Incentives Watch: States Continue to Look at the Value of Credit Programs

We’ve all heard the truism, “one man’s trash is another man’s treasure,” but what does it really mean? Is this just a simple way of saying it is possible that what one person finds to be valueless another finds invaluable? Was the phrase meant to illustrate that everything is a matter of perspective? Regardless of the intention behind the phrase, states are discovering a new meaning.

Many of the tax credits and incentives that states use to lure business into their borders are being called to task. These incentives can be worth millions of dollars to taxpayers, while their effectiveness in generating business and creating revenue for the states is often questionable. So the question is this, are these incentives trash for the states and treasures for the businesses they are so desperately courting?

A small number of states already have measures in place to evaluate the effectiveness of their tax credits and incentives. Recently Oklahoma has joined the ranks of states measuring the value of their credits. This new Oklahoma statute has a two pronged approach, requiring new credits to have “measurable goals,” and requiring both new and existing incentives to be reviewed periodically.

Louisiana has also been taking a good hard look at their tax credits lately. From Governor Jindal’s proposal to make refundable credits nonrefundable, to a report looking at the economic impact of the state’s film and entertainment credits, credits have been a hot topic in the state. Furthermore, a group of bills recently passed the House placing restrictions on a number of credits, most notably the aforementioned film credit.

Even as Louisiana discusses the merits of its credits in the legislature, H.B. 646 is looming just off the horizon. Scheduled for a floor debate May 13, H.B. 646 recently came out of the House Appropriations Committee with unanimous support. This legislation, should it be enacted, would call for an annual fiscal forecast for a number of Louisiana’s credits, bringing the state closer to Oklahoma and other states that already require their tax incentives to be evaluated. 

Even beyond states thinking of jumping on the evaluation bandwagon, credits and their effectiveness are a near constant matter of discussion. So, for taxpayers looking to cash in on these credits, just know that in a few states they might not be long for this world. With the increased emphasis on incentive evaluation, states are looking to ensure that their incentive programs are a treasure for both taxpayers and themselves.

Continue the discussion on Bloomberg BNA's State Tax Group on LinkedIn: Should states place greater emphasis on their return on investment for tax incentives?

For more information about film 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.