Credit bill passes in state legislature

4/25/2017

Bringing more transparency to the state’s business subsidies, lawmakers passed a bill that would require an annual report on tax credits.

If Gov. Bill Haslam allows the measure to become law, the Department of Revenue would disclose to lawmakers how many companies received franchise and excise tax credits during the previous fiscal year, how much in subsidies they received, and how many people companies hired (if their tax credits depended on hiring). Reports would show the total amounts, not by individual companies.

A representative for Haslam indicated he didn’t oppose the bill.

Business tax credits cost the state more than $140 million annually, in the hope of broad economic impacts. The forgone revenue, though, could be spent on education, roads, health care or other government functions that also impact the economy.

A state-commissioned study from December found tax breaks had mixed results in Tennessee. Consultants recommended some changes to the subsidy programs, including adding a so-called “claw-back” provision to force companies to repay if they fell short of hiring targets and other commitments. The Tennessean obtained a copy of the study and published an analysis in February. House Minority Leader Craig Fitzhugh, D-Ripley, introduced the bill soon after.

“This is going to be a lot of help to us going forward,” Fitzhugh said in an interview. “We just need some facts to back it up, if we need to make a change.”

The Senate passed the bill with no opposition. It passed the House, also without opposition, earlier in April. The final version of the bill included an amendment intended to keep individual taxpayer information confidential, a provision urged by the Department of Revenue, Fitzhugh said.

The annual report also will summarize the types of businesses receiving credits and how many credits were carried forward from previous years.

“This legislation will work to ensure that we have greater understanding and transparency of how many of those credits are issued, what companies and industries are taking advantage of those credits, and the number of jobs created by those programs,” Sen. Jeff Yarbro, D Tax Nashville, said before Wednesday’s vote. “Hopefully that information will better enable us to maximize the benefit of those tax credits for the citizens of Tennessee.”

Some credits, consultants found, have more economic impact than others. In December, Anderson Economic Group showed that the Jobs Tax Credit generated an average of 600 jobs per year and cost the state an average of $52.1 million annually from 2011 to 2014. That equates to about $87,000 per job, including direct hiring by the company receiving the credits and indirect hiring at other companies.

The Industrial Machinery Tax Credit cost the state $66.7 million annually during the same time frame, but the economists could attribute only 55 new jobs per year to the tax break. That comes out to $1.2 million per job, according to an analysis of the report by The Tennessean.

State economic development officials later disputed that calculation because the industrial machinery credit is not just for job creation, they said, but is “designed to encourage manufacturers to make investment in advance industry equipment and boost productivity.”

Currently, state law requires an evaluation of business tax credits every four years, while the new legislation requires annual reporting.

Source: Knoxville News Sentinel, by Mike Reicher

The East Tennessee Economic Development Agency markets and recruits business for the 15 counties in the greater Knoxville-Oak Ridge region of East Tennessee. Visit www.eteda.org

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