According to Alvey, the president and CEO of the Economic Development Authority of Western Nevada (EDAWN), the larger concern at those meetings is understanding the needs of the business owners. Then, the business builder goes to work putting together an arsenal of enticements that would make northern Nevada appear to be a great place to put a business.
Nevada, along with all other states, has a toolkit of state-approved incentives to convince big businesses to bring their dollars and employees to the area. In Nevada, that toolkits consists of tax abatements for everything from sales and use tax to business tax to personal property tax. These are granted by the Nevada Commission on Economic Development (NCED) through EDAWN and can be given to big businesses that are looking to relocate in Nevada or are significantly expanding their operations.
“There is a concept behind incentives,” Alvey said. “Many states now are offering cash incentives to bring in business: Texas, Michigan and Ohio, as well as others. Well, we don’t have any cash incentives to give them.”
Instead, businesses can have their sales and use tax abated or deferred or take advantage of abatements for personal property tax, modified business tax and real property tax, among others. The abatements only last a specified amount of time, after which the company is contractually obligated to contribute to the local economy.
In the past 18 months, eight businesses have taken advantage of these abatements in Washoe County, as have two in each Douglas, Churchill and Storey counties.
“Some choose not to use them,” Alvey said. “In some cases they realize that they are not going to make much money that way or it is just too much accounting.”
In past years, before the current recession stunted much of business’ growth, about 12 companies would apply for the incentives each year, Alvey said. In growth years, the number of companies relocating to northern Nevada annually would be in the 40s, Alvey said, but that the number now is closer to 18 per year.
And these are not the mom and pop shops. In order to qualify for tax abatements through the state of Nevada, a business must meet two out of three criteria. One of those two criteria must be that they pay their employees, on average, more than $20.05 per hour. The company would have to meet one of the following two criteria:
• New companies must create 75 new full-time jobs, while expansions must increase by 10 percent or six employees, whichever is greater; or
• New companies must invest $1 million, while expansions must spend at least 20 percent of the value of tangible property possessed by the business.
According to Alvey, these requirements come with a few other strings attached, including a clause that the business must keep its contractual standards for five years. If they do not, there is a claw back clause under which the state can claim unpaid taxes immediately. Such was the case when Michelin tires moved its business out of state early, Alvey said. However, he added that the NCED has been much more lenient in granting incentives, sometimes bending the requirements on a case-by-case basis in order to grow Nevada’s economy.
The tax abatements also come with a few downfalls for the cities and counties where the businesses choose to relocate. Under state law, Nevada will always get its 2 percent share of the 7-plus percent sales tax charged in a given county. The portion that will be deferred or forgiven for businesses will come from the portion of sales taxes that would have gone to the city or county. Also, the state’s modified business tax can be abated, according to Nevada Revised Statutes, but only up to 50 percent for a maximum of four years.
To give some context, dipping tax revenues have taken the brunt of the blame for recent local and state budget shortfalls.
According to the Nevada Department of Taxation, sales and property tax revenues are down significantly, some in double digits.
In Sparks, the businesses currently taking advantage of the abatements are Sierra Nevada Corp., an electronic and technology manufacturer, and OHL, a supply chain and logistics company. Both got the abatements not by moving into the area, but by expanding so significantly that the NCED will grant them an abatement.
According to Alvey, the most common misconception with the abatements is that the state is not giving a gift — it expects a return.
“We don’t give them anything,” Alvey said. “We forgive them something. We are getting something out of it. It is a simple matter of return on investment. We are making an investment by giving them the abatements and in return they are generating jobs and eventually contributing taxes. These things are going to be good for the economy.”
Correction (March 5, 2010): In the story headlined “Sticking the carrot in the face of business,” which ran Friday, the business that left the state early was Michelin, not Goodyear. To add clarification, EDAWN is not a state-run agency and wage requirements for businesses seeking incentives must be $20.05 per hour in order to qualify for tax abatements.