State tax incentives become bargaining chips in a globally mobile economy.

• Author: Lorenzo, Virginia

There once was a time when a business' headquarters location was based on proximity to natural resources and transportation networks. If you owned a mill, you worked near a river. If you exported goods, you were near a port. While some of those geographical limitations still exist, most businesses operating in the modern world of universal high-speed Internet, widely accessible transportation hubs, and a truly global economy can set up shop pretty much wherever they want.

State tax authorities are well aware of this phenomenon, and in many cases, they are willing to roll out the red carpet to woo the right types of businesses to their backyards. One of the higher-profile recent examples of this was Nevada's aggressive courtship of Tesla, whereby the state offered an unprecedented $1.25 billion tax incentive to the company for it to build a $5 billion "gigafactory" in the Silver State. South Carolina also made headlines recently with its offer of $200 million in combined incentives to Volvo in exchange for building a new plant just outside of Charleston.

As big as these deals were, they represent a small fraction of the total amount of credits and incentives offered to corporations throughout the United States each year. All told, about $80.4 billion in government tax incentives are up for grabs each year, and 5,000 companies have received more than $1 million in incentives each in recent years.

MONEY LEFT ON THE TABLE

Despite the widespread use of the tax incentive as an inducement to expand or build in a particular region, a majority of these incentives go unclaimed each year. According to a recent survey of Thomson Reuters Checkpoint customers, seventy-seven percent of respondents said they do not spend any time researching available credits and incentives. Included among the reasons why that is the case were research is time-consuming and there are a lack of resources for seeking out available incentives.

With more and more incentives being introduced each year and money still being left on the table by corporations that just didn't have time to research what's available for the taking, we felt it was time for a primer on how to get the most out of credits and incentives.

DISCRETIONARY AND STATUTORY INCENTIVES

The first step to using tax incentives as a business bargaining chip is to understand the two basic types of state tax incentives: statutory and discretionary. Statutory incentives are written into state law, and companies can...