States Consider Compact to Phase Out Corporate Giveaways

During the 2020 legislative session, several states are considering legislation that would create the Interstate Compact to Phase Out Corporate Giveaways. The goal of the compact is to phase out corporate tax incentives in order to prevent a race to the bottom.

This competition among the states was recently illustrated by the incentive packages offered to Amazon to locate its second headquarters within a state. Incentive packages often involve billions of dollars in tax breaks, credits, and other grants.

States Considering the Legislation

In 2020 legislation was introduced in the following states:

In 2019 the legislation was introduced in six states.

Model Legislation

The creation of a state compact is being led by the Coalition to Phase Out Corporate Tax Giveaways. The coalition states it is a national bipartisan campaign of state legislators to phase out wasteful corporate tax giveaways.

The standard legislation lists out certain findings. Among those are that:

  • corporate giveaways are not an effective use of taxpayer dollars to create and maintain jobs;
  • a level playing field is best, but each level of government has an incentive to subsidize a company, generating a race to the bottom;
  • governments should attract and retain companies based on general conditions;
  • corporate giveaways fuel business inequality; and
  • a first step in phasing out corporate giveaways is an anti-poaching agreement among the states.

Corporate Giveaway

A corporate giveaway is defined as any company or industry specific disbursement of funds through:

  • property;
  • cash; or
  • deferred or reduced tax liability.

The giveaway would need to be from a state or local government to a company or industry.

Anti-poaching prohibition

To begin, the legislation focuses on anti-poaching provisions.

The compact would prevent each member state from offering or providing company-specific tax incentives or grants for listed items.

A tax incentive is considered any change in the general tax rate or valuation offered or presented to a specific company that is not available to other similarly situated companies.

A company specific grant is considered a disbursement of funds through:

  • property;
  • cash; or
  • deferred tax liability.

The listed items include:

  • corporate headquarters;
  • manufacturing facilities;
  • office space; or
  • other real estate development to relocate to the offering state.

Allowed Incentives

The compact does contain some exclusions. The incentives not covered by the agreement include:

  • workforce development grants;
  • company-specific tax incentives or grants from local governments; and
  • state company-specific tax incentive or grants to entities for corporate headquarters, office space, manufacturing facilities or real estate developments for companies already located in the state.

Impact on the States

The adoption of the compact would impact some existing state incentives. At least some parts of existing credits would not be allowed under the compact.

States with existing credits incentivizing corporate headquarter relocations, include:

However, the states would no longer have to compete against each other, through tax incentives, to bring in new jobs.

By Andrew Soubel, J.D.

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All stories by: CCHTaxGroup