Johnson City Press: Not all business tax incentives are created equal
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Not all business tax incentives are created equal

Robert Houk • Sep 21, 2018 at 12:00 AM

When it comes to transparency, not all business tax incentives are the same in Tennessee.

That’s one of the conclusions from a report on payment in lieu of tax, or PILOT, agreements, business tax credits and other economic development tax incentives released this week by the state comptroller of the treasury.

Kristina Podesta, a legislative research analyst for the comptroller’s office of research and education accountability, said Thursday the state uses a “patchwork quilt” approach to tax incentives. She said this strategy means there are multiple state agencies involved in dispensing business tax incentives and “a variety of ways” in which they are provided.

The degree of transparency when it comes to accounting for these business tax incentives depends on the type of state incentive it is. Some state tax programs involve public hearings, require annual reports that offer details of the status of the incentives and provide online financial data.

Other tax incentives include none of these reporting requirements.

In fact, Podesta said the comptroller’s report found annual evaluations are not required for most business incentives. One exception is business tax credits, which are required by state law to undergo annual evaluations.

Podesta said the report also points out that recent bills passed by the state General Assembly are aimed at bringing more transparency to the state business incentive programs. One passed earlier this year involves PILOT agreements, where a local government authority or industrial bond board takes ownership of a business’ property, thereby exempting that business from paying property taxes, and leases the same property back to the business.

The business makes payments to the local government in lieu of the property taxes it would have paid without the agreement.  

A new law set to go into effect next month requires a public hearing to be held at least five days before a PILOT agreement is voted on by a local industrial development board. Mitch Miller, the CEO of the Northeast Tennessee Regional Economic Partnership, said he thinks the public hearing requirement by the state is a “very good idea.”

Miller said local PILOT projects undertaken by entities linked to NETREP have written agreements that require a business to meet specific employment goals to maintain its tax-exempt status.

Press News Editor Nathan Baker wrote in May that one one such required PILOT performance report from NN Inc. stated in March the company had 72 full-time employees. That’s 88 employees shy of the minimum threshold of 160 the company needs by next year to meet the requirements of an agreement with the Johnson City Industrial Development Board.

Podesta said the comptroller’s report has offered a number of policy changes for the General Assembly to consider in improving transparency for state business tax incentives, including creating a state repository for information on all business incentive tax programs. The report also suggests the General Assembly should consider an evaluation of each type of state tax incentive, as is now required for business tax credits.

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