Tennessee sweetens pot for recruiting industry
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Lawmakers last month voted to create more generous tax inventive offers for smaller ? though still substantial ? investments in the state.
That means the state can now offer the same $5,000-per-new-employee tax credit to companies investing at the $250 million and $100 million level ? well below the existing $500 million threshold.
Deputy Revenue Commissioner Reagan Farr called the incentives a “better set of tools to recruit those midsize projects.”
Gov. Phil Bredesen, a Democrat running for re-election this fall, is quick to list his administration’s accomplishments in luring business to the state since he took office. They include 85,000 new jobs, $10 billion in investment, 1,800 business expansions and 18 headquarters relocations.
“I just have a knack for attracting business to Tennessee,” Bredesen likes to say on the campaign trail. The governor founded and ran a publicly traded health care company before entering the political realm.
The new set of tax credits ? which Bredesen has yet to sign into law ? can’t help but improve Tennessee’s already high standing among the country’s relocation consultants.
The tax credits allow companies to apply $5,000 per each new employee toward a reduction in their franchise and excise tax burdens.
Existing laws restrict the credits to only the biggest projects. They grant a 20-year credit for companies bringing at least $1 billion and 1,000 jobs to the state, or a 10-year credit for companies investing $500 million and creating the same number of jobs.
But those large projects ? like the recent relocation of Nissan Motor Co.’s North American headquarters from California to Tennessee ? are rare.
“There’s only a certain number of projects that entail a billion dollar investment and the creation of 1,000 jobs,” Farr said. “And when those projects come around, you are in competition with every state in the country that has a suitable site.”
So the new rules retool the credits and lower the wage requirements for new jobs created. Existing law required employers to pay at least 150 percent of the state’s average manufacturing wages within three years. That requirement would be pushed down to level with the average wage of $14.07 per hour under the new measure.
The new rules also drop the required job creation for the $500 million investment from 1,000 new jobs to 500, while upping the duration of the tax credit to a dozen years.
The lower investments require lesser job growth ? but also decrease the duration of the tax credit: A $250 million investment requires 250 new jobs and grants a six-year credit, while a $100 million investment with at least 100 new jobs gets a three-year break.
Senate Minority Leader Jim Kyle, a Memphis Democrat who carried the bill in the Senate, said he isn’t bothered that the state may collect fewer corporate taxes if more businesses take advantage of the new incentives.
“We’re talking about a lot of money here,” he said. “Anybody who wants to bring $250 million to Memphis, Tenn., we’ll give all the tax breaks we can give.”
Kyle said offering the best tax breaks to only top investors had become “a barrier to recruiting.”
The new tax incentives were part of the administration’s annual “technical corrections” bill that include several tax-related measures, including closing what officials call a $20 million tax loophole for real estate investment trusts and the creation of a a second sales tax holiday on back-to-school items.
The Senate passed the measure 27-0, while the House passed it 76-9, with eight members not voting.
Create jobs, get tax break
Current job credit
tax incentives
? $1 billion investment, 1,000 jobs: 20-year tax break.
? $500 million investment, 1,000 jobs: 10-year tax break.
New incentives
? $1 billion investment, 1,000 jobs: 20-year tax break.
? $500 million investment, 500 jobs: 12-year tax break.
? $250 million investment, 250 jobs: 6-year tax break.
? $100 million investment, 100 jobs: 3-year tax break