Case in point: state tax policies. Not too long ago, Amazon went on a search for a new city to build its second headquarters. They were wooed by cities all over the country who made proposals about things like infrastructure, housing for workers, the quality of their public transportation systems and more. Of course, all of these things are important - but the decision ultimately came down to a few major quantifications and one of them was taxes.
State tax policies, especially as they refer to corporations, matter a great deal. This is true for a wide range of different reasons, all of which are more than worth exploring.
State Tax Policies and Corporations: Breaking Things DownPerhaps one of the best recent examples of how state tax policies can influence the thinking - and ultimately the action - of major corporations comes by way of Intel.
Intel is a technology organization that also happens to be the largest manufacturer of semiconductor chips in the world. If you've used a computer in the last several decades, the chances are that it was filled with Intel's hardware. Recently, they selected a county not too far from Columbus, Ohio to build what is being dubbed as the largest semiconductor plant on the planet.
At this point, you may be asking yourself why a seemingly random county in central Ohio was an ideal choice to build the biggest plant of its type in existence. There are a few different reasons for this. For starters, Intel needed an area with a large number of college graduates and being situated not too far from The Ohio State University certainly fit the bill. But beyond that, the Ohio legislature actually increased the timeframe on incentives that were associated with its 15-year Commercial Activity Tax. This is something that is considered against a company's revenue and now, thanks to this decision, Intel essentially has a 30-year income tax break on the $20 billion plant.
The motivation behind this is clear - the construction of the plant itself is expected to generate an enormous amount of income for the county, not to mention the 3,000+ workers that will soon be employed. Intel also gets a tax incentive for each of those workers - all of whom are highly paid. It truly is a win-win situation for everyone involved and it's a clear sign of why state tax policies matter so much in terms of corporate thinking.
Indianapolis was another one of the areas under consideration, although for Intel it didn't quite make sense due to the state tax policies. The incentives weren't quite as good as they were in Ohio and, unlike the general Columbus area, they lacked a solid economic development strategy. The city also lost out on an opportunity to become the home of the Amazon HQ in the recent past, as well as a proposed Foxconn plant.
Regardless, the lesson is clear: state tax policies matter. These major organizations are investing hundreds of millions - or in some cases, even billions - on infrastructure. They're creating thousands of new jobs and those employees will only contribute to the economy further. All of this is especially important given everything going on in the world right now.
But if the taxes on these activities are too high - or if the incentives aren't attractive in the first place - companies will begin to look elsewhere. Because of the global economy that we're now living in and with a strong supply chain, geography ultimately matters less than operational efficiency. Strong tax incentives go a long way towards guaranteeing precisely that, which is why companies like Intel are choosing to build enormous factories outside of places like Columbus, Ohio.
About Frank Jenkins Jr
Frank Jenkins Jr. CPA is the managing partner of Adams, Jenkins & Cheatham, a CPA practice based in Midlothian, VA. Frank specializes in Consulting services, tax planning, audit & assurances. "I genuinely care about our clients because I have a personal connection with them." He is active in the community and belongs to the AICPA and the VSCPA.
