The Business Expansion Support Act (BEST), House Bills 438 and 439, are designed to position Georgia as a more aggressive competitor for economic development projects by updating and enhancing current tax credit programs for new and existing businesses.
                                                                                                                                                                                                            
The BEST package is backed by Gov. Sonny Perdue and business leaders across the state. Perdue states, "Now is the time to arm ourselves with the tools that will help bring quality jobs to Georgia as we prepare for economic recovery." The bills were introduced Feb. 18th by Rep. Larry O'Neal (R-Bonaire), who chairs the House Ways and Means Committee. O'Neal says the legislation "will ensure stability and ensure that Georgia moves forward as one of the most competitive forces nationally and globally."

In 2008, Georgia introduced economic incentives for the entertainment industry that positioned the state among the top contenders for film, video game and digital entertainment projects. The BEST legislation addresses incentives for other industries in a less dramatic fashion, primarily modifying and expanding existing tax credits.

 "While the entertainment industry is more incentive driven, companies are driven more by the cost of doing business," says Heidi Green, deputy commissioner of global commerce, Georgia Department of Economic Development. She says officials reviewed existing policies, finding "there were some things we needed to simplify, and other things that needed to focus a little more. The proposed BEST legislation proposed does that. It's not a wholesale rewrite. At a time when revenues are down, we felt a better approach is to ensure that our existing incentives are simpler and meaningful."

Green says the state has made numerous changes in its economic development incentives over the past several years. In 2008, the legislature approved an approach called integrated plant theory, which covers tax exemptions for manufacturing equipment. "Before the new law passed, when a company came into Georgia, about 50 to 60 percent of their equipment would fall within parameters of being exempted," Green says. "We felt anything that contributes to the manufacturing of a good should be exempted, so now virtually 100 percent of the equipment is exempt."

In 2005, Green says, Georgia became the first state in the Southeast to adopt a single factor gross receipts apportionment formula. In most states, corporate income taxes are based on a combination of gross receipts, payroll and property. (For example, before 2005, Georgia taxes were based 50 percent on gross receipts, 25 percent on payroll and 25 percent on property.) Under single factor apportionment, the state's corporate income taxes are only based on gross receipts.

"So, if you are making a product in GA and you are delivering that product outside the state, you are not going to pay income tax on it -- you only pay on goods sold within Georgia," Green says. Some other states have single factor, she added, but they also have a loop back provision that allows them to claim the taxes in other ways. "There are no hidden provisions in Georgia," she added.

In 2008, consultants KPMG conducted a study comparing the cost of doing business in Georgia versus 18 other states, Green says. The study found "we have the lowest cost of business in the states studied - and single factor allocation was critical for that."

In fact, single factor allocation is one reason for the changes proposed in the BEST legislation, Green says. "That approach has really driven down tax liabilities for companies in Georgia," he says. "But we need to do more for non-manufacturing companies." For example, high-tech companies do not find the job tax credit helpful because they do not have tax liability in the state. "Now we're looking at how we make sure those high-paying jobs in leading technology companies are going to look towards Georgia when they locate," Green adds.

The largest change in BEST is "taking the headquarters and repurposing it into a quality job tax credit," Green says. The new credit provides a benefit for establishing jobs paying a higher-than-average wage for the proposed county. It could apply not merely to headquarters, but to any other facility that creates high-paying jobs.

Green acknowledged it "can be cumbersome right now to qualify for the headquarters tax credit. For example, you have to look at job titles and show how they are headquarters-related. We think a quality job tax credit is important to attracting emerging industry and growing sectors - what we consider our strategic industries."

To help emerging companies, BEST introduces changes to the research and development tax credits. Currently to qualify for the R&D credit, a company must show three years of positive income - a challenge for new companies in the technology sector. BEST eliminates the three-year rule. Emerging companies can use the credit against payroll withholding for their first five years "which is like cash in their pocket," Green says.

BEST also expands the current Ports Tax Credit to cover both import and exports through Georgia's ports. "We want to continue increasing port traffic, which is a real economic engine for the coast," Green says. The credit would also ensure that Georgia remains competitive with neighboring South Carolina and Florida. "We think that as a company increases the goods it brings through Georgia ports, it makes sense to have a distribution center here," she says. "And once there is distribution, hopefully you would also add some sort of production facility. We see all those things are being closely linked."

Other provisions in the BEST legislation call for:

•    Changes to clarify the current Retraining Tax Credit.
•    Adding a Discretionary Withholding Option, which would allow Georgia to offer payroll withholding benefits once all other tax liability has been exhausted.
•    A Mega Tax Credit intended for large, high-impact economic development projects, such as the Kia plant. A qualifying company must agree to create a minimum of 1,800 jobs and either invest a minimum of $450 million in a project or bring an annual payroll of $150 million to the state.

The total package is drawing side support. "This legislation sends a signal to the country and the world that Georgia is aggressively competing for business," states Sam A. Williams, president of the Metro Atlanta Chamber. BEST would put "Georgia in a strong position to attract the best companies and the highest-paying jobs. That is especially important now as the competition for jobs and economic development is growing more fiercely every day."

Sam Olens, chairman of the Atlanta Regional Commission and the Cobb County Commission, agrees. "There were some obvious limitations that are corrected in HB 438 and HB 439. I view these as positive additions to the toolkit, and I hope they will pass. This will assist the state in being more proactive in bringing business to our communities."

However, Olens says, there are other measures currently before the General Assembly that would impact local government's abilities to recruit new industry.

For local governments, he says, the common methodology for providing incentives is property tax abatement. Several bills propose placing limits on property taxes for local government, which would "adversely affect the incentives offered by local entities," Olens says. "Many in the legislature are not familiar with how state and local governments offer incentives. They are not cognitive to how these proposed bills will limit local government with that type of inducement to bring business to our state."

Other tax reform legislation pending in the General Assembly could also impact economic development, Olens says. "Unfortunately, a couple of these tax bills limit the use of TADs. Some limit the use of development authority financing, by either placing moratoriums or caps on commercial property taxes. That will adversely affect some deals."

Olens notes that Georgia's ability to recruit new business is also hampered because state and governments are generally unable to provide cash incentives like other jurisdictions can. He says there have been a series of attorney general opinions that maintain the gratuity clause in Georgia's constitution substantially limits the use of cash incentives. "To my knowledge, other states don't have those limits," Olens says. "They may have similar clauses but they have not had the same interpretations. So we are mainly left with property tax abatement at the local level, and with tools like job credits at the state level."

Despite those challenges, Olens says, Georgia has many advantages. Those include the low cost of business, a highly educated pool of workers, good quality of life and solid school systems in metro Atlanta. "Our predominantly lower property taxes and pro-business climate make it attractive to have companies relocate here," he says.

Even in the slower economy, Olens says a number of small and medium-sized companies are expanding. However, "I'm not seeing larger companies move forward - they appear to be waiting for the capital markets to stabilize. But that doesn't mean that state or local governments like Cobb are not finalizing deals."

"Some of the delays don't make sense to me," Olens says. "There is a project in Cobb that they have delayed a year. The only thing they're delaying is their profit. The business is going to be successful in a bad economy or a good economy. Sometimes there's a vicious circle that comes into play rather than the economic reality."

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