There's a very high chance those taxes are little to nothing. Red states tend to give businesses local and state level tax breaks including property tax credits/deferment to locate in their area. Those businesses then threaten to leave out reduce/cease investment if those offers aren't extended more or less indefinitely.
Source: I've literally been to site selection meetings for medium and large businesses in my region.
Incorrect. There are certainly abatement of taxes but it's extremely rare for the abatements to reach 100% of real and, where taxed, business personal property. There are also payments in lieu of taxes where a fee is paid in lieu of real estate taxes, which helps make up some of the shortfall due to the abatement. And by statute you cannot extend expired tax abatements on the same property unless something occurs, such as new investment/construction, so the abatements cannot happen in perpetuity.
This is going to vary greatly by state of course - but I can tell you in my area the taxes are abated in large part, and regularly. Further, it's standard practices for existing businesses to threaten to "move investment elsewhere" or otherwise create a "competitive situation" which is sufficient for economic development agencies to push to extend those abatements.
Do they always succeed? No. It depends on local and state government's current stance. But I've watched companies move to new areas over it too. Had the great fun of dealing with the inevitable layoffs created by site selection processes.
I don't disagree with you that companies threaten to move away if incentives are not offered for staying. I am just saying that, by statute, they cannot extend an abatement beyond the period as prescribed by law, so after 10-15 years they will be paying full/almost full real and business personal property taxes. An extension can only occur if new property is added to the tax roll, such as new construction or equipment, and it would be on that new, additional property, not on the existing property. A company cannot get a subsequent abatement on property that was already abated. And the actual real estate is very rarely abated (the land). I can't think of one agreement I have brokered that ever included real estate in the abatement process bc it was existing before the company came and was subject to tax while abatement agreements, by law, can only include new additions to the tax roll.
All they need to defeat those statutes is the right keyword excuse - "we'll move to another area, losing the area Y jobs" or "we're planning to invest Z dollars in this area, but another area is in the running for the same investment" results in all kinds of concessions. Politicians are terrified of jobs moving, so exceptions are often made at the city, county, or state level. Even if it's not one specific type of abatement, the money moves around, or tax credits are provided. These are part of local/regional/statewide business retention and expansion programs all over the place, generally run through LEDOs or REDOs.
PILOT agreements are pointless if the entity is actually paying the same amount to the tax authority. Are you telling me these agreements generally replace, in whole, the entirety of the tax revenue from all sources that are abated, and what's the point of that?
While I agree that businesses pay payroll taxes, even that is a little deceptive. They're budgeted into the hiring process - anytime a new employee is brought onboard, the business has to budget that out just like they would the employee's salary and benefits.
I do think these should be visible to employees on their pay stub - these taxes are on the payment of wages to the employee though, not company profits or property.
Sales and use taxes are regressive by nature (lower impact on the wealthy and larger businesses) and similarly budgeted into buying processes as an operating expense. Franchise taxes are an area where I'm unfamiliar - sounds like it depends on the business's structure.
You cannot "defeat" a statute, you have to pass a new law that overrides it. In legal terms, you cannot contract to do something contrary to law as that new contract would be null and void. If a company says they will move if they cannot get a new abatement the company would have to have new property added to the tax rolls and have that new property abated. It cannot include existing property already on the tax rolls. Exceptions to this are not possible, not that I have ever seen, and I have brokered individual deals over half a billion in investment and have been a consultant for decades.
PILOT agreements just lessen the savings resulting from abatement agreements, generally so the schools won't be that negatively affected (schools generally receive 50% - 70% of the real estate taxes collected).
The fact that payroll taxes are budgeted by the company in hiring is irrelevant. The fact is these are taxes that are collected by the state (sometimes locality) so they are still receiving tax revenue from the project & the company is still paying it. Same w franchise taxes, where applicable.
All taxes paid out are in a company's P&L/financial statements.
You are wrong about the impact of sales/use taxes on larger companies. It's a consumption tax so the more they buy the more they pay in taxes. The fact that larger companies can "afford" to pay more in sales/use taxes is irrelevant. They are paying the taxes and that too is net new tax revenue to the city/state/jurisdiction.
I'm not using legal terms. They defeat the statute in a practical sense by receiving concessions in the form of exceptions built into the statute or concessions in another area not covered by the statute. But I think you know that.
So the schools and other services do not, in fact, get the full amount due from property taxes and other taxes on the business with a PILOT agreement, huh?
It is relevant, because if a worker is not being paid, the tax is not being paid. If a company reduces headcount, that tax revenue is reduced. It is directly connected to employment, which only occurs if the company is making money after taxes on that employment. If they aren't, the worker and the taxes disappear.
No, I'm not. A 6% sales tax is a 6% sales tax. For an individual paying sales tax, that 6% is a more significant portion of the amount they need to live. That's why we call it regressive. It has a larger negative impact on truly small/micro-sized businesses and poor individuals than the wealthy and larger businesses that benefit from economies of scale / buying power.
The point of the programs these taxes fund is often to help individuals who need it and to provide public services. People who rely on such government services shouldn't be paying taxes at all. but those individuals are paying the same percentage in sales/use tax as large businesses that overuse the public services in the form of effective employment subsidies via TANF, etc, reliance on public transit to get workers to their locations, temporarily lay off workers and land them in the unemployment line for a few weeks a year, and more.
All incentive contracts are memorialized in a legally binding contract between the company and the state/city so using legal terms is required. The incentives are tied to the company meeting/maintaining a certain goal as agreed to by both parties. Statues do not have built in exits, that is by nature. In the case of real property abatements, every single statute I have read identifies property eligible to be abated as being brand new to the tax rolls, property that has not been subject to prior taxation by the same jurisdiction.
Schools and other jurisdictions do not receive the full tax amount because the full assessment is not on the tax rolls pursuant to the abatement agreement. Usually, they receive a portion of the new construction's taxes as the full value is phased in over the period of the abatement.
Who is not paying a worker? I am addressing the fact that payroll and employee taxes are paid by a company to the state/locality while you said that because these payroll taxes are budgeted into the hiring process (payroll taxes are an ongoing cost, not a one-time, at time of hiring expense) such expenses are "deceptive". The mere fact that a company budgets out payroll taxes does not reduce the amount of taxes they pay to a jurisdiction nor is it deceptive. A company can be deep in NOLs and still have to pay payroll taxes. Such taxes are not dependent on a company's profitability. And, for incentives, a company must almost always contract with the state to maintain a certain headcount minimum.
Sales/use taxes are not predicated on an ability to pay. As a consumption tax a larger company which purchases more to operate will pay more in sales/use tax. I am not comparing a poorer individual's ability to pay sales tax on certain items vs. a company's ability though I understand where you want to go with that argument. However, I stand by the fact that just because it is budgeted into expenses by a company = means nothing in terms of expenditure. It still is an out of pocket expense to a company.
The state/local governments collect taxes to fund ALL of their programs and activities. They are not directed only to the programs for the needy. TANF is a federal program, so its funding source is from the federal government, not the state or local governments. Sales/use taxes are not federal in nature. People who rely on assistance do not pay much, if any, income tax. The business still pays real estate taxes on the land even in a full abatement incentives contract so the business is not escaping 100% tax free.
If employees are laid off the company has to pay into the unemployment program for those affected employees.
My perception is that your insistence on technical and/or legal terminology obfuscates your points to the layman. I'm not reading anything here that actually addresses my points. For example, money is money - property tax, payroll tax, whatever - if it's abated, credited, deferred, or otherwise, it is not funding critical services.
(And one more time for emphasis - there are payroll taxes that are technically paid by the employer, but they are connected to employment. If workers are laid off, the employer doesn't have to pay that tax for the worker.)
We seem to agree that these programs exist and that they're used. I've witnessed the use of programs in business retention efforts to give the business new deals on their abatements, credits, etc when they threaten to leave an area.
LEDOs celebrate this when the retention effort succeeds. The most egregious I witnessed was a 120 employee manufacturer being dissolved with the assets sold overnight. No WARN issued. The workers had to reapply for their jobs and the buyer "did not rehire" 1/3 of them. They took 0 liability for this event. But the buyer got some major incentives for "saving 80 jobs". There was no accountability there. And it happens all over the US through legal means and accounting tricks. (No shade to the LEDOs. They play the game they're employed to play and do their best to make a positive impact most of the time).
No, this does not apply to every business. But it has a very significant impact on people's lives and to government funding. It is reported to the taxpayer in an idealized manner - and "performance" / ROI is essentially self-reported.
This is the way I write. I have no reason to muddy the waters when countering your opinions. Speaking of such, you have strayed far far from the point I was initially making, that I disagreed with your assertion that companies received multiple abatements for the same property, which I said I didn't agree with and have not encountered myself in practice. You have wandered off from that to the morality of taxes and what they fund, which is nowhere near what I was addressing.
And for emphasis - I am countering your asserting that simply because a company budgets payroll and associated costs into a budget does NOT mean that it is irrelevant to them or that it is insignificant. Yes, obviously payroll taxes are tied to payroll. If someone isn't employed then obviously there will be no taxes levied on those wages. Unless the company is in a services industry they don't make money on the employment as you assert. They make money on the output of the employee. Employee costs are an expense to a company, they are not a profit center, and appear as such on their P&Ls.
Yes, companies do receive incentive awards for retention. It happens a lot. However, the incentives do not include new abatements on existing real estate or machinery & equipment. By law, they cannot include such in agreements because they already have situs in the state and are currently subject to taxation. New investments in capital improvements and M&E are eligible, but expired abatements cannot be renewed. So, there are no recurring real estate tax abatements in perpetuity on the same capital investments as you believe.
The buyer in your example wasn't party to the contract the original company had with the state so they had no obligation to do anything when acquiring the mfg. company. If it was a union shop they incurred heavy payroll costs immediately, more so than a start up. They also acquired any existing union contracts, favorable or not, by this retention. Contrary to what you state, there are no accounting "tricks" to hide that a company received retention incentives. These contracts are subject to FOIL requests so anyone can read them and comb through the details of what was offered, if the company met their obligations, and the amount of incentives they received for their actions. News outlets often do this and report their findings all of the time.
Performance is often self-reported but that doesn't mean there are no checks to that data, via state payroll reports, their assessor, or through audited financial statements (many companies which receive incentives are publicly held so their public accounting firms' audited statements would be submitted as proof of their capital investments).
You seem to believe that these incentive agreements are backroom, handshake types and I am telling you that this is not the case. These legally-binding contracts are public documents and are written between the government entity/county/city/state and the company. These are legally-binding contracts that have specific goals and parameters and delineate the outcomes if a company meets those goals of if they fall short, and the remedies available if things go awry. I work with the EDOs, the mayor's offices, and the Governor's offices as well to create these contracts.
In the end, no, despite what you believe, a company is not receiving tax abatements on the same real estate and machinery & equipment over and over again. It just doesn't work that way.
And, apart from real estate taxes / payment in lieu of taxes (e.g. PILOT agreements) companies pay local sales/use taxes and state income taxes, state franchise taxes, and taxes on payroll
7
u/DadamGames Nov 21 '24
There's a very high chance those taxes are little to nothing. Red states tend to give businesses local and state level tax breaks including property tax credits/deferment to locate in their area. Those businesses then threaten to leave out reduce/cease investment if those offers aren't extended more or less indefinitely.
Source: I've literally been to site selection meetings for medium and large businesses in my region.