Tax incentives are a major part of economic development. However, they sometimes cause major controversies in the process. Massachusetts, along with Kentucky and Washington, have all been making news lately because of tax incentives. Each state showcases some of the questions that can arise when utilizing such programs to encourage business.
The first question states often ask is: are tax incentives worth it? Recently General Electric Co. announced that it is moving to Boston in exchange for a number of state and local tax incentives, as reported by Martha W. Kessler in Bloomberg BNA’s Jan. 14 Daily Tax Report. However, not everyone is convinced that tax incentive deals like the one GE received benefit the state, according to a Jan. 29 Boston Globe article. Even with all of the questions surrounding incentives, the article cites to an estimate claiming that all states combined spend $40 billion on incentives each year.
Clawbacks and recapture provisions, meant to ensure that businesses receiving incentives meet some minimum level of investment or job creation, raise questions surrounding fairness. If a business fails to meet the proper thresholds, the incentives they received may be recaptured by the state, either in whole or in part. Therefore, the state has an interest in making clawback provisions harsh to ensure business comply, while businesses argue that they deserve something for making substantial investments in the state, even if they do fall short of the state’s threshold.
This struggle is where we find Boeing Co. and Washington. In 2015, legislation was presented in the Washington House of Representative to create a clawback provision attached to Boeing’s $8.7 billion of incentives, as reported by Paul Shuvovsky in a Dec. 3 Daily Tax Report article. Although the bill was not enacted at that time, the clawback issue has been brought back during this year’s legislative session as House Bill 2638, according to a Jan. 19 article in The Everett Daily Herald. This bill will reduce Boeing’s incentives if the company’s employment in the state falls below certain thresholds, the article states.
Lastly, we come to possibly the most fundamental incentive question of all, who should receive them? One such question was answered in Ark Encounter LLC v. Parkinson, as reported by Bebe Raupe in Bloomberg BNA’s Jan. 29 Weekly State Tax Report. Touching on both tax incentives and religion, this case involves a 2014 grant issuing sales tax incentives to a Noah’s Ark themed tourist attraction in Kentucky. When the state learned that only workers maintaining specified religious beliefs would be hired for the project, it withdrew the incentives, the article states. In the end the taxpayer came out on top, as the court ruled that the state erred in its actions. Kentucky will not appeal the decision, according to a Jan. 26 ABC News article.
Even though tax incentives surrounding economic development are common, these instances show that they are anything but simple. As long as tax incentives continue to be utilized by the states, the debates surrounding them will continue to follow.
*Continue the discussion on Bloomberg BNA's State Tax Group on LinkedIn: Should states continue to utilize tax incentives to promote economic development?
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.
By: Jason Plotkin
Follow Jason on Twitter at: @jplotkinSALT
Follow BBNA on Twitter at: @BBNATax.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)