Reporting by the Wichita Business Journal regarding economic development incentives in Wichita makes a big mistake in overlooking where the real money is.
In a recent article discussing economic development incentives, the Wichita Business Journal looks at the situation in North Texas. (Incentives have meant big business in North Texas, Aug 24, 2015.)
An example used in the article is Toyota’s decision to move its North American headquarters to Plano. Toyota received incentives in conjunction. The article quotes Jim Lentz, CEO of Toyota North America, as saying “The incentives are really important.” But that hasn’t always been the line from Toyota.
At the time of the announcement last year, Forbes reported that incentives were a small part of Toyota’s decision, and that other cities likely offered more. Similar reporting came from the Houston Chronicle.
We can easily imagine Lentz coming to his senses, realizing that he needs to credit the incentives with at least some role in Toyota’s decision. Otherwise the local taxpayers — who have to pay for the incentives — might feel duped.
But a serious problem with the article is the claim that “But incentives now seem to be off the table in Wichita.” This is an assertion made by others, including our mayor and city council members. Usually it’s qualified that cash incentives are off the table.
But incentives are far from gone in Wichita. Cash incentives — most commonly forgivable loans — may be gone, but these loans amounted to just a small fraction of the value of incentives used. (Would you like to be able to reference a database of incentives granted in Wichita? Many people would. But to my knowledge, no such list or database exists.)
Instead, the incentives most commonly used — where the real money is — are tax abatements.
Earlier this month I reported about an incentive considered and passed by the Wichita City Council. Through the city’s Industrial Revenue Bonds program, WSF developers avoid paying sales tax on $4,500,000 of building materials. City documents didn’t mention this number, but with the sales tax rate in Wichita at 7.5 percent, this is a savings of $337,500. It’s as good as a grant of cash. Better, in fact. If the city granted this cash, it would be taxable as income. But forgiveness of taxes isn’t considered income. 1 2 3
The sales tax abatement granted was on top of other incentives, most notably STAR bond financing of $7,525,000. These bonds will be repaid by sales tax collections from the project and surrounding merchants. The beneficiaries will pay nothing. 4
The incentives illustrated above are common in Wichita. Again, with the city failing to track the award of incentives, it’s difficult to know just how common.
But we can safely say that the assertion by the Wichita Business Journal that “Incentives now seem to be off the table in Wichita” is incorrect. Worse than that, it’s irresponsible to make such a statement.
- Stateandlocaltax.com, (2015). IRS Addresses Federal Tax Treatment of SALT Incentives : SALT Shaker : State & Local Tax Attorneys : Sutherland Asbill & Brennan Law Firm. Online. Available at: http://www.stateandlocaltax.com/policy-and-legislation/irs-addresses-federal-tax-treatment-of-salt-incentives/ Accessed 26 Aug. 2015. ↩
- Journal of Accountancy, (2009). Location Tax Incentive Not Federal Taxable Income. Online. Available at: http://www.journalofaccountancy.com/issues/2009/apr/locationtaxincentive.html Accessed 26 Aug. 2015. ↩
- American Institute of CPAs, (2015). Federal Treatment of State and Local Tax Incentives. Online. Available at: http://www.cpa2biz.com/Content/media/PRODUCER_CONTENT/Newsletters/Articles_2008/CorpTax/Federaltreat.jsp Accessed 26 Aug. 2015. ↩
- Weeks, Bob. (2015). In Wichita, an incomplete economic development analysis. Online. Voice For Liberty in Wichita. Available at: http://bobw7.sg-host.com/wichita-government/in-wichita-an-incomplete-economic-development-analysis/ Accessed 26 Aug. 2015. ↩