Tennessee lags other states in tax credit transparency

(Update 2-8-2020: The most recent annual report on claimed tax credits from the year ending in mid-June shows the annual carryover liability has grown to $1.3 billion. You’ll find this information in the footnotes.)

When it comes to transparency of state business tax credits given to companies as part of economic development programs, Tennessee lags other states in how much it reveals to the public.

The amount carried over in economic development tax credits to be used by businesses against future taxes is nearly $1 billion in Tennessee. But who is receiving the credits is confidential, the state says, unlike in other states.

The Department of Revenue last year reported for the first time the aggregate amount that businesses had claimed in such tax credits — $152.9 million for the fiscal year ending June 30, 2017. But the identity of the companies, where they are located in the state, and which type of credits each received are all still considered confidential by the state.

At least 20 other states who use tax credits as part of their economic development policies disclose which companies are awarded or claimed such credits and how much they received, according to research produced by Good Jobs First, a national organization that tracks subsidies and promotes accountability in economic development. The research was shared with Tennessee Coalition for Open Government.

Most states go a step further and post searchable databases on their websites listing each company’s name, the type of tax credit received and other information.

Five states, including Tennessee, say that who receives the credits and how much they receive is confidential and do not release it. In Tennessee, the credits are applied toward the company’s state franchise and excise taxes. 

Carryover credits now total nearly $1 billion

The amount being earned in tax credits as part of the state’s economic development programs has mounted over the years.

In addition to reporting the amount claimed on tax returns for businesses in 2017, the Revenue Department revealed last year that $987.6 million more in such credits has been earned in prior years and is being carried over by companies to reduce future taxes. That amounts to nearly $1 billion the state has yet to “pay out” in tax credits due.

A new Revenue Department report is expected to be delivered to lawmakers by Jan. 1 showing amounts claimed on tax returns in the most recent 12-month period that ended June 30, and an updated carryover amount.

The state offers several types of tax credits for economic development. State law outlines criteria for receiving them, ranging from minimum investment amounts, job creation and whether the jobs were created in high-need counties.

However, unknown to most, that criteria can be modified by the commissioners for the Economic and Community Development Department and Revenue Department if the two decide it is in the best interest of the state. That has happened “approximately 15” times since 2013, according to ECD, which declined to release for which companies they modified the criteria.

New Revenue report omits information to protect company identity

The General Assembly has reined in some credits in recent years, particularly in 2015, and added and modified others. 

The report produced by the Revenue Department was the result of legislation in 2017 requiring the agency to provide the aggregate amount claimed under each credit, the number of companies claiming the credit and new jobs.

But even that report has missing information.

Of the 15 types of tax credits listed, the value of tax credit claimed in five programs was “suppressed so as not to violate taxpayer confidentiality,” according to the report.

The largest tax credit program in 2017 was a credit based on the purchase price of industrial machinery and other capital investments, the “industrial machinery credit”. The amount claimed for that credit accounted for about 40 percent of the total claimed in 2017.

The job tax credit accounted for about 24 percent. In the case of job tax credits, 301 companies claimed the credit, and reported creating 8,388 jobs in 2017.

Other states list tax credit recipients in online databases

Much is still unknown about the tax credits in Tennessee, especially as compared with what citizens and lawmakers in other states know about their programs. Many states not only make the information available if someone requests it, they also maintain online databases that can be searched by type of credit, by company name or even by county or part of the state where the business is located.

For example, in Kentucky, an online searchable database allows anyone to search by county what companies have been authorized various types of tax credit incentives, which have received them and estimates on new jobs and hourly wages.

Florida’s online searchable database is similar and includes tax credit payouts as well as other incentives granted. Indiana’s database and Michigan’s database are other examples.

Other states, like North Carolina and Mississippi, produce annual reports that are posted online that list companies with the amount of credit claimed.  (Mississippi includes in its online report information on three of its five tax credit programs).

Arkansas does not post the data on tax credits online, but makes the information available upon a public records request.

The four other states, who like Tennessee do not release the names of companies receiving tax credits, are Alabama, Georgia, South Carolina and Texas.

Some company tax information is public in Tennessee

Tennessee does not shield all tax information regarding companies.

Documents related to payment-in-lieu of tax agreements (PILOTS) include property values and tax information. In a PILOT, a county government entity waives property taxes to spur economic development.

Hamilton County, publishes online the amount of property tax abated for each company.

Also, the amount owed and paid by hotels in hotel occupancy tax is public.

Deborah Fisher is executive director of Tennessee Coalition for Open Government. She can be reached at fisher@tcog.info.

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