Selling tax breaks

The federal government and most states offer up a smorgasbord of tax credits, or tax incentives, to companies and nonprofits. These tax breaks encourage research, construction, job creation, historic preservation, and many other valuable goals. They can range in size from several thousands to tens of millions of dollars. But oftentimes, the organization that receives a tax credit has no use for it. This can happen when the value of the credit exceeds a company's tax liability or when the credit is given to a nonprofit that isn't taxed anyway. This has created a burgeoning marketplace for tax breaks, and the main purchasers are Fortune 500 companies. Many states shroud the sale of tax credits in secrecy -- we don't know whether a tax credit granted for the preservation of a historic post office is actually being used by Google or the governor's best friend, and we don't know what they traded to get it. Let's find out.

Most states have tax confidentiality laws that prevent any government official from disclosing tax information. This makes it hard to get records of who’s selling tax credits and who’s buying them. There are a few cracks in the black boxes — some state confidentiality laws have exemptions related to tax credits — but the best strategy I’ve come across so far is targeting tax credit transfer notices that are sent anywhere besides a state’s department of revenue. In Georgia, Louisiana, and Orgeon, for example, these notices are sent to agencies like the department of economic/community development or department of energy. Google a state and “tax credit transfer” and you’ll usually get a user manual for how to transfer a credit and where to file the paperwork. If you have the time, I’d also suggest reviewing the state’s tax confidentiality law to see if there’s an exemption you can cite.

Photo courtesy: geralt/CreativeCommons

Selling tax breaks

43 Requests