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Credits, Abatements, PILOTs, Subsidies, Incentives, Zoning, Exemptions – Staying Afloat

For taxpayers looking for some aid in ameliorating their property tax burden and their general cost of doing business, there is a word salad of possibilities, far broader than the acronym-creating list in the title above. These advantages are most often made available as a result of the jurisdiction’s attempting to draw new or specific commercial enterprises to their area, most often to increase the job force and/or renew a distressed area. There are broad brushes painting these acts, but for this high-level introduction, let’s talk about them from the lifespan angle first – how long they last. Most CAPSIZEs fit into some broad categories, and some examples of each are listed.

One-Night-Stands – There are many one-off deals which jurisdictions use to entice a new taxpayer to town. They are often the least beneficial (financially) to the owner, although in some places they are the only games in town. This style of CAPSIZEs include: zeroed-out sales tax on new construction and/or the acquisition of initial new equipment; workforce training grants; employee transit assistance (maybe longer than a one-off); and mortgage recording tax exemptions. You can see that these can offer significant funds for a new project. But you can also see that they are, for the most part, once-and-done, no-strings-attached arrangements. From the point of view of the folks who garner revenue from the tax base (which the arrival of these new businesses broadens), these one-night-stands are favorites. No drawn-out, negative effect on the tax revenue stream. Little hurt, decent gain. But the “Big Boys”, the giants of industry who can create a life-changing, positive consequence in a struggling economy, are not going to be drawn in by these piddling (from their desks’ views) offerings – they’ll demand more, or they’ll take their taxes and jobs elsewhere.

Friends-With-Benefits – CAPSIZEs in the mid-range, the FWBs, include those which provide results for the taxpayer over a few initial years. These include: funding, through the issuance of taxable/tax-exempt securities, for various parts of the acquisition and construction cycle; use tax exemptions on project-related (but later than initial construction) capital expenditures, FF&E, and the like; tax abatements for the period of development/construction (with caps); credit for employer-sponsored health insurance; a percentage back on investments in commercial vehicles located in certain parts of a jurisdiction; and recouping of partial costs for the rehabilitation of older/vacant building (usually capped in time and dollars).

Long-Term-Relationships/Marriages – Most LTRs and marriages in the US last an average of just over 8 years (sadly), so that timeframe will roughly delineate the CAPSIZEs that fit this grouping. This category includes: decade-long tax abatements on new or rehab construction; longer-still real property tax credits for building or rehabbing or adding jobs to an identified underperforming or distressed zone (e.g., EZ zones); abatements for bringing in particular activity types, such as R&D, software development, green tech, manufacturing, agriculture; decreased utility expenses; and tax credits/incentives for particular building types, including affordable and low-income housing, among many others. These are the mega-yachts, the private jets, the mansion “cottage” in the Hamptons levels of benefits.

But wait, there’s more! – The final category for today’s descriptions is the Forever Young and In Love set. Although these might not be the highest yielding benefits (e.g., reduced utility expenses, or occupancy taxes for hospitality assets), they can be great resources to expense planning for the taxpayer (e.g., PILOTs, payment-in-lieu-of-taxes, regularizing payments due the jurisdiction). And some in this set, though rare in a generally profit-driven commercial world, capture the motherlode of real property tax benefits: the tax exempt charitable organization that is not otherwise captured in a PILOT. The world of no property taxes, ad infinitum. Or until “infinitum” is re-regulated by law to a sunset date! Or a demand for a PILOT.

So…easy enough: you do some research, find a business-friendly jurisdiction with a menu of CAPSIZEs, and you pick the one(s) best for you and your company. Live your corporate life. And sometimes you can even renew your vows! Well, maybe.

Breakups and Divorce – There was a time when it seemed that we were following the New Orleans mantra: laissez le bon temps rouler (let the good times roll). We would always be growing, families would get bigger, more taxpayers would move into ever-expanding Levittowns, people would get forever, good-paying/great pensioned jobs; factories and office structures would seem to grow like weeds (and faster and higher), the Country would shoot for the moon (and get there). The party would never end. We could find ways to grow new businesses and expand old ones by competing (from jurisdiction to jurisdiction) using “come hither” looks and tax incentives – to make OUR neighborhood, city, region the best! But as the saying and song go: good things don’t last forever.

What changed? Well, that might fall into the discussion realm of greater philosophers than I (or at least better late-night debaters) – and certainly better economists. A casual observer, however, could hardly have missed the following, among many other trends: a growing division between the rich and the poor, and a battle deciding when and how to help those poor (and the sick and the very young and the aged); an ignoring for too long of the failing infrastructure of our Country, from roads and bridges and mass transit to waterways and electrical grids and schools; the movement of large portions of our manufacturing base to other locations outside the US (and the jobless those moves left behind). What resulted, in part, was a sea change in how we apply and utilize taxes. We became more reluctant to let our taxes be spent higgledy-piggledy. We held our wallets closer to our chests. We got older. We increasingly fought about money and taxes and…well, everything. And we began to notice when someone wasn’t paying their taxes, their fair share. With the definition of “fair” being argued almost as loudly.

It’s YOU, not ME! — And we began to pay attention to the folks in our area, usually folks who owned some of the larger commercial buildings in town. And we began to notice, then argue about, the fact that “they” were getting tax breaks we were not. And started to think that if “they” were paying property taxes at the same rate as WE were, “things” (somewhat undefined) would be a lot better around here! Nicer schools, less lead in the drinking water, fewer potholes, the lights wouldn’t go out every thunderstorm (and every time some tree hit a power line up near Niagara Falls or some terrorist hacked in). There would be jobs for everyone, good pay, a better nursing home for Mom, a cure for cancer, and world peace. OK, a bit of hyperbole – but you see where I’m heading, right?

Where once CAPSIZEs were seen as clever come-ons at a time when the world seemed to be EVERYONE’S oyster, now they seemed to be more a drain on resources…a problem. And now, in most jurisdictions, there are two very distinctly different schools-of-thought. On one side are the folks who still see the CAPSIZEs as important methods to consistently welcome new and expanding businesses to their hometown and tax base. They believe that the “missing” dollars that are the costs-over-time of the CAPSIZEs are both worth it, and equalized (and more) by the benefits of their creation. On the other side are folks who see the same CAPSIZEs as immediate and regular and too-long-term drains on tax revenues which are dwindling for a host of reasons and costs which are rising for an equally-growing host.

So what’s a company, searching for a new site, to do? Well, first: listen carefully and read a lot. Watch the trends. Do your due diligence. Is a jurisdiction shrinking its CAPSIZEs, sunsetting them, capping them by dollars or time? Or is it plotting a new tack, by broadening its panoply of options? Very deliberately welcoming in new businesses. Are they “business-friendly”? Work your research, your numbers. Be sure that you will be able to keep the promises you’ll make up-front in a possible relationship.

Then talk to the right people. If you begin discussions with the “wrong” people, or at too early or too late a time, you could easily be scorned or burned. Or you could just miss out on the best opportunity/ies. The processes are not simple, and you should consider asking for professional assistance to mitigate a miss or a mistake. Even in this short and non-technical narrative, you can see the wide array of real property CAPSIZEs – and some of the pitfalls thereto attached. There are also a great many income (and other) tax relief possibilities, some of which are interrelated with the CAPSIZEs above (and others not listed). Lots of moving parts.

Mixing Some Metaphors — Realize this is NOT going to be a cakewalk. No relationship ever is. Make sure you know why you want to be in a particular area – and know how to articulate that specific (and PR) assurance in front of friends and foes. Shake hands often and with a smile, and learn that you will need to do a good deal of holding hands, as well. A rising tide lifts all boats (despite the CAPSIZE acronym), so make sure that that image is the gist of your message, your approach, your front-and-center. And check the weather. Listen to the old salts. Pardon the steal, but: they know a thing or two because they’ve seen a thing or two.

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Last updated on August 23rd, 2019 at 02:40 pm

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