorous than innovation or green energy incentives, employment credits often represent the most accessible tax benefits for businesses of all sizes. The Work Opportunity Tax Credit (WOTC) alone generated nearly 1.3 million certifications in 2023, according to the U.S. Department of Labor.
States Offering Employment/Hiring Credits: AL, AR, CA, CO, FL, GA, IL, IN, IA, KS, KY, LA, MD, MA, MI, MN, MO, MS, NC, NJ, NY, OH, OK, OR, PA, SC, TN, TX, VA, WA, WI
These credits are typically non-transferable but often offer refunds or carryforwards in some cases. According to DOL statistics, WOTC certifications have increased by over 40% since 2019, reflecting growing business awareness of these incentives. Source
Investment & Job Creation Credits
Designed to reward capital expenditures and job growth, these credits can be particularly valuable for businesses expanding operations or relocating.
States Offering Investment/Job Creation Credits: AL, AR, FL, GA, IN, KY, LA, MI, MS, MO, NC, OH, OK, SC, TN, TX, VA, WV
Transferable: Louisiana, Kentucky
Non-transferable: Georgia, South Carolina, Indiana, Tennessee
Historic Rehabilitation Credits
These credits help revitalize historic buildings and are available in 41 states, making them one of the most widely offered tax incentives. According to the National Trust for Historic Preservation, state historic tax credits have helped finance over 15,000 rehabilitation projects nationwide since 2000.
States Offering Historic Credits: AL, AR, CO, CT, DE, GA, ID, IL, IN, IA, KS, KY, LA, ME, MD, MA, MI, MN, MO, MT, NE, NJ, NM, NY, NC, ND, OH, OK, OR, PA, RI, SC, SD, TN, TX, UT, VT, VA, WA, WI, WV, WY
Transferable: Missouri, Virginia, Ohio, North Carolina
Non-transferable: Massachusetts, Maryland
“The top-performing state historic tax credits are also easily transferable to entities with state tax liability, which is fundamental to creating value for investors and project developers,” according to the State Historic Tax Credit Resource Guide published by the National Trust for Historic Preservation. Source
Film, TV & Media Production Credits
Highly liquid and actively traded, film tax credits represent one of the most dynamic segments of the state incentive market. According to the National Conference of State Legislatures, 44 states now offer significant movie production incentives, up from just five states in 2002.
States Offering Film/Media Credits: CA, CT, GA, HI, IL, KY, LA, MA, MD, MI, MN, MS, MO, MT, NJ, NM, NY, NC, OH, OR, PA, RI, SC, TN, TX, UT, VA, WA, WV, WI
Transferable: Georgia, Louisiana, New Mexico
Non-transferable or limited: California (limited), New York (complex)
Massachusetts alone issued $92.8 million in film tax credits in 2023, according to preliminary data from the state—the largest film industry subsidy in the state's history. Source
The Growing Marketplace for Tax Credits
One of the most significant developments in state tax planning is the emergence of a robust secondary market for transferable credits. According to the Tax Foundation, forty-four states now offer significant movie production incentives, and twenty-eight states offer film tax credits that can often be transferred or sold.
“State and local subsidies and narrow tax breaks for businesses are growing. These benefits—called incentives—include grants, loans, tax credits, and other financial assistance,” reports the Cato Institute in its analysis of state business subsidies. Source
Transferability: The Key to Unlocking Value
Approximately 30% of state tax credits are transferable, meaning they can be sold to other taxpayers who can use them to offset their own tax liabilities. This feature is particularly valuable for startups, non-profits, and companies with limited tax liability.
According to the Internal Revenue Service, “Eligible taxpayers may transfer all or a portion of an eligible credit generated from a single eligible credit property. They may also transfer portions of an eligible credit generated from a single eligible credit property to multiple unrelated parties in the same tax year.” This flexibility creates significant planning opportunities for businesses seeking to monetize tax credits. Source
The Bottom Line: Billions Left on the Table
Despite the growing availability and awareness of state tax credits, many go underutilized. According to data from the Congressional Research Service and other government sources, businesses leave billions in state credits unclaimed each year due to lack of awareness or complex compliance requirements.
“The smart money is no longer just focused on federal tax planning,” says Julio Gonzalez, a national tax advisor and founder of Engineered Tax Services. “High-net-worth investors, family offices, and corporations are now unlocking value in state credits—sometimes even turning them into cash through structured credit sales.”
A study by Princeton University economists estimates that state and local governments spend at least $30 billion a year on business tax incentives, with about a quarter of all business establishments potentially eligible for at least one incentive. This indicates enormous untapped potential for businesses that know where to look. Source
As more businesses look to offset tax liability and improve after-tax ROI, state tax credits are emerging as one of the most strategic tools in the modern financial playbook. With billions of dollars available across various incentive programs, savvy businesses are increasingly working to identify, claim, and monetize these valuable but often overlooked assets.
For businesses looking to maximize their tax position, the message is clear: state tax credits represent a significant and growing opportunity to reduce costs, increase cash flow, and gain a competitive advantage. The only question is whether your organization will claim its share of this multi-billion-dollar pie.
