SALT TALK BLOG

The classic tax incentive debate – whether tax breaks for large corporations actually benefit a state – is in the spotlight again.   Boeing recently disclosed a total tax savings of $522 million ($305 million in 2015 and $217 million in 2014) from Washington’s aerospace tax incentive program, reports The Seattle Times.

Boeing highlights that it invested $13 billion locally in 2015 which includes, but is not limited to, spending on wages and salaries, capital investments, community contributions and employee continuing-education tuition, in its’ April 29^th Press Release.  Additionally noted, is that within these billions invested in-state, there “are hundreds of millions of dollars in taxes paid to the state and local governments in Washington.”

The press release does not capture the whole picture.  Boeing’s aerospace tax incentive package was passed in late 2013 to bring the building of 777X work into the state.  The incentive package did not impose job or employment requirements to maintain the credit, reported Rishi Agrawal of Bloomberg BNA.  Since the implementation of the aerospace tax package, Boeing cut 5,600 jobs, reports The Seattle Times.  Upon news that Boeing might eliminate up to 4,000 more jobs this year, Governor Inslee expressed interest in revisiting the incentive package in the 2017 legislative session and incorporating a job requirement. 

On the other hand, in Oklahoma, Boeing incentives created 500 new employees in 2015 and are expected to add 600 more in 2016, reports The Oklahoman.  Boeing’s incentives under the Oklahoma 21^st Century Qualify Jobs program is valued at over $90 million over ten years.

Nevertheless, tying job creation to incentives does not ensure success.  In Louisiana, German Pellets received a $75 million tax benefit in 2013 under a state job creation program. This was not enough to save the company from filing for bankruptcy this past February, reports Bloomberg Business.

Over the past two years, states have been giving out fewer tax incentives or reducing amounts, reports Bloomberg Business.  Although it is hard to say why tax incentives declined, it is reported that tax incentives have grown more political and controversial.  New disclosure rules from the Governmental Accounting Standards Board that take effect this year offers transparency and insight into the actual financial impact of government tax incentives.  It remains to be seen whether this will put a stop to the debate.

Continue the discussion on Bloomberg BNA's State Tax Group on LinkedIn: What requirements, if any, should an ideal incentive program impose?

For more information about tax credits, check out Bloomberg BNA’s Credits and Incentives Portfolios by signing up for a free trial of the Bloomberg BNA Premier State Tax Library today.