The lengths states will go to lure businesses – Wacky Tax Wednesday

There’s a bill under consideration in Oklahoma that would provide tax incentives for businesses that move from other countries to the Sooner State. Another, in Hawaii, seeks to identify and entice businesses “suitable to relocate to Hawaii.” 

Suddenly, the future seems full of opportunity.

Short and to the point, Oklahoma’s Leave China Act simply states, “Any business or corporation that relocates an operation or company from any foreign nation to this state shall be exempt from income tax, ad valorem tax, sales tax on purchases, use tax on purchases, and franchise tax.” Though the name suggests Oklahoma is targeting businesses based in China, the exemption is open to businesses moving from other countries, as well.

Businesses would be eligible for the above exemptions for 10 years from the date of relocation, defined as the earlier of the day a business or corporation purchases real property or begins to conduct operations in Oklahoma. If enacted as written, which seems unlikely at this point, it would take effect November 1, 2021.

Hawaii looks far more likely to move on HR117 or its companions HCR137, SCR205, and SR170, which have been favorably received. All request the Department of Business, Economic Development, and Tourism compile a short list of Fortune 500 companies and multi-national corporations suitable to relocate to Hawaii. 

Additionally, the department should identify means and incentives to entice these businesses to relocate to the Aloha State. 

The measure lists other states that use incentives to lure certain businesses to the state, though it doesn’t say how successful those efforts have been. Examples include:

• Florida, which offers discretionary grant funding to businesses that invest at least $50 million and create at least 50 jobs in the state in a three-year period
• Kentucky, which provides income tax credits to regional and national headquarter firms that can offset up to 100% of corporate income tax liability
• Louisiana, which provides a rebate of up to 25% of facilities and relocation costs over five years

Though none are mentioned in the bill, sales tax incentives are relatively common. Back when Amazon was looking to build fulfillment centers around the country, before states had the authority to tax remote sales, several states agreed to let Amazon’s sales go (temporarily) untaxed if the company developed a physical presence in the state and created a certain number of jobs — even though physical presence normally triggers a tax collection obligation.

When Boeing announced it would expand operations in Missouri, its home state of Washington promised it billions in state and local tax breaks to stay. After it moved anyway, Boeing received tax breaks from Missouri. In 2015, North Carolina exempted sales of jet fuel and aviation gasoline to interstate air businesses to entice them to refuel in the Tar Heel State. The list goes on.

At this time, Hawaii isn’t proposing any concrete incentives: “The State should explore all possible incentives to lure well-paying jobs and investment to Hawaii.” 

The reasoning for the Leave China Act isn’t provided in the Oklahoma bill. However, bill author State Senator Nathan Dahm offered this explanation to the press: “Joe Biden’s recent executive orders will cost our nation tens of thousands of jobs. It appears he’s putting China first by repealing a previous order prohibiting them from working on America’s electric grid, so it’s imperative that we work to put Oklahoma first … [and] lower taxes for the creation of jobs in our state.”

By contrast, the authors of the Hawaii measure clearly laid out their reasoning. In a nutshell:

• Business activity and a strong economy are essential to the well-being of Hawaiians
• Hawaii’s economy is heavily dependent on tourism, which has suffered during the pandemic
• COVID-19 demonstrated the urgent need to diversify business in the state
• Many jobs and businesses can be done from anywhere with internet connectivity

It goes on to explain why Hawaii is a great place to live and work, as if we needed convincing. I’m willing to give it a try.

If your business has been enticed by sales tax incentives, or even if it hasn't, Avalara can help you navigate compliance.