Statutory incentives are the type almost everyone pursues and obtains. Tax departments and tax advisors are good at this. These incentives are required to be offered to all on the same basis. More specifically, to earn the incentive what a company has to do is spelled out, the value of the incentive is the same for all performing the activity (e.g., adding jobs) and the process is usually to fill out a form and submit to a tax return or in some cases to get a tax credit certificate.
On the other hand, negotiated incentives are discretionary on the part of the offering entity which is state, county or city/town governments. Whether the incentive is offered is up to the offering entity. The amount is usually up to the offering entity and the terms and conditions are also theirs to decide. While there often is standardization or limits these are still highly discretionary. To obtain, a company will indicate the need for the incentives and the economic impact the project will have in the state at all levels (driving additional jobs and tax revenues).
The analysis of a company’s actions to determine if they have a potential to obtain negotiated incentives looks at 4 categories of corporate investment evaluations:
- Geographically where do we get the best IRR when locating a new facility and adding jobs
- We need more capacity so which of our business units can we expand adding capacity and jobs
- Do we invest in a poorly performing business entity or do we relocate the capacity somewhere else?
- Do we invest in in our employees with more training, better training, etc.