Business Relocation Lures: States May Halt

Sweet tax breaks to attract big box stores are drawing the ire of established local businesses that don't get the same treatment. Is a cease-fire coming?

By Richard Sammon, Senior Associate Editor, The Kiplinger Letter

February 22, 2008

Teed off at juicy tax breaks your town offered Home Depot or a big car dealership to entice it to set up shop? Take a lesson from Phoenix-area businesses. Long established retailers in the bustling metropolitan area -- the population center of the state -- felt shafted by local county governments' efforts to lure new employers with sales tax breaks, property tax exemptions and other incentives that existing firms don't get.

They decided they'd seen enough, so when the competition among the area's burgeoning towns and counties got too hot and the targeted tax break inducements too sweet, established local businesses blew a fuse, saying that giving inequitable breaks flies in the face of open market practices.

The Arizona legislature finally stepped in, calling for a cease-fire in the bidding wars in the Phoenix area and imposing a ban on such tax breaks. It has worked so well that later this year, the legislature is likely to expand it to the entire state, an effort being led by state Senator Ken Cheuvront (D).

Governors and state legislatures have long reached out to attract business on the statewide level, enticing auto manufacturers and other big employers to choose them over neighboring states by offering huge tax incentives and other inducements. That won't stop, but more states will respond when localities do the same thing, prompting bidding wars and plenty of complaints from local franchisors, business owners and sole proprietors paying the regular tax freight.

Other states are talking of following Arizona's lead and ending local bidding wars, a move that would add to the local tax base. Lawmakers in Colorado, Arkansas, Missouri, Georgia and North Carolina are mulling similar moratoriums on local tax breaks targeted to specific companies.

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