Location, location, location. Like families searching for a new home, businesses make location decisions based on what they believe will produce the best results in the long term. Supply chain maximization, market reach, revenue growth and proximity to a quality workforce all factor into business location decisions.
Therefore, when a business plans its next growth phase, even if that growth is in the current location, business owners (and their trusted advisors) need to consider the value of tax and other economic credits and incentives in the company’s growth projections.
Location is critical to the credits and incentives discussion because of one key question: “Who has jurisdiction?” To secure credits and incentives that utilize the tax tools available, companies must determine who has the authority to grant such tax benefits.
Questions about authority at the state level can be just as complex as those at the local level. Are state-level credits run through the Department of Commerce? Or are they championed through an economic development organization? At the local level, does the location of the proposed project fall within the jurisdiction of the town, city council or a county government body?
When considering a move or expansion, business owners often think of locations in vague or general terms, citing a major metropolitan area or a county in a state. While this is fine for daydreaming purposes, a trusted business advisor needs to know the exact location to explore the credits and incentives available.
Credits and incentives can vary wildly across the country. A metro area may share borders with several states, counties and municipalities, each having their own set of incentives. With an exact location, advisors can dig into the property tax rates for the area, the sales and use taxes required at various levels, and the minimum number of jobs required to qualify for a job growth program.
Consider a client scouting a new location in the Memphis area. Two sites are under review: one on the north side of the street and the other on the south side of the street, about a mile apart from each other. The site on the north side of the street is in the City of Memphis, Shelby County, State of Tennessee. The site on the south side of the street is in the City of Southaven, DeSoto County, State of Mississippi. The tax structures in each location are very different; therefore the programs and incentives available to the client are very different too.
Or consider a client evaluating a location one street north of another business that had gone through the local municipality for credits and incentives opportunities. However, the prospective location is just outside of the municipality, so it is eligible for credits and incentives through the county rather than the town. Two different authorizing bodies, two different applications and two different decision/benefit matrices!
Location determines how many layers might be tapped to determine the total value of credits and incentives. States may offer statutory programs for job creation or new investment, but local communities might offer significant property tax savings or training grant programs as well. Understanding who has the authority to offer these often-discretionary incentives is a first step in determining potential tax benefits, and the place to start a conversation with clients about economic credits and incentives.
This is the first of an occasional series of articles on the other pillars of economic credits and incentives.
