Incentive targets ‘green’ companies

As its top new incentive to lure businesses to Tennessee, the Bredesen administration wants to get in on the ever-growing ‘green’ energy field, but is facing some debate over whether that’s wise during an economic downturn.

A provision in the Bredesen administration’s large, tax-loophole closing bill has a section that would create a business tax credit for companies manufacturing products necessary for green energy.

The green energy tax credit is the Bredesen administration’s top incentive it’s offering through the bill “so far,” said Reagan Farr, the commissioner of the Department of Revenue.

“I think Tennessee has a great opportunity to become a player in this field,” Farr said.

Farr would not say what specific companies are considering moving to Tennessee for the green energy tax credit nor how large the incentive would be. For an incentive to be included in the legislation, however, it often has a specific company or companies targeted.

The state, with Oak Ridge National Laboratory and a $72 million investment recently centered on researching cellulosic ethanol to be made from switchgrass, is in a good position to capitalize on the growing, lucrative sector of green energy, he said.

Green energy jobs’ salaries are comparable to automobile manufacturing jobs, Farr said, coming in at least at $50,000 to $60,000 per year.

The bill offering the incentives is still being drafted and a current copy for public inspection has not been made available. Farr left the door open to other incentives being included in the bill.

The state is reportedly competing with Alabama and Michigan for a new Volkswagen manufacturing plant to be located in the Clarksville or Chattanooga areas.

The Nissan bill

The green energy incentive is being offered through a familiar mechanism for those who recall the Bredesen administration’s economic development efforts in year’s past, particularly when it comes to the recruitment of auto companies.

Each year, there is a Department of Revenue-led tax bill, which closes loopholes that businesses find to get around some of the state’s taxes. The legislation is commonly referred to as the “technical corrections bill,” and while still being formulated as the legislature comes to a close, is expected to raise $27 to $30 million in taxpayer funds.

Besides those loophole closing efforts, the technical corrections bill has become the vehicle for the administration to offer its incentive packages in their efforts to recruit businesses to Tennessee.

The Department of Economic and Community Development and the Department of Revenue team up and place incentives targeted at specific companies.

“These aren’t credits or incentives that some consultant comes and says, ‘gee, if you enact this, this will be good for the state,” Farr told lawmakers recently. “All of these are tied around projects with actual business people that we have talked to.”

Farr estimated that the Department of Economic and Community Development has about 50 to 100 companies with various degrees of interest in Tennessee.

This lengthy, complicated legislation is traditionally brought forward at the end of the legislative session. It garnered likely its largest public recognition in 2005 when a multi-million dollar incentive was inserted to lure Nissan North America to move its headquarters from California to Middle Tennessee.

It also caused a brief uproar in 2007 from some fond of home barbequing as the tax law was clarified to make plain that small propane tanks were subject to sales tax.

What about existing companies?

In the state’s tight fiscal times, some lawmakers are questioning using tax incentives to recruit out-of-state companies to Tennessee while not offering tax credits to companies currently doing business in the state.

One of the main proposals for existing Tennessee businesses would offer a tax credit to small businesses who pay for at least 50 percent of their employees’ health insurance premiums.

Sen. Diane Black (R-Gallatin), a sponsor of the health care tax credit legislation, which has bipartisan support, said the legislation would encourage small businesses struggling to pay for health benefits to keep their employees insured.

While recruiting new companies is “wonderful,” Black said keeping current companies in business that are already paying taxes should be a priority.

“There’s also something to be said about making new friends and keeping the old - one is silver and the other is gold,” Black said during a recent legislative hearing. “And I think that’s the case here where we need to make sure that we are saying to the companies that are here and that are currently paying those taxes, ‘we want you to stay here and we will work with you to keep you here.’”

The health care bill won’t pass this year because of its nearly $9 million cost to the state, said Jim Brown, the state director of National Federation of Independent Business, which was pushing the legislation. That cost occurs during a time when tax dollars are scarce and Bredesen is searching to cut, not add, $468 million from the budget.

On the other hand, Farr said the green energy tax credit wouldn’t cost the state anything initially, but if utilized could cost Tennessee money in the future.

Other incentive provisions

Besides the green energy tax credit, there are a few, smaller incentive changes offered through the “technical corrections bill.”

One of the provisions would allow the Bredesen administration to suspend a law affecting companies seeking the state’s jobs tax credit.

The law requires companies seeking the credit to create new jobs, ones that have not been in existence for at least 90 days.

Farr said the Bredesen administration wants latitude to suspend that rule for circumstances like when a company is closing and the only way jobs can be saved is from a new investor of capital.

“The new company that comes in and preserves those jobs can take the jobs tax credit just like they’re new jobs to the state of Tennessee,” Farr said of the provision.

Perhaps the most controversial aspect of the technical corrections bill, however, doesn’t center on tax incentives but involves closing off tax loopholes.

Specifically, the Bredesen administration wants to eliminate a tax break for family owned limited liability companies, or Family Owned Non-Corporate Entities (FONCE), which is expected to very conservatively take in about $15 million for the state.

The move has set off a last-minute lobbying battle on Capitol Hill as the National Federation of Independent Business and other business groups battle the Bredesen administration over the tax exemption.

That opposition received a boost last week when the sponsor of the technical corrections bill, House Majority Leader Gary Odom (D-Nashville), said he was opposed to eliminating the tax break for family owned limited liability companies.