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Ample State Tax Incentives Entice Big Companies to Relocate

Jul 14th 2015
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State Tax Incentives Entice Big Companies to Relocate
Tesla Gigafactory, Sparks, Nevada
State Tax Incentives Entice Big Companies to Relocate

Other than vehicles, what do Mercedes-Benz USA, Hertz, and Tesla have in common? The three received lucrative state tax incentives that enticed them to relocate.

Mercedes moved its domestic headquarters from New Jersey to Georgia after the Peach State offered up a ripe, juicy $50 million incentive package. And the state's 6 percent corporate income tax is 3 percent less than New Jersey's.

Hertz left New Jersey for Florida, enticed by the state's 5.5 percent corporate income tax and $19 million in incentives from Lee County on the Gulf Coast.

And Nevada won Tesla and its new lithium-ion battery plant (pictured above) with a $1.3 billion package that includes a combined 30-year exemption on sales, property, and business taxes; and almost $200 million in tax credits over 20 years.

These three corporate giants are hardly exceptions. Nationwide, states increasingly lure corporations with assorted tax incentives, according to a new report by Bloomberg BNA.

Bloomberg BNA surveyed 100 corporate tax professionals, most of whom represent companies with at least 10,000 employees or more than $1 billion in revenues. Most of the respondents indicated the corporations had been offered economic incentives. Half of those that had developed or opened a new facility said that state corporate taxes influenced the site selection.

And it comes as no surprise that state corporate incomes taxes were the top concern, though property tax and tax credits – often included in incentive packages – also were considered. Payroll and unemployment insurance tax were less important.

So which states offer the best and worst deals? According to the survey, the most competitive states are Texas, Florida, and Nevada. The least so are California, New York, and Illinois. And it's the latter three, plus Texas, where companies lobby the most for tax policy changes, according to the survey. (That's a bit of a head-scratcher, though, because Texas has no corporate income tax.)

What's more, state politics are important, too. That's especially the case for companies that lobby in certain states, according to the survey. Almost half of those companies responded that state politics play a big role in their relocation decision.

Tax and accounting professionals working with these companies have their work is cut out for them. Beyond a state's corporate income tax rate, variables such as credits, apportionment factors and net operating loss rules must be considered, the report advises.

“Before committing to a relocation or development in another state, businesses have to model out the financial ramifications of different scenarios over the short and long term, and identify which incentives would be most valuable,” the survey report states.

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