IPT 2017 Sales Tax Symposium San Antonio, Texas September Site Selection and Tax

Transcription

1 IPT 2017 Sales Tax Symposium San Antonio, Texas September Site Selection and Tax How Tax Professionals Play a Vital Role in the Site Selection Process

2 Presenters Chip Gooding Vice President, Tax Commercial Metal Corporation Minah Hall, CCIP, Esq. Managing Director True Partners Consulting, LLP 2

3 What is Site Selection? The process of minimizing risk on a business P&L when determining which location to place capital investment and headcount 3

4 Site Selection: Financial Implication 4 Financial implications? Hiring, relocation and training investment Upfront out-of-pocket capital investment Capital assets and employees will be most underutilized in the first few years of the project Depreciation is the highest in the first few years of the project

5 Role of Incentives in Site Selection Why incentives are important They impact the prospect s decision Differentiate one location from another Increase in importance as the decision process proceeds 5

6 EVALUATING THE VALUE OF INCENTIVES 6

7 Types of Incentives Cash Incentives that can add to the bottom line Free land/free rent Sales tax savings Expedited permitting Property tax savings Infrastructure improvements 7

8 Project Factors Each project is unique, even within the same organization Distribution center Headquarters relocation Manufacturing plant expansion Data center

9 Valuing Incentives Do incentives directly offset project-related costs? What is the timing of incentive payments? Can tax-based incentives be monetized? What level of support have comparable projects or competitor companies received in the past? 9

10 Incentives Align to Company Needs Ideal incentives facilitate alignment of company s needs to the incentives offered to maximize the benefit 10

11 Capital Costs 11 Land Options Purchase Price Transaction Costs Site Preparation Clear, Grade Cut and Fill Drainage Paving Ingress / Egress Utility Infrastructure (system capacity, line extensions, etc.) Water Wastewater Electricity Natural Gas Telecommunications Transportation Infrastructure Road Rail Air Port Important because usually are large significant costs at the earliest stages of the project. Other Recruit, screen new employees Pre-employment training Sales Tax Construction materials Machinery & equipment Permit fees / expedition

12 Incentives to Offset: Capital Cost Grants Special Purpose Bonds Cash In Kind Contributions Land Sales Tax Machinery & Equipment Construction Materials Infrastructure Water-Sewer Extension Pretreatment Facilities Substation Site Development Training Equipment 12

13 Operating Costs Labor Wages Benefits Unemployment Worker s Compensation Training On-going Retraining Skills upgrade Certifications Transportation Utilities Water Wastewater Telecommunications Electricity Natural Gas Taxes (State and Local) Corporate Income Personal Income Franchise Sales Property Other 13 Important because impacts profitability over life of the project.

14 Incentives to Offset: Operating Cost 14 Income Tax Credits Job Creation Investment Tax Credits Property Tax Incentives 5-25 year abatements Fee-in-lieu of Taxes Exemptions Payroll/Withholding Incentives Reduced Utility Rates Contracts Economic Development Rates Financing Interest Rate Discounts Bond Financing Training Retraining / upgrade Certifications Funding

15 Incentives Timing of Receipts Front End Infrastructure Grants Subsidized Financing Training Brownfield Grants Subsidized Leases Free Asset Use Back End Tax Exemptions Tax Abatements Tax Rebates Tax Credits Utilities Discounts 15

16 MONETIZEABLE? Non-refundable tax credit worth $10,000,000 is worthless if the company does not have any income tax liability. Compared to a $300,000 cash grant or other monetizeable incentive 16

17 COST ANALYSIS

18 Cost Analysis

19 Cost Analysis (cont.)

20 Cost Analysis (cont.)

21 Cost Analysis (cont.)

22 Cost Analysis (cont.)

23 Incentives vs. Cost State A State B Difference Total Incentives $7,078,292 $2,966,150 ($4,112,142) Property Taxes (Years 1-10) Property Taxes after Incentives $6,129,499 $4,453,583 ($1,675,916) ($948,793) $1,487,433 ($2,436,226) 23 Based on above information, State A still seems like the more enticing location option

24 Incentives vs. Cost State A State B Difference Total Incentives $7,078,292 $2,966,150 ($4,112,142) 24 Property Tax (Years 1-10) Property Tax after Incentives Property Tax (Years 11-21) Total Property Tax after Incentives $6,129,499 $4,453,583 ($1,675,916) ($948,793) $1,487,433 ($2,436,226) $13,679,125 $6,161,333 $12,730,333 $7,648,767 ($7,517,792) B ($5,081,566) B Based on above information, State B becomes the more cost effective location

25 CASE STUDY

26 HYPOTHETICAL Manufacturing Facility Assumptions 2 Locations: Texas & Arkansas Jobs: 275 New Highly Skilled: 75 Semi-Skilled: 100 Unskilled: 100 New Construction 25 Acres Construction: $18.9 Million - $19.5 Million

27 See Excel Cost Analysis

28 Area Development Consultants Forum 23 June 2017 Questions? Minah C. Hall Managing Director True Partners Consulting Chip Gooding Vice President of Tax Commercial Metals Company