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Valued at $80 billion annually, state and local tax incentives are an important source of capital for expanding or relocating businesses. Using Tesla’s recent $1.4 billion megadeal in Nevada as an example, we outline best practices for negotiating incentive packages. This installment of Accounting Matters discusses the evolution of incentives and provides insights regarding the regulatory and oversight changes that business owners and executives should anticipate. We conclude with recommendations for navigating increased compliance and reporting burdens.
These may be the best of times for firms seeking business incentives. State and local governments are aggressively competing for business activity with large amounts on the table, and as of yet there is relatively little disclosure and few givebacks or clawbacks imposed on incentive recipients. The current environment of generous incentive packages, coupled with low interest rates, makes expansion very affordable. However, executives and business owners should not ignore the changing tax incentive landscape. If statistics similar to those found in Minnesota, Louisiana, and Massachusetts are exposed through other state evaluations, businesses could see smaller incentive packages and fewer states fighting each other to win their new manufacturing facilities or company headquarters. As states increase transparency of incentive packages and hone evaluation techniques, businesses should only make promises about jobs and investments that they can keep.