Earlier this summer the Obama Administration discussed the possibility of restructuring corporate tax rates and efforts to boost the manufacturing sector. With Congressional gridlock, the prospects of getting anything passed into law any time soon are slim. States, however, are not waiting around for Washington to act. Several have already passed laws aiming to boost their local economies and other are considering their options.
From Florida to California, states are looking to accelerate efforts to create jobs by easing business taxes, offering tax credits or providing incentives for business expansion, particularly in manufacturing. Political control of state legislatures, Democratic or Republican, as well as states where control is split, is not an issue when it comes to stimulating economic growth.
In California, Democratic Governor Jerry Brown signed into law an economic development initiative that exempts manufacturing and biotechnology equipment from a 4.19 percent state sales tax for eight years. Brown also replaced his state’s enterprise zone tax credits with $750 million in tax credits for businesses located in communities with the 25 percent highest unemployment and poverty rate. The Governor said, “This legislation will help grow our economy and create good manufacturing jobs”.
The California Manufacturers and Technology Association projects that this initiative is worth over $7 billion in tax savings for manufacturers in the state. Of that figure, $4 billion will come from the sales tax exemption alone.
In Florida, where Republicans are in control, the 6 percent sales tax on manufacturing equipment and machinery was eliminated for three years. A proposal to drop the state’s corporate income tax completely failed but, in its place, the legislature raised the exemption on taxable income from $5,000 to $50,000 which has spared an estimated 12,000 businesses from that tax.
Florida Governor Rick Scott observed, “With no tax on manufacturing equipment, no personal income tax and our 15 seaports, manufacturers both outside Florida and those looking to expand in our state will look at the Sunshine State as a cost-effective place to invest and hire more Florida workers”.
In New York, where there is a politically split legislature, the governing body opted for a plan to attract new business investment in upstate areas hit by corporate office and plant closures in recent years. In Governor Andrew Cuomo’s “start-up NY” approach businesses would pay no corporate, sales or property taxes for 10 years if they locate on or near selected college campuses such as the State University of New York. Workers in those companies will pay no state income tax for the first five years. The concept is designed entice high tech and start-up companies to college communities.
To be eligible for the New York initiative a business must either be relocating from out of state, creating a new division, opening a new advanced manufacturing facility or a start-up. Participating companies must also demonstrate that it is creating new jobs.
According to Governor Cuomo, “These new tax-free communities will give New York an edge like never before when it comes to attracting businesses, start-ups and new investing”.
Waiting for federal government action is not something other states doing either. New Mexico cut its corporate tax rate from 7.6 percent to 5.9 percent and allows for a “single sales factor” that would reduce state taxes on in-state businesses that also operate in other states. Montana passed a law to reduce the property tax rate on business equipment to 1.5 percent on the first $10 million and 3 percent for equipment valued above $10 million. The first $250,000 would be tax exempt. Nevada adopted a measure that gives new companies coming to the state up to a 30 percent discount on energy rates for the first year, up to 20 percent off for years two and three and up to 10 percent in the fourth year. North Carolina is dropping its corporate tax rate to 6 percent starting in 2014, down from the current 6.9 percent, and then to 5 percent in 2015.
Critics charge that generous state incentive packages don’t always create the jobs they promise. The changing nature of business and manufacturing operations has resulted in a fundamental restructuring of work. With the pace of technological innovation it is no longer simple to project the number of new jobs that might be added when a company relocates or expands in a new location.
Richard J. Kinney: Dick Kinney has over 30 years corporate management experience. He has served as an advisor to business and state government on management and public policy issues.