VOL. 128 | NO. 152 | Tuesday, August 6, 2013
Business Leaders Say Tax Incentive Process is Tough
By Bill Dries
It still takes too long to make a deal to move a business to Memphis with tax incentives, but without them, Memphis can’t compete with tax rates in other cities in the Southeast U.S., according to two local business leaders.
Neely Mallory III, president of Mallory Alexander International Logistics, and Wyatt Aiken, vice president and chief operating officer of Cushman & Wakefield/Commercial Advisors, say efforts to streamline the process under the Economic Development Growth Engine organization have helped.
But on the WKNO-TV program “Behind the Headlines,” each said the process still makes it harder for Memphis to compete when a company decides to locate in the region and is choosing between Memphis and North Mississippi.
Mallory is the leader of a family business that spans generations in Memphis.
“What I hear from my customers is we can go down and make the deal in a week in Mississippi, where it still takes several weeks or months in Memphis,” he said as he talked of his experience with Texas, where his company has 10 distribution centers. “You just find a building that will work, and you can deal with the tax issues and move forward. Getting something up and running is much more important to me than playing games.”
The program is hosted by Eric Barnes, publisher of The Daily News.
The payment-in-lieu-of-taxes, or PILOT, tax abatement mechanism is the key incentive used to entice businesses to relocate to Memphis. Aiken said the mechanism is necessary because local property tax rates are “ridiculously too high” in Memphis.
He used the example of a Class A bulk distribution building, where property taxes come out to 85 cents a square foot in Memphis and Shelby County without a tax abatement. That compares to an unabated tax rate of 35 cents to 45 cents per square foot in Nashville and 35 cents to 60 cents in Atlanta.
“This should shock all of us,” Aiken said. “If you take away our PILOT and you are left with 85 cents a square foot on a building that the net rent is only $2.50 a square foot, that is a huge amount of a total occupancy cost just going to taxes.”
The Tennessee Constitution bans a tax abatement from going to a person or private entity. Therefore, to receive a PILOT from EDGE, ownership or title to the building has to be transferred on paper to the Industrial Development Board within EDGE.
“And then the landlord, the real owner of the building, leases it from the IDB and subleases it to the ultimate user,” Aiken said. “You have to explain it. They have to pay more for it. It costs more because there are more legal fees involved in that. It takes longer. That longer is actually the biggest problem.”
Just across the state line, DeSoto County and Mississippi economic development leaders are able to offer a standard abatement of 50 percent of property taxes.
Mallory said the regional pitch that Memphis and North Mississippi leaders make is unified. And if North Mississippi gets the prospect, everyone benefits.
“They are going to come to Grizzlies games. They are going to come to restaurants here. They are going to go to the Brooks,” he said. “And a lot of these things, like the Brooks, are publicly funded. … It’s like the hospitals. Eventually Mississippi and Arkansas started paying for part of that. How do you do that for other amenities we have?”
But during the longer process in Memphis, Aiken says, some elected officials’ political criticism of the tax abatement as “corporate welfare” also takes a toll.
“It is not corporate welfare at all. These companies are paying a lot of money in taxes,” he added. “If you’re an executive vice president of a Fortune 50 firm – and I sat right next to one at the IDB board – and you think you are going to be attacked for being some corporate leech, you are going to say, ‘Forget it. I’ll go somewhere else’ … and you will go down the road.”
Aiken also said the idea of tax abatements that include requirements that companies still pay the portion of the property tax rate that goes to local education would be useful and is already done by Mississippi.
“I think that would be a good way to spin it. And that is a little bit of a spin,” he said. “That makes the corporate citizen feel good that I am getting an abatement but I’m not going to hurt the schools.”