You don’t have to be Amazon or Foxconn to get tax incentives and other benefits offered by state economic development corporations.
April 26, 2019
By A. Thomas Skallas, Partner, Taft Stettinius & Hollister
Two of the most closely watched business stories of the past few years—the state of Wisconsin’s attempts to court Taiwanese multinational electronics company Foxconn and New York City’s bid for Amazon’s new headquarters—shed light on just how far state and local governments are willing to go to bring new economic investment and jobs to their region. But the untold story about tax incentives is that you don’t have to be an enormous multinational corporation to seize them.
Middle-market companies and the jobs they create are a valuable, if under-discussed, source of growth for states and cities, and governments understand very well just what a crucial role companies of this size play in local and regional economies. State economic development corporations have developed incentive programs to harness this value. Tax incentives and other subsidies exist to lure companies to neighboring states and, depending on your location, you may not have to go far.
For example, Alliance Steel is moving from Bedford Park, IL, to Gary, IN, and will claim conditional tax credits and training grants from the state of Indiana. Wisconsin recently used tax credits to entice Seal-Rite Door from Rockford, IL, to Beloit, WI. In both cases, the companies are essentially moving from one far end of suburban Chicago to the other, crossing state lines but not uprooting or significantly changing their workforce.
As some states have gotten successful at poaching companies, others have been quick to develop counter offers, incentive packages aimed at getting their companies to stay put and keep their investment and jobs in the region. John Oliver’s Last Week Tonight recently produced a hilarious segment on the rivalry between economic development groups in Kansas City, Kansas, and Kansas City, Missouri, which has led companies to move employees and departments around to make the most of available incentives, sometimes moving back and forth across the Missouri River as needed.
While economists might question whether these incentives actually produce the economic development states are hoping for (very few genuinely new jobs appear to have been created in the Kansas Cities scenario), business owners would be foolish not to make the most of the tax advantages and training grants on offer. With the help of a trusted advocate who understands this complex legal landscape, owners can achieve the most advantageous structure for a deal with a state economic development corporation. Here are some important first steps when it comes to these incentive packages:
Be opportunistic. Companies who are happy where they are might be tempted to overlook these offers from state and local governments, but even if you don’t have an urgent reason to move, it doesn’t hurt to explore your options. What’s more, as noted above, your current state may be poised to offer an enticement to stay, so you could get paid not to make a change. Either way, you’ll never know unless you look into what’s available.
Know your value. Before negotiations begin, make a careful assessment of what your company brings to the table. Your value is more than just the number of people you employ and/or the number of people you might hire as you grow. How many suppliers in your region do you have contracts with, and how much business do those contracts generate for your partner companies? How many nearby local businesses do your employees support throughout the work day as well as coming to and from work? How would it impact your city or region if your company relocated? Having a clear picture of your overall value, and being able to paint a picture of what’s at stake, will help you negotiate from a place of strength.
Don’t go it alone. The benefits of these incentive packages may seem obvious, but the devil is in the details. Businesses must meet several requirements beyond just simple relocation to be fully eligible for the promised grants and credits. In some cases that will impact hiring decisions, commercial leases, supplier contracts, and more. Due diligence is essential to ensuring that all stakeholders are on the same page and are prepared to create a mutually beneficial arrangement.
State and local economic incentive programs offer middle-market companies a fantastic opportunity to assess their true value in the marketplace, consider a more advantageous location and collect sizable benefits for their bottom line. Find an attorney you trust to investigate your options and do what’s best for your business.
A. Thomas Skallas is a business and tax attorney who represents privately-held businesses and their owners through a wide range of services, enabling growth and expansion and navigating change across numerous industries.
Clients in all sectors seek Tom’s guidance when they are confronted with “impossible” business challenges. Tom doesn’t see problems or challenges like the rest. Instead, he is a creative and effective problem solver who thinks outside the box to get results. Tom represents privately-held businesses and their owners through a wide range of services, enabling growth and expansion and navigating change across numerous industries.
Tom brings his interdisciplinary and inventive approach to a wide range of issues, including shareholder and corporate governance disputes, contractual matters, international operations, banking, insurance, employee relations and asset-protection strategies. He assists business owners through the mergers and acquisitions process by drawing on his significant business and tax experience.
Beyond his role as a counselor to their businesses, Tom helps high-net-worth individuals achieve their estate and succession planning goals. While obtaining significant experience representing trustees and beneficiaries in probate and trust disputes, he has also developed strategies for tax minimization and asset protection. Tom begins with the “exit strategy” when working with family business owners, allowing clients to work backwards to plan for an eventual sale or transition the family business for future generations.
Tom currently serves as a board member for Republic Bank of Chicago, and he previously served as a board member of the Alzheimer’s Association and as vice chairman of the board at the National Hellenic Museum, an institution he was instrumental in founding. He has taught Taxation for Closely Held Businesses as an adjunct professor for the LL.M. Tax Program at The John Marshall Law School. In 2013, Tom was recognized by the Chicago Daily Law Bulletin as a “40 under 40” lawyer to watch.