State and Local Taxes

State and Local Taxes

October 17, 2019 0 By Stanley Isaacs


>>And welcome to this session
on state and local taxation. I am Donny Charleston, your
moderator for the afternoon. I hope you guys are
enjoying your time here at the Select USA Conference. I am the Director of State
and Local Fiscal Engagement with the Urban Institute
House here in Washington DC. We’re a 50-year-old research
and policy organization founded by President Lyndon
Johnston back in 1968, and our whole goal is to connect
policy makers with research and insights that can better
inform their decision-making, and we hope to bring some of
that insight to you here today. I have the honor of moderating
this distinguished panel of individuals who are experts
in state and local taxation, and we’ll go down the line as individuals introduce
themselves, and we’ll get into the meat of
this discussion. To my immediate left,
I have Jon Cesaretti, tax professional with Crowe LLP.>>Hi, I’m Jon Cesaretti,
tax pro. My role at the firm — or
I should introduce Crowe. So, Crowe is the eighth or
ninth, depending on the year, largest accounting firm
in the United States. Most of our clients are
middle-market clients. So, you know, $5 billion
or less typically. My role at the firm is
I lead our Chicago state and local tax practice, and I also do our national
incentives practice, and also, kind of interestingly I think,
I’m on my local school board.>>And to his immediate
left, we have Allison.>>Hello, Allison Forbes. I work for the Center for Regional Economic
Competitiveness. I’m the research director there,
focused on economic development and workforce policies
and investments. I also support the Council for
Community and Economic Research. We’re a small nonprofit
in Arlington, Virginia, that has a big community of
researchers in labor analysis and economic development
across the country.>>And next, we have
Steve Carter.>>Good afternoon, Steve Carter. I’m the managing director
with Grant Thorton LLP. Grant Thorton is also a
large, global accounting firm. I sit in the Cleveland office. I’ve been in state and local
taxes now for 23 or five years. I do head the credit
sales practice for the firm then we’ll
probably hear more about that a little bit later. So, that’s a little
bit about me.>>And on the end,
we have Paul Naumoff.>>Good afternoon, everybody. My names Paul Naumoff. I lead EY’s global
location investment and incentives practice,
and we help companies from around the world
invest in the United States and also help companies here in
the US as they grow and expand. I’ve been with EY for
just around 24 years. Started my career at the
Ohio Board of Tax Appeals, which is where all of the state and local state tax appeals flow
up, and had been working either on the tax compliance side
of state and local tax or on the consulting side
of state and local tax, as we work with many of our
companies who are growing and expanding around
the country. So, it must be a thing
about being involved with state and local taxes. I’m also on my school board. I guess that if you’re
going to look at all these taxes
flowing through, you make sure they get
spent in the right way to achieve great
educational outcomes. So, Jon and I, a little
shorter over here. We know how sitting
on the school board, you get beaten down
a little bit.>>Yeah.>>Thank you for
those introductions. Real quick check of who
we have in the room. How many people are
representatives of corporations or companies? Do we have any government
people the room? A few government people. Anybody else?>>Consultant.>>Consultants? How many consultants
in the room? We’ve got the consultants? Okay, if you consultants. All right, a nice mix
we’ve got here in the room. Okay, as I mentioned in the
opening, we are covering state and local taxation here
today, and our goal here is to give you a good,
broad overview of some of the many issues you’ll
be facing as you start to consider your
investment decisions across the United States,
and the reality is, the United States is an even
relatively small country compared to some. However, every jurisdiction
in this country has its own, different structure of taxation. We have 3141 counties, which are
subunits of state government, and beneath that, you
have over 19,000 towns and cities in the country. And so, and each one
of those jurisdictions, you have overlapping and intersecting state
taxation systems at the state and local level, and it can
create a nightmare or headache for you if you don’t really
know what you’re doing. And so, these individuals here
are here for us today to kind of help us wade through
some of that and help you make
some decisions, so that you can make great
decisions for your companies, and such that they
are profitable. You’re providing great
returns on investments for your principles,
as well as being able to be great corporate
citizens for the communities that you are residing
in investing in. All right, so we’ve
done introductions, and we want to kind
of kick it off, kind of a softball question. The reality is many of you have
heard a lot and may have went to the panel earlier
today on tax incentives, and some of the changes you’re
seeing at the federal level. And we’ve experienced quite a
bit of change over the last year or so, with respect to
the Tax Cuts and Jobs Act, and there are implications
at the local level. We won’t dig too deep down into
those issues, but just kind of the quick, 30,000-foot
view of how some of those issues may apply
at the local level, Jon, you want to kick us off with a
little bit of that information?>>Yeah, I do. So, my perspective,
and I’m going to stick to the income tax side. So, the Tax Cuts and Jobs Act
came in at the end of ’17. It seems like it just happened,
but it was a while ago, and one of the things that it
did was dramatically increase the corporate tax base
for federal income tax. And the reason that’s
significant for state and local income tax is that
nearly all states and localities that have income tax
start their calculation with the federal
income tax base. So, when the federal tax base
increased, the state tax bases in pretty much every state
increased correspondingly. Now, the federal rate
went way down, but the — or sorry, the state rates
stayed more or less the same. I mean, there’s some states
that saw an opportunity to reduce the rates, because
they knew they’d have more money, but most did not,
and the projections, which work which were I think
were done by EY and costs, years ago, was that the Tax
Cuts and Jobs Act would result in 7-10% more income
tax revenue coming in. And the numbers that
we’re seeing is that might be understated. So, I think that my perspective,
the biggest impact is the states that didn’t really do anything,
because they didn’t really have to do anything to get the larger
tax base have benefited pretty significantly by
additional tax receipts. You know, I would say
Illinois is a good example. I’m from Illinois. Illinois came out of
nowhere with $1.5 billion of extra income tax that nobody
saw coming towards the end of the year. So, and help balance the budget. But I think it’s stories
like this in most states.>>So that kind of creates
a more complicated landscape than we even had before. Anybody want to weigh
in on some of the things that these individuals should
be thinking about as they kind of way that increased
complexity?>>One thing I just would
comment on, as you look at — as Jon correctly stated. Most states with an income tax
will follow the federal changes, and therefore, we’re
seeing, as alluded to, 12-20% is actually the
projections, the increased taxes that are being collected
by the state. So, one element of this is the
states are flush, if you will, and if you’re going to
consider doing business in one of those jurisdictions, perhaps
there’s available opportunities to reduce those costs
through tax incentives. But I guess I would also point
out that many states have set up a — more gross
receipts tax structure, as opposed to an income tax
or a franchise tax structure. In those states, it’s
not impacted at all by the federal tax
changes we’ve seen.>>So, Allison, he
touched on two topics that you know little bit about. One is tax structure. The other are incentives. So, as you think about
this whole new landscape, how are incentives playing out? How are they playing out, and what should companies
be thinking about?>>Well, something really
interesting about the jobs — Tax Cut and Jobs Act is
an interesting provision. We work with a lot of state
economic development executives. So, Chambers of Commerce and state agencies,
commerce agencies. So, they’ve been really
interested in a provision that creates opportunity
zones across the state and brings increasing
complexity to the landscape, but potentially in a really
good way, because it looks to drive investment
in underserved areas. Governors across the
country identify those areas that would be opportunity
zones for their stage, and there’s opportunity
to invest. They’re not like neighborhoods. They’re larger tracts of land. Puerto Rico is one of
these opportunity zones, the entire land in that
area across the country. Other places are
designated areas. So, states are looking now
to drive those investments into places that have an
impact in those communities, particularly looking at how to
drive investments in businesses that are in those
communities or that land there. So, not just real
estate development but business development,
as well.>>So, go ahead.>>Some states have
actually come out and passed their own opportunity
zone programs, as well. So, if you’re looking
at an opportunity zone, look to see what the
state’s providing, as well.>>And its building on a
landscape of enterprise zones, reinvestment zones,
and these kind of geographically targeted
areas have been state policy for a long time, making
sure that the businesses that are located there
can make the investments that create jobs.>>So, do you want
to get in on this? No?>>Please finish that other
comment on income tax.>>Go ahead.>>Oh, I just wanted to
note, we started a discussion around the Tax Cuts and Jobs
Act and the impact on the states and their collections of
corporate income taxes. We put the slide up here that
really does demonstrate to you. When we talk about
state and local taxes, we’re not just talking
about income taxes or gross receipts
taxes, corporate level. And just to know, property
taxes and sales tax for those of you who, perhaps, have not
paid attention to your state or local tax bill, or perhaps
are considering investment in the US for the first
time, property taxes make up about 40% of the collections. So, if you invest in purchasing
land, building buildings, machinery, equipment,
furniture and fixtures, many states will tax
both the real property and the personal property,
and that makes up about 40% of the overall collections,
and we’re talking about state governments. And then, the sales taxes, or consumption taxes,
that’s another 20%. Actually, the corporate
income tax, that’s only about 8.5%
of the overall pie. So, it’s just really important. I know this group works
a lot, as it indicated, with incentives and, you
know, a lot of times, state governments are — and
local governments are working to reduce the property tax and
sales tax bills as a result of that being such a large
portion of the collections, as companies come in and invest.>>You know, if I could, and
just one last piece may be to the federal income
tax change. I think what we’re saying — so,
people kind of in this business of complying with these
multistate taxes, are seeing is that a lot of the states
are still trying to figure out what they want to do
with some of these changes that the federal
government made. So, with the expanded tax base,
the federal government throw in a bunch of sweeteners,
basically, to invest, right? So, we call it [inaudible]
depreciation, right? So, you get to depreciate
anything you buy in the first year,
that kind of thing. So, states are still
trying to figure out a lot of what they’re going
to do with it. So, we expect the landscape
is going to be changing on income tax side for at
least another two years, as the states try to
figure out how best to optimize their
income tax bases.>>So, the influx,
a lot going on, going back to the comments
you made earlier, Allison, from the standpoint of
opportunity zones, and so, to actually benefit from that, you have to have unrealized
capital gains, so stock gains, whatever have you, that
you haven’t cashed in on. So, for individuals who have
unrealized capital gains, they can still kind of
piggyback on what’s going on in those communities where other investments
are being made. Could you talk a
little bit about that?>>Well, informing an
investment, right, so a business in that area could be the
recipient of those investments for folks that have
those capital gains to invest in those communities. That’s my understanding.>>It’s a way to get funding,
maybe, for your project.>>Yeah, we may be referring
to — it’s a very long-term. There is an incentive
to keep the money in the investment
for a very long time. So, I think more than nine,
10 years, and if you do that, there’s a large tax benefit
of the order of, and so, go to your own tax advisor. So, do not follow what I’m about
to say, but it’s very large. So, it might be a
complete deferral of your capital gain
into the future.>>Yeah, Donny, I would just
comment, and Steve alluded to this earlier, I think
we’re still fairly early stage with the state governments
reacting. When they created
the enterprise — excuse me, the opportunity zone
program, the governors were able to anoint these jurisdictions
what was an opportunity zone. But they were using
low-income communities from 2010 Census data.>>That’s a good point.>>And so, they were
able to look at existing impoverished areas
and designate those zones, and those federal benefits
will apply in the zones, but as you properly noted, you need to have a
capital gain invested to directly take advantage of
the program, or as an investor, you may be able to invest
into a fund that’s been set up by somebody else and have a
very tax efficient investment. So, there are opportunities at
the state level, but I do want to reiterate, this is
state and local taxes, and that’s something that
if you’re in a zone anywhere in the country, you would be
afforded the same federal level benefits, both as an investor
or as a direct taxpayer, who’s realizing those benefits. I think it is early-stage
for the states. I think they are getting
out and saying, okay, how do we really
maximize this program? How do we double down
on the opportunity here, and what additional enhancements
can we put in to help some of the more impoverished, rural
areas and urban areas in some of the state and
local governments? If so, we are seeing some
states beginning to act. I know my home state, Ohio,
has legislation introduced that would enable you to have
additional income tax benefits and corporate income
tax, both personal and personal income
tax benefits, to help further incentivize
investment into the zones. But as the stage, I wouldn’t
say we see wide, you know, broad scale legislation
introduced across the country. But it’s still fairly early.>>Yeah, I think the
states are also looking at co-locating investment
infrastructure and where opportunities
are, the opportunity zones that are designated to
further — for that investment. So, I think there’s, like
you said, a lot left to do and figure out, but yeah,
because it’s a program with lots — I think, for
all the individuals who here, I’d definitely consider
those zones as you think about your investment potential.>>If I could, and
so, the federal — and this is all federal law, but
the federal treasury is working, I think, pretty hard, to make
the legislation as flexible as possible, and I think as
recently as a couple weeks ago, a new set of regulations came
out that were more flexible than what was there before.>>Mid-April it came out.>>I see that stopping — yeah.>>And to take it back to
the state and local level, a lot of these places
will overlap with previously designated
geographic areas where there’s overlapping
tax credits and incentives for businesses who are
going to get those credits on your income tax, on
your sales tax, on your, you know, job creation, etc.>>And I should mention, some states have
designated their own zones, which actually co-locate with
the opportunity zones, as well. So, Allison, you mentioned
infrastructure a little bit earlier. Anybody can jump in
on this question. You mentioned it, as well,
Paul, from the standpoint of different states have
different structures of taxation, for example,
in some rely heavily on the property tax, some
rely more on those sales tax, some more on corporate tax,
some more on income tax. So, as these individuals
consider their investments, how should they be viewing
those different structures? For example, in their
own companies, even down to their
specific industries?>>Yeah, you know, we were
really view as a best practice, and I’m sure someone on
the panel would agree, if you’re looking at the United
States for a new investment or maybe you’re here in
one state and looking to go into others, you really
need to sit down, step back, and have a modeling exercise
that will help you look at, say, Ohio versus Indiana or
the State of Virginia or whatever the case
might be and model out based upon your facts
and circumstances, you know, how much property do you
intend to invest in the zone, in terms of the value of the
equipment and the buildings? How many people do you
intend to employ there, and what’s the payroll
associated with that investment? And what are your
projected sales, and where those sales going
to be in that particular state or around the US,
because, as we know, the corporate income taxes are
typically administered based on a apportionment
factor, and it will take into account your property,
your payroll, and your sales in a particular jurisdiction
to model out the income tax, because you’ve got to
get that data in place. And then you can then do an
apples-to-apples comparison across 45 states to determine
which one is going to cost more from a tax perspective
over the course of time. And that’s just modeling of
the corporate income taxes. To have a really true
comparison, you want to look at the specifics of each state and really these are some
general categories there on the slide that I keep
pointing over here to, but there are 12 or so types of
taxes, everything from sales tax to property taxes to carbon
taxes to excise taxes, very different in each state, but many of them
have commonality. So, if you can measure those
on apples-to-apples comparison, you can look at your cost
over a 10- or 20-year period and immediately have
a better idea as to who is more competitive for
your particular business. And that can come
down to the industry, because there are special
factors, in some cases, for different industries
in different states. Now you take the income
taxes, a new, ultimately, as you consider investing in
the states, you look at state and local tax incentives that
can offset property taxes, income taxes, sales and use
taxes, and other types of taxes, as well as cash grants,
training incentives, financing and incentives that help the
upfront costs of your project. So, what we find
as a best practice, just to be very holistic. Take a look at your
financial modeling. Incorporate the tax costs
and the other business costs, and then, you can very
distinctly look at four or five states and range
those as to where is the best for my business, at least
from a cost perspective? You may decide from a market
perspective, from logistics, from where your kid goes to
college, there’s a better spot to locate your business,
but this is one way to put it together
as a very much apples-to-apples comparison.>>But, I’d say, just don’t
look at effective tax rates. There’s a lot of
information out there. We get the lowest
effective tax rate. That doesn’t mean a whole lot. Like Paul said, you have
to go through the exercise, for your corporation or your
partnership, is it taxable? Do you have tangible
property tax in that state? I mean, that’s a big deal. Ohio, we don’t have it. You go next-door in Indiana, they got a property tax
on tangible property. They give out abatements. So, you have to do that
full analysis tools to see about the apples-to-apples. And so, yeah, you got
to do your homework.>>So, you mentioned homework. You mentioned a lot
of resources. So, what –>>One thing that
I see clients do that may be surprising is they
underestimate how big their success is going
to be in the US, and I’ve seen this three times
in the last couple of years. And so, they plan for a
sales office in California, and they end up with a
giant client in Chicago. And you know, they have to hire
a bunch of people real quick, and they have to do, you
know, do all this backfill of work they probably
should’ve thought about doing in the beginning. So, I’d say don’t be
overly pessimistic about how things are going
to go in the United States. It’s not a guarantee, but I
expect it would go better, and I frankly, plan on
going things better. Think through kind of where
are your biggest customers that you want now? You know, should
you be near them? You know, those kinds of things,
and if I am going to have to have a lot of inventory,
where my going to get that? You know, where is the
manufacturing capacity for that? So, that’s the biggest
issue I’ve seen, frankly.>>So, would you
maybe think about — it was a question we talked
about earlier was, you know, some of the future trends? You know, what do you see as,
you know, down the line two, three, five years down the road
from the standpoint of taxation? Anybody can kind of piggyback
on this question, if they want.>>Well, thinking about states
and localities is having, potentially, very different
economic development goals, and as relevant, broadly,
for this discussion, because I think this is really
about making a good fit. So, you can think about
these very detailed questions and the tax portfolio
of the state, but also, states want to incentivize
capital intensive manufacturing businesses. They’re going to have
specific incentives that support those firms. They might have research
and development tax credits that are particularly good for maybe not those high
capital-intensity projects, but for technology
intensity, pharmaceuticals, and high-tech industries. So, there’s a variety
of intentions here. One emerging intention
is toward job quality. So, really making sure that fit
with the local human resources, the local population, is a
good fit with the business, and that’s really important
for businesses, too. Planning for the future,
thinking about how they’re going to grow, where they’re going
to find that future workforce, as well as if their
existing employees are going to make a good fit with
thick community and be able to continue their education and upscale throughout
their careers.>>And I have something
to follow up on that, because it is really related,
and I think, and unbiased, because I’m on a school
board, but I think a lot of the future is going
to be about how to pay for education beyond the
traditional property tax. So, I think most of the
people in the room or who live in the United States pay
probably relatively high property taxes, relative to
maybe the rest of the world, and it’s a function
of how we, you know, run our local governments. They tend to be paid locally, and I think what we’re
seeing is, in some states like I’m thinking Oregon, right? Oregon just past a
gross receipts tax, and it’s half the bill is about
how to fund education, and oh, by the way, we want
a gross receipts tax, because we don’t want to
pay more property tax. So, I think what we’re going
to see is more of that. Nevada, famously, I mean,
these are really small states, but still, that’s where we
get our trends is typically from the small states. Nevada did a similar thing. A bunch of people
moved in in Nevada, had much higher expectations of
what public education should be than the people who
already lived there, and they wanted more spent, and the Republican governor
five years ago said, okay, fine. I’m going to put a
gross receipts tax in. And anyway, that’s what I see
that’s coming, more of those. And is not to say
that all states and localities are looking for these high wage,
high technology jobs. A lot of them are,
but other kind of businesses can be
a really good fit, depending on what
location you are in a city, or where you are in the state. If you’re a rural
area, you know, a call center could
be a really great fit for one community
and not for another.>>So, you guys so, you
guys have mentioned almost like this connection between
taxation and then services. And so, there’s this balancing
act that a lot of states play, but the reality is that it’s
different in every community from the standpoint of high
tax rates and the relationship to services that
are being provided by the state or local
government. It’s not necessarily a
one-to-one correlation. So, what do these companies
need to be thinking about? They kind of look at the
landscape from the standpoint of what they’re paying in taxes
relative to what they’re getting from the standpoint of talent
development, from the standpoint of infrastructure
in these issues?>>I would just keep going back to when you’re making
these business decisions to locate a new facility
or expand the facility, really take that
holistic viewpoint and taxes are one
element of the equation. And you should definitely
put together a holistic model that takes into account
the taxes on a jurisdiction by jurisdiction basis,
and also takes into account the incentives. So, you could really measure
that apples to apples, whether it’s as Steve
alluded to, one state has their
property tax. Another state doesn’t. It could be very different
answers, and it looks like it’s the same
from the beginning. Same way on the incentives. Don’t just go after
the big number. Make sure that you model
that into your overall cost of doing business over
a 10 or 15-year period, so that you can get
that apples to apples. Now you raised the other
point of sort of the quality of doing business in a
particular jurisdiction, and sometimes, you may
make a decision to invest in a higher tax jurisdiction because you’ve got other
reasons you want to be there, and that could be inclusive
of the school districts, the quality of life, the
higher education, the services, the fact that there is, you
know, three fire stations, not one, that can make sure
that somebody’s going to put out the blaze if there’s a
problem at your facility. So, I take that qualitative
view into account when you make these location
investment decisions, in addition to state
and local taxes. Now, yes, state and local taxes
can equate to more services or it can potentially equate to you just have a
mismanaged government, and you’re not getting good
services and higher taxes. So, do you do diligence, I
think, is the message there, and that can come down
to meeting with the state and local economic development
officials to hear their point of view, but meet with
your peer companies. They are more than happy to
set up meetings with peers that they may relate
to your business in a particular jurisdiction,
and they can talk to you about the human resources,
the talent available in the jurisdiction,
the utilities that you pay are the fluctuating
relates, are they reliable? How is the police
and fire service? What is the quality
of the education? Do they send their kids to public schools
or private schools? So definitely do holistic view, taking into account
the qualitative as well as those quantitative. I can talk all day about the
quantitative, but you know, some of the fun part, and
really, some of the part that makes your business
more successful down the road is making sure
you’ve done your due diligence on the qualitative.>>And I would add
— oh, I’m sorry.>>I was going to say,
one thing we talked about doing the matrix, right? That’s a lot of work. There are some good reports
out there to go look at, like the Tax Foundation. AMLI puts out rankings of the
various states, and you have to really understand
how they do it. Just don’t take it. You have to look to say, all
right, we did an analysis that describe partnerships
in the states, manufacturers, services. And he’ll go through a whole
process of breaking down all of these states from 1 to 50. A good thing to do, do
some homework there. If you don’t want to spend all
the money to have somebody do it for you, just do
some more research. I think EY does a
Business Climate Index with costs every year? Or used to.>>Yeah.>>So, good documents,
and periodicals out there. You can do it that way, as well.>>So, does anybody want to
piggyback on any other resources that they can go to when they
start looking at questions of taxes versus services or the overall industry
climate, ecosystem?>>Yeah, I think that
underutilized resources — I really like working with
the economic developers in the states and localities,
because what we’re finding, or my perspective,
is that the states, the people who represent the
states, have a real good sense of what the industry
clusters are and what their particular
jurisdiction is good at. And if you’re coming
into the United States, and you’re a pharmaceutical
company, I think there’s two
jurisdictions that you should go to, right? That’s just what I think, but
maybe there’s four or five. But I would, I think that going
to those people and talking about how you want to
move in the US and talking through your story, you’re going
to get a much more sympathetic, I think, hearing, especially
when it comes to a discussion of maybe incentives to offset
some of that additional cost and going to a high-cost
state, because it’s likely that those industry
clusters are written into their strategic
plans locally. And those are, I
think, under red. Nearly every, you
know, jurisdiction in the United States,
or at least they should, have a strategic plan
as written, available. Google it. You’ll see it. And that’s what I would do if
I were looking at jurisdictions in the US is to see how I fit
in to the overall industry.>>If you’re talking to
local economic development representatives, they’ll
often have a really good sense of the pulse of the region
and about their businesses, how they’re thriving, what
they’re struggling with. So, what were the really unique
dynamics of that location?>>Yeah, and if you do
go and get an offer, let’s say you’re going to come
to the US for the first time, and you go to a state
and present it to the state/city/county,
and they give you an offer, nine times out of 10, they’re
going to throw everything on there that they can think of, including standard
tax exemptions, along with the property
tax abatements and other programs out there. So, they are a good
source of information. You just have to really
understand it and see if it’s applicable, and if
it’s actually statutory, right? It might be your right. If they put on their
you get a, you know, manufacturing exemption,
it’s a good number, it’s really not a true
incentive in our world. But it is for the companies,
but you might want to go back and try and get another type
of program that might be there.>>I would just comment,
you know, to Jon’s point about certain states are
going to have a focus on different industries
and sectors, and I would agree with that. I would highly encourage
everybody to make sure they go
out to the tradeshow. You’ve got virtually every
state engaged and out in the main ballroom
talking about the attributes of their state, and if
you are walking out, and you’re in a particular
industry, I would ask them what is
your focus in your state or local jurisdiction on
our particular business, and see what they say. You’ll find out who has a
strategic plan and who is sort of operating as a generalist. But I do think that I would just
go back to it’s very challenging to just say there’s
resources out there that will give you
the right answer. We were talking —
we almost put — is anybody here from
the Tax Foundation? Well, the Tax Foundation is
a great study every year. We keep talking about the
methodology, and we do state and local taxes for
a living, right? And I sit in my home state
that ranks 42nd on that study, and I know that my
brothers from Ohio when they cringe from see that. One of the large reason
sisters of musical tax in Ohio, but not every state or
not every city or part of Ohio has that municipal tax. So, even though 80% of the state
may not be covered by that, because it got an extra
tax, they run down to 42nd. So, or former Governor
Kasich would be very upset to see he’s 42nd, and if
you look at the cost study or some other rankings,
they would be quite so low. So, you do have to
do the diligence. There’s high-level diligence
you can do to really try to give yourself that
apples-to-apples comparison, but it’s really challenging
to look at Site Selectors Magazine’s
rankings of the best places to do business or
CNBC’s top states and really get a
apples-to-apples answer that you can — I always talk about when we make these
decisions with companies, help them make the decisions,
a lot of people who are in that slight selector
role for the company, they may be doing this
not on a regular basis, but as a one time,
you’re the project lead on making our US expansion work. That’s a really big job. That’s really important job you
want to make sure you get right. And so, taking the time, and
maybe it does require you to spend a little bit of
money to have to do that, in that Excel spreadsheet
if nothing else, that really can layout each of
the states, their attributes from a tax perspective,
from a labor perspective, from a labor availability. You know, we have 40 or so
factors you can look at. Find out what’s most
important to you or the people that you work with, and then do
the apples-to-apples analysis, at least on those five
to 10 factors that matter to your company’s success. Lots of good websites out there
to get more than anecdotal data, but sometimes, the
statistics don’t apply out a very micro basis that is
really necessary for you to look at when you’re looking at
it from a go/no-go decision, recommending to your
team overseas that we make this investment
X day versus Y. Those kind of long-term business
implications, we want you to get that right.>>One thing, a lot of
states, there’s probably three or four I can think
of right now, have some tax-free
zones, all right? Pennsylvania has something
called Keystone Zone. You got New York came out with
Startup New York I think it was called. So, if you go there, they
say you’re going to get out of paying state
and local taxes, or a certain percentage of it. That’s true if you’re
not in the United States. You might be able to plan
it to come into that spot and get a nice exemption
for a long-term. They’re very few and far
between when you’re talking about the 50 states. There might be a few
of them out there. Something to think about. So, when somebody calls me
and says, “Hey, I’ve got — we’re going to put
a sales office and, and we’re in high technology
coming in from another country.” Well, let’s look at one
of the zones and see if it makes sense for you. You know, that could
be a nice benefit. So, as you’re standing
outside the country and you’re putting yourself
in the shoes of an investor, what are some of the
common misconceptions that you think they have
or that you are aware that individuals have about
investing in the United States?>>I think that the biggest
misconception I see is that this seeking
out of perfection. So, as Donnie was
saying, I don’t know, there’s 5000 tax jurisdictions
in the United States. You could spend an
infinite amount of money complying
with all these rules. So, we typically recommend
risk managed approach. You know, focus on — I say
it’s a big place, but about five or six of the states,
you add them up, that’s half the economy,
and they’re the ones that you know, you know, right? California, New York,
Florida, Texas. Deal with those, right? Make sure you get those
right, and then figure out big picture how
is your product, service going to be taxed? There are some common
themes among all the states and how things are taxed, property tax nearly
always is local, right? It just makes sense. You own property. Maybe you have inventory
in a particular state. It’s going to be local. It’s going to go to
a school district. If you — everywhere, right? Sales tax in the United States
we still limit our sales tax to tangible personal property
that sold to a customer. Now, we have some exceptions,
but that the majority of it is — so if you do a
service, probably not going to be heavily subject
to sales tax. There are exceptions. There exceptions
everything I’m saying. But big-picture understanding
is very helpful in the United States, and that
is typically how we do it. We focus on the big states. We focus on, you know,
what exactly you’re doing, and then think through what your
risk is, and then that, I think, how we advised, especially
inbound companies into the United States how
to deal with the complexity.>>So, my biggest misconception
when companies call and say we’re going to come
into the United States, talk incentives, right? They think there’s a
pot of cash out there that they’re going to get. And when we start
educating them that, no, all these taxes there might
be an incentive tied each one of them. They don’t really
understand that. They expect to get, you know,
$3-4 million or something. And no, you’re going
to get abatement of your property taxes. You’re what? Yeah, property taxes. So, you work the sales taxes. So, you’re showing that
it happens over time. That’s the biggest
thing for me that I see.>>Yeah, I would tend to agree
with — I’m sorry, go ahead.>>No, go ahead.>>I just would say Steve’s
comment is spot on relative to, particularly, some of the
Asian inbound work that we do, where there are countries
with very much of a centralized
subsidy mechanism that our clients are used
to, and they are accustomed to paying taxes long-term, but
really, viewing the first five or six years as a startup,
and that they really need that cash subsidy in
order to spend that time to get operational and begin
to be able to turn a profit. So, the US system, from an
incentives perspective, yes, there are a number of
state and local governments who do have cash funds
for economic development and are willing to spend those on the right economic
development projects. Many of our incentives
are very much, you know, pay as you go or earn as you go. As you pay some property
taxes, you get a component of it rebated, or as you pay
income taxes for new jobs, create new payroll taxes, you
get a piece of that rebated. So, there is definitely
a misconception, I think, that happens. Again, we try to dispel
those early on and really try to take the long
term view and look at how will these funds come
in to reduce your overall cost of doing business, to
make your financials work on this project long term,
as opposed to making it all about the upfront subsidy. But that’s definitely an
issue that does come up, because it’s just a point of
view that they’re used to, and then thinking this is
the way we do business. Some states are willing to
try to move the incentives up to accommodate that, but
not everybody is able to be in a position to do
that financially.>>So, if you want to get a look
at all these complex tax credits and incentives to get a
sense of where they are, how many there are
in each state, what the certain attributes
of them are, how you get them, which sort of taxes
they’re applied to, you can use a search
engine and look for Select USA State Incentives, and you should find a page
that’s managed by Council for Community and Economic
Research, which has a database of over 1000 programs that
reduce your tax liability, working down to tax credits,
tax exemptions, deductions, deferrals, preferential rates. This also includes the grant and
loan programs that are available but focused on those kind
of today that reduce taxes. There are about 538 tax
credits across all the states, 289 tax exemptions, and these
are very detailed things with thresholds. Some of them, the
threshold is create 50 jobs. Others, it’s create five jobs. Some of the investment
thresholds are $1 million investment. Sometimes it’s $25,000. So, it can be very varied.>>And it depends
on the industries. So, real quick check,
some of you, what are some of the industries that are
represented here in the room? Anybody from the
manufacturing sector? Financial/technology? Biology/Life Sciences? One? What else do
we have the room? Pharmaceuticals, anything else? Ecommerce. Okay, so, those just a
sample of what’s in the room. So, you think about, from
your experience working across the country with
different jurisdictions, are there any particular
like innovative or new type of tech structures that people
are putting in place just for some of these industries that are mentioned
here in the room?>>I think the job tax
credits and investments and training are being
applied in really new ways, and even grant programs, folks
have a lot of opportunities to be creative, to join
an existing cluster, and existing collaborative
of employers to look at accessing those funds,
to create relationships with community colleges,
and that can either be on the tax reduction
side or grants and loans for this programs.>>Yeah, I agree. That’s what I see. I see more creativity
in higher ed. So, our university system’s
taking a more active role in business development
much everywhere.>>And I just want to say, not
just for your universities, but the uni college system
have a really robust network of community colleges
in some states.>>Some of these
incentive programs out there at the state level,
Ray, are now available. So, some of these
organizations that are here, might not be profitable
for years, right? So, just because somebody
gives you a $10 million credit, most of the time,
you get to use it, because you have no liability. States are starting
to understand that, and they’re now allowing
you to sell them for maybe 80 cents
on the dollar. Likewise, you can buy it. So, if you’re coming and you’re
really taxable really quick, you don’t have incentives,
you may be able to buy some of these credits out there. Again, 80 cents on the dollar. If you get a 20% discount. So, we’ve seen a lot
of that happening now and certain structures being
set up just to capture those and either sell them
or buy them.>>I know the film industry is
one where they’re doing a lot of that through this transfer
— transferable credits.>>I would just comment also
in manufacturing, you know, we look at all these different
types of stated business taxes, I mentioned earlier
that 70%, typically, is from sales tax
and property taxes. So, certainly, you’ve got
states saying, listen, we’re going to extend the
property tax abatements or, effectively, free
period, if you will. If you’re 100% dated, you
will pay those property taxes on your equipment and
your real property. Those class, typically,
you know, 20 years ago, those were 10-your abatements. Now we see them 10,
20, 30 years, trying to really keep your
costs down by allowing you to get those abatements, but also on the gross
receipts taxes, you’re based on the sales outside of the
state, and that the only factor. So, you have receipts,
but you don’t have to pay taxes unless you’re
selling them within the state. So, that really — if
you get a tax abatement, and your equipment, machinery
or equipment abatement on sales tax, you’re not
going to pay property taxes or sales taxes or income
taxes in some of these states who are really trying to
attract manufacturing. It may be for a period
of 10 or 20 or 30 years. If some of these are
transferable credits that Steve’s alluding to,
and can sell those credits, you can immediately
receive those funds and help fund your
initial project investment, whether that’s purchasing
an old brownfield facility or putting up a new facility. And to that end, I would
say that we seen a number of states move towards
brownfield incentives. We’ve got a lot of plants
that are still vacant around the country, old
facilities or maybe five, 10 years vacant, and they really
want to get those back online, and there’s an investment
that has to be made to get the utilities
up and running, get them back in functional. So, the states are
really focused on those. Many of those sit in
opportunity zones, so there’s a federal benefit
on top of that, as well. I’d also, in one
more comment alluding to what Jon said earlier about
higher ed and Allison’s comments about training the workforce. In a period of low unemployment,
and that’s also something to look at, if you’re
looking to invest in the US, we have a very strong
economy right now. You want to make sure you have
employees and the right type of employees that can actually
help you in your business, and the economic development
agencies have gotten very focused on this issue
of retraining of upscaling the
workforce, to make sure that they have recruiting
programs in place, they’ve got education programs
in place that can be on-site at your facility or a
local community college, and they will help you from
really the thought to finish of having somebody apply for
a job, advertise for you, get them trained, and actually
get them into your workforce until you’re up and running. So, it’s certainly a trend
in this tight economy — excuse me, tight labor market to have economic development
agencies really trying to take opportunity
of a great economy and upscale the workforce.>>So you guys are talking about
a lot of complexity of here. So, what are some
of the common state and local tax complications
that firms encounter when they’re investing
in the United States?>>Not registering
everywhere they should.>>I would say, I see not
enough coordination among service providers. So, and treating, you know,
the foreign, you know, the non-US situation as
separate from the US situation, and I think what I’d recommend
is make sure, in your planning, that you have the, you know,
the non-US income tax people, the US federal people, the US
state and local coordinated in kind of what is the
big-picture plan in the US, because, and I focus
on big stuff, right? So, if you plan to be marginally
more profitable in the US, well, then, you know, you should think
in terms of maybe flowing some, you know, some marginally
less-probable operations into the US, and vice versa. So, high-level basic is
where I would sort of — I don’t see enough of it.>>So, your comment, Steve,
really kind of pointed to this question of compliance. So, how can companies
really make sure or ensure that they are, you know,
they have their kind of ducks in a row, to make sure
that they are complying and in all the different
jurisdictions that you mentioned?>>Really work with
the service provider. Because you have to
understand we are sales — if you’re registering
for sales tax, you’re going to have 50 states. A lot of local jurisdictions are
also going to make you required to file some sort
of registration. In Louisiana, they
have their own — every parish can do different
things on sales tax, right? Texas you can do certain
things on some sales tax. So, all these different
jurisdictions, understand where your
taxes are going to go. If you’re doing services,
that’s different than selling property,
completely different. But the old property tax rules
were if you landed somewhere and you were on the ground,
you know, selling something, that’s going to be taxable. Whatever your sales
are going to be there, is going to be 100% taxable. That’s changing now. Is changing a lot. And so, talk to a
service provider. Understand where your
transactions are going to happen and make sure you
get registered. If you don’t do it,
then you’re going to start getting notifications,
notices, and penalties and interest, and they
can add up pretty quick.>>One thing I would recommend
it’s not for everybody, but if you’re looking at
the US, you’re looking at certain jurisdictions, before
you go into a jurisdiction, yet and it can be a part of
the site selection process with identifying properties. It can be a part of
the incentives process. Also, a part of identifying
your ongoing state and local tax obligations is to
potentially utilize a request for information or
request for proposal from a particular state, and
we feel is most commonly used with our global inbound clients
who are not as well versed in the United States and don’t
have a compliance function here already. So, that really gives you an
opportunity to explain to state and local government what my
project is, what I intend to do, my timeline for doing it, how
many jobs I intend to create, the capital investment,
the logistics. Where are my suppliers? Where are my customers? Educate them and then enable
them the economic development agencies, who will, many
times, work in concert with the taxing authorities in
a particular state, to come back to you and describe how
you would do business in their particular
jurisdiction. They can provide incentives. They can provide potential
sites, and they’re also provide, you know, their version of each
of those 12-plus types of state and local taxes or
indirect taxes that may apply to your business. So, at least that then
gives you a starting point if you do choose state X or
Y, that you can look back to an RFP, at least you’ve
identified the breadth of what you need to comply with
in a particular jurisdiction, and then, if you got a team
in-house, you could have added, and the state and local
governments will be happy to help you, or you can
work with a provider to get you off the
ground in that first year.>>All right, one of the
key takeaways I think from today’s discussion
is complexity. I mean, I mentioned earlier
that you have national. You have state, and
you have city. You have county. You mentioned parishes
in Louisiana. That’s a whole different
level of complexity, and in some communities, you
even have school districts at the city level that
have taxing authority. But if you’re not covered
by that, you may be covered by the county district that
may have taxing authority. So, it’s a really complex
landscape to play in, but the reality is, by going
back to Jon’s comment earlier, it’s the reality that service
providers at a local level, they are there to help you, and
they will bend over backwards to ensure that you
are, you know, making sure that
you are compliant, that you can take advantage
of all the tax breaks and incentives that
are available to use, that you can leverage all the
advantages that are available through the community
college system, local university
systems, and so forth. So, they are a huge wealth
of resources for you. So, definitely take advantage of those individuals
at the local level. We have a few minutes
for questions. Does anyone have any
questions of our panelists. We can take those questions now? There’s a microphone
right there in the middle, or you can just kind of shout out if you have a
loud speaking voice. No questions? Well — we’ve got one? Okay? [ Speaking off Mic ]>>Well, something that
catches people off guard, which, I think we talked about much
everything, but something that catches people off
guard if you’re not used to it is the personal
property tax. So, we had — I live in a
state that you have one. So, I had a client that
just assumed the rest of the United States
was like our state, and they got some inventory
into taxes, and they got in right before the
end of the year into Houston, the highest rate. And you know, and they called
me and said, “Uh-oh, you know, we beat the tariff,
and we got it in.” And, you know, of course, he beat the tariff was
like one-one, right? One-one of 19. And you know, you ask
them, okay, where’d it go? “Well, it’s Downtown
Houston, you know?” How much is it? “Oh, $7 million.” Okay, well, let me do some math. It’s like 300 grand. You know, we’ll have
to worry about that. So, there’s some gotcha taxes. I think, to me, that one
is the most surprising. I would defer to
others on others. There’s all kinds
of crazy taxes.>>I would say, you know,
excise taxes or energy taxes. You might be surprised. You look at your utility bill,
all the different levels of tax that are on there, and those may
not exist in every jurisdiction, because those are all
regulated at the local level. So, then we pay attention
to your energy bills. I would say that in terms of a
trend, I would expect like much of the United States
that we’re going to have over time more environmental
taxes. We got plastic bag taxes. We got carbon taxes
in some jurisdictions, and likely, more to come. So, keep in mind those, as well.>>I had one. So, something that
surprises people in the United States
is how significant some of the local income taxes are. So, New York City, that
the local income tax. So, there’s New York
City plus New York State, and that’s what you
pay in New York City. So, that tends to surprise
people, and I think, maybe, the general rule I think of is pretty much every
large city has some form of additional income or
gross receipts tax except for Chicago so far.>>I think I feel, you
know, I feel badly, right? We got people appear who’ve
been doing state and local taxes for 100 years, and it feels
like we’re telling you you need to use a service provider,,
but I think there’s a reason that we’ve been doing this
for 75 years is it is complex, and we do want to have you make
right – make the right decision for your business and still get
to have some form of modeling to be able to lay this
out apples to apples. I cannot leave this stage without saying that
one more time.>>Yeah, I have something
somewhat positive, right? So, I think one of the really
nice things about state and local tax in
the United States is that there are very strong
constitutional protections, and it relates to just how
competitive the states have been, right? Because they like
to tax, you know? Every state like the next people
who don’t live in the states. I mean, that’s the goal. So, and the ultimate people who
don’t live in the state are, you know, people
from outside the US. So, there are constitutional
protections that the states generally follow and will treat your company’s
equal or better than they treat, or they should, American
companies. So, I would take
some heart from that. Like I said, pretty
strong positive.>>I guess just another note in
terms of what your business is. It might be a really
good fit with the state. So, a lot of international
companies, global companies are in traded sectors,
value-added sectors. States are looking
to partner with.>>I would say on a
positive note, as well, I think you’ll find a lot of
excitement as you talk to state and local governments about inbound investment
coming to United States. I grew up in Ohio,
Northeast Ohio, which did not have a tremendous
amount of inbound investment. I spent my 20s and
30s in central Ohio, which is very influenced by
heavy investment from Honda in the 80s that Vince Burdick
tremendous economic development with all the suppliers
that located there, and then throughout the
west of the Midwest. But, you know, very much viewed
positively than and now relative to the economic impact,
and really, what brought to the central of
course Central Ohio. And I really saw that
because even today, Northeast Ohio does
not have as much of the foreign investment that,
perhaps, you did 20 years ago, and it’s doing well these days,
Steve, in terms of the economy, but lagged slightly behind
Central and Southern Ohio, who had more of that investment. So, I think you’ll find a lot of
excitement as you talk to state and local agencies about your
investments and help you sort through the both
state and local taxes.>>No better place to put the
investment than here in the USA.>>I think you go
around the country, you’ll find most communities
have transitioned from this idea of being service providers to
core companies to being partners with companies, and they’re
really interested in the idea of how they can partner
with you, so that you can be successful and the community
can benefit, as well. And so, if you go into it
with that mindset, I mean, like I said, there’s no
other better place to invest, and you can definitely find
value add for your companies and for your investors. So, with that, I think
we’re right at times. These individuals will
make themselves available for questions, if you’d like. But thank you all for your time. It’s been a pleasure.>>Thank you. [ Applause ]