The Negotiated Tax Incentive Process

Joel  A. Smiley, M.P.A., Principal

We often look at the newspaper and read about a company receiving tax credits for developing or expanding their business.  As tax credit specialists we often get asked; “we recently opened our business and hired dozens of employees. We narrowed our site from a list over a period of time. Can we get tax credits?”  We tell our clients to think of themselves as a widget salesman who just sold a widget for a dollar.  The sale was completed and the dollar was transferred.  After the sale was completed, the widget salesman comes back to the customer and asked them for more money. What reason does the customer have for giving additional funds to the salesperson after the sale?

Now think about a commercial developer thinking about developing a business in a community.  The developer knows the potential costs of the development site as well as the operating costs, number of employees, infrastructure investment and other land costs associated with the project.  The community leaders must decide if this is a project that can benefit the community.  If it can, the community may be willing to offer an incentive package to attract the development of the project.  

Tax incentives by in large should be tied to infrastructure, job creation, or the remediation of blight.  Once a developer knows their development costs, we can determine their tax liability and make a projection over a period of years.  Communities like a developer to be vested.  They also like to collect tax revenue on commercial development projects.  

“But for this incentive would the project happen.” This phrase is known as the “But For Test.”  Governing agencies use this test to determine if incentives are necessary for a project to move forward in their community.  When communities, regions, or states compete for projects, they can trigger an increased in the value of the negotiated credits as the “But For Test” can drive the process.

Another key with negotiated credits is that an incentive package can be derived through  different governmental and non-governmental entities.  For example a widget manufacturer may need infrastructure, job training, road improvement and other expenses.  A negotiated package may include reduced price land from the City and a second workforce package from the state.  These layers are then combined for a comprehensive package to the company to make an informed decision based upon their cost benefit analysis.

A final key with tax credits rests with the philosophy of the community.  We have worked with clients interested in communities close together.  One community is willing to offer an incentive package while the other will not.  The earlier we know these outcomes the easier it becomes for the client to make a decision on the site.  For communities willing to negotiate a tax credit package, we target ten to twenty percent of the development costs and tie it back to the infrastructure and job creation components.

For more information contact Joel Smiley, Principal Attracting Resources, LLC (314) 827-9623 or

Joel  A. Smiley, M.P.A., Principal

Corporate Economic Development  •  Marketing & Government Relations • Fundraising

Copyright 2013 Attracting Resources, LLC.

Joel A. Smiley, M.P.A.,  Principal.

Office: 314.827.9623  Fax: 314.469.1114