Incentives Watch: Attorney Offers Brighter Perspective on State Tax Credits

State tax incentives have taken a beating lately in the mainstream media, but they continue to be an important tool for revitalizing the economy, said Scott M. Susko, an attorney with McDermott Will & Emery LLP in a recent editorial in CFO magazine.

The opinion piece comes after the effectiveness of job incentives was the focus of a major series published recently by The New York Times. The article examined General Motors Corp., which is the beneficiary of perhaps some of the most sour jobs incentive deals from state and local governments. To learn more about the article, check out this blog post.

But Susko contends that states are redesigning their incentive programs in order “to balance the quest for good jobs with the need to conserve precious revenue, all the while avoiding the appearance of picking favorites.”

Despite the criticism, there are some important features of state tax credit programs designed to hold the private sector beneficiaries accountable, Susko notes. For example, many tax credits have recapture or clawback provisions that require the business to return the credit if various requirements are not met, such as the creation of a certain number of jobs.

A case in point is the Promoting Employment Across Pennsylvania (PEP) incentive that is available to certain companies that create at least 250 new jobs in Pennsylvania, according to a Bloomberg BNA Weekly State Tax Reportarticle. If the company does not meet certain requirements, then the incentive is subject to recapture. The PEP incentive may also be recaptured if the company relocates within three to five years after the last year the company received PEP incentive benefits.

Susko also points to reforms made by states, such as Massachusetts and New York, to make their incentive programs more equitable and transparent. Perhaps these and other reforms will make state incentive programs a less attractive target for investigative journalism.

For more information about state tax incentives, take a look at Bloomberg BNA’s State Tax Portfolios and Green Incentives Navigator.

In other developments . . .

Michigan enacted legislation amending its assignment provisions for the historic preservation tax credit, according to a Weekly State Tax Reportarticle written by Bloomberg BNA State Tax Law Editor Rebecca Helmes.

By: Kathleen Caggiano

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