Expanding to a New Location: Leveraging the Benefits of Freeport Exemptions

In light of the recent presidential election, president-elect Donald Trump has made a statement regarding the future of tariffs. He has expressed interest in increasing tariff rates up to 60% on items from China, and 10-20% on goods from other countries. For more information on these changes, please refer to Post Election: US Tariff Risks. If these changes are implemented, we can expect to see a shift in supply chains and pricing fluctuations. Rather than waiting to see how these decisions unfold, businesses can take proactive steps by opening their own warehouses in the U.S. to mitigate the impact of rising tariff costs. While taxes are unavoidable, there are strategic considerations to decide when selecting states for your future operations and minimizing your personal property taxes.

Freeport Exemption Benefits

Each state varies when it comes to their tax laws and regulations, so it’s important to consider the costs and benefits when deciding where to open your next location. One key factor to explore is the freeport exemption, which can provide a significant advantage by exempting your inventory from property taxes during tax season. Currently, there are 15 states that tax business inventory, but not all of them offer this exemption. For more information on specific states and their freeport exemptions, check out Freeport Tax Exemptions in TX, MS, and GA. Since each state handles this filing differently, it’s best to research which state’s filing requirements are the most straightforward for your business.

Inventory Tracking

With the upcoming shift in tariffs and the potential decision to open a warehouse, incorporating a strong inventory tracking system would be highly beneficial. Freeport exemptions can require an estimate of how much inventory is at your location, how much of that inventory was shipped within your warehouse state, and how much was shipped out of state. A reliable tracking system to streamline the flow of information when it’s time to file your property taxes is very valuable. It’s important to keep in mind that the inventory that remains within the state is subject to tax. Some states, like Oklahoma, require a month-by-month breakdown of inventory held at the site throughout the year. Please reference Reduce Your Inventory Taxes with Freeport Exemptions for additional details.

Advantageous States

Arkansas

Arkansas’ Freeport Law provides a tax exemption for finished inventories held by manufacturers within the state, which includes goods stored in warehouses and in transit. The law also covers goods passing through the state and temporarily stored in warehouses, docks, or other facilities. Both instances can have the exemption applied as long as the finished goods are ultimately headed to a destination outside of Arkansas.

A key feature of this law is that goods manufactured in Arkansas and stored in a warehouse before distribution outside the state are exempt from Arkansas property taxes.

Louisiana

Louisiana's Freeport Law exempts goods in public or private storage from property taxes, provided they remain in their original containers while in transit through the state to an out-of-state destination. This exemption also applies to imports from outside the U.S. However, it’s important to note that freeport exemptions may vary by parish.

Mississippi

Mississippi stands out as a business-friendly state with its Freeport Warehouse Exemption, which allows eligible warehouses to operate tax-free on personal property shipped out of state. Managed by local authorities, this exemption streamlines processes and reduces costs, requiring only a $10 annual licensing fee and simple inventory reporting. This program provides a competitive edge for businesses engaged in interstate commerce, making Mississippi an attractive location for warehouse operations.

West Virginia

The Freeport Amendment in West Virginia provides a property tax exemption in two key areas. First, it exempts manufactured products produced in the state and stored briefly before entering interstate commerce. Second, goods brought into the state for short-term storage in a warehouse and then shipped to destinations outside of West Virginia are also exempt from property tax. However, this exemption does not apply to raw materials or goods in process. To qualify for this exemption, businesses must be involved in manufacturing, information processing, warehousing, non-retail goods distribution, qualified research and development, corporate headquarters relocation, or destination-oriented recreation and tourism.

Property Tax

A logistics strategy response to the upcoming tariff change would be to move current inventory and assets into the US before inauguration day on January 20th as any items in the states by that point will avoid the high cost of tariffs. Keep in mind that anything that is imported by the end of the year will be subject to personal property taxes in 2025 when the assessment date arrives. For more information on assessment dates and when returns should be filed, please check out Personal Property Tax Filer’s Reference Materials.

Contributors: Brenda Morales and Megan Bryarly

How Can We Help?

Allyn’s tax team is staffed with seasoned tax professionals experienced in all aspects of Federal, multi-state and local tax compliance and consulting for large US and global corporations. We use that experience to your advantage.

Allyn files state and local property tax returns in every US taxing jurisdiction. Allyn obtains property tax data, analyzes it for proper classification, cost basis, and exemptions, and ensures timely and accurate property tax return filing and property tax bill payment processing.

We routinely conduct opportunity reviews in all US states for companies and advise clients with proactive measures to improve their tax compliance. Allyn can review your asset listing and returns, property tax bills, provide onsite property tax reviews, prepare and file returns and manage the payment of property taxes throughout the US. We can manage your tax compliance, create a solid tax process, and provide audit defense for your company.

Contact us and we can provide a customized cost-effective solution to meet your company’s needs. For further information on Allyn Tax services, please contact: tax@allynintl.com.

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References

https://arkansasassessment.com/wp-content/uploads/2024/05/2018-cpp-assessment-information-guide.pdf

https://www.dor.ms.gov/property/free-port-tax-exemption

https://www.shreveportla.gov/128/Law-Credit

https://westvirginia.gov/wv-incentives/