a comparative analysis of nebraska’s tax and incentive...

A Comparative Analysis of Nebraska’s Tax and Incentive Climate

Prepared by KPMG LLP for the

Nebraska Chamber of Commerce & IndustryNebraska Department of Economic Development

Nebraska DiplomatsGreater Omaha Chamber of Commerce

Lincoln Chamber of Commerce

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To: Nebraska Chamber of Commerce & Industry, Greater Omaha Chamber of Commerce, Lincoln Chamber ofCommerce, Nebraska Department of Economic Development, Nebraska Diplomats

We are pleased to deliver to you this study, A Comparative Analysis of Nebraska’s Tax and Incentive Climate. This study is used to analyze taxes and incentives for several different types of business operations across multiple geographic locations. The study applies current business tax and incentive data to a set of business operating specifications that are held constant for all jurisdictions. The result is a comparison of the estimated taxes and incentives that might be incurred and received as a result of establishing and operating a facility in each jurisdiction.

This study is based on specific comparisons of different types of business operations, from the viewpoint of a business investor. It should not be interpreted as comparing overall productivity and costs of doing business between jurisdictions.

The comparisons presented in this report are based on standard tax and financial assumptions. Net present value was not applied to calculations for future years.

For major business investments, it is common practice for governments to offer incentive packages on a discretionary basis. These packages typically comprise a complex set of financing assistance and tax abatements tailored to specific investment and job creation proposals. The analysis in this report attempts to distinguish among jurisdictions based on discretionary incentives, based on KPMG’s knowledge of and experiences with the various jurisdictions. However, any discretionary incentives quantified in this report are merely estimates, and may not necessarily reflect actual incentives available, because:

• It is not possible to accurately predict whether any jurisdiction will be more or less willing than another jurisdiction to provide discretionary financial incentives.

• It is not possible to accurately predict the value of incentives any jurisdiction will ultimately provide, without entering into negotiations over a specific investment proposal.

While great care has been taken in performing this analysis and developing findings, the resulting comparisons are of a general nature. They should not be interpreted as a definitive or final opinion on the merits of locating any specific business in one jurisdiction over another. Further analysis is required, considering business costs and other factors, to determine the appropriate site for a specific business.

/s/ KPMG LLP

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Principal Authors

Robert Peters – KPMG LLP; Midwest Partner-in-Charge, State & Local Tax & Incentives Practice; Chicago, IL

James Greisch – KPMG LLP; Office Managing Partner, Nebraska Business Unit; Omaha, NE

Jean Bartman – KPMG LLP; Director, State & Local Tax; Omaha, NE

Russell Smith – KPMG LLP; Senior Associate, State & Local Tax; Omaha, NE

Shane Seibert – KPMG LLP; Associate, State & Local Tax; Omaha, NE

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Study EngagementKPMG’s charge for this analysis: $90,000

To determine how Nebraska compares with nine other states for business taxes and incentives

– Taxes and incentives were calculated for seven different business sectors:

• Start-up Technology-based Company

• Distribution Company

• Value Added Agriculture Company (Cheese Processor)

• Information Services Company

• Corporate Headquarters

• Small Manufacturer (Rural Area)

• Small Manufacturer (Urban Area)

To determine how Nebraska compares with nine other states for individuals

– Taxes were calculated for four different income levels:

• CEO

• Executive

• Manager

• Entry Level Employee

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Basis of Analysis

KPMG offers clients the scale, global reach, industry insights, and multidisciplinary range of services they demand. With over 17,000 professionals in 122 offices, including 1,500 partners in the United States alone, KPMG LLP is a leader among professional services firms.

– KPMG’s State and Local Tax network has a comprehensive network of more than 500 state and local tax professionals throughout the United States, supported by our Washington National Tax practice in Washington, D.C.

– Numerous state and local tax and incentives experts employed by KPMG LLP, in the various identified regions and with significantexpertise with the state and local tax and incentives issues affecting the various jurisdictions and identified taxpayers, participated in the development of the tax and incentive calculations.

Each of the case studies were based on KPMG’s experiences with companies in the selected industries.

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Comparison States

Nebraska’s Neighbors:

Colorado

Iowa

Kansas

Missouri

South Dakota

Wyoming

Other Frequent / Key Competitors:

Oklahoma

Minnesota

North Carolina

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Ranking of Factors that Influence Business Locations

1. State and local incentives

2. Labor costs

3. Availability of skilled labor

4. Highway accessibility

5. Occupancy or construction costs

6. Tax exemptions

7. Corporate tax rate

8. Energy availability and costs

9. Proximity to major markets

10. Availability of land

11. Availability of telecom services

12. Cost of land

13. Environmental regulations

14. Environmental regulations

15. Low union profile

16. Availability of broadband telecom services

17. Right-to-work state

18. Proximity to suppliers

19. Availability of long-term financing

20. Raw materials availability

21. Availability of unskilled labor

22. Accessibility to major airport

23. Training programs

24. Proximity to technical university

25. Railroad service

26. Waterway or oceanport accessibility

Source: Geraldine Gambale, “2003 Corporate Survey,” Area Development, December 2003

Summary: Though many factors are considered in business site selection, tax and incentive variables rate #1, #6, and #7 in a recent survey of corporate executives.

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Types of State and Local Incentives

Direct financial incentives

Loan and loan guarantees; revolving loan funds; industrial development bonds; grants; venture capital programs

Tax incentives

Tax exemptions or abatements; deductions or credits; accelerateddepreciation

Indirect financial incentives

Government tax incentives to private venture capital organizations; wage subsidies

Non-financial incentives

Job training programs; infrastructure improvements and grants; technical assistance

Special incentives

Enterprise zones; export promotion; land banking

Source: Del Birch, “Let’s Make a Deal,” Business Facilities, February 2002

Incentives may take both financial and non-financial forms, as noted to the right. This analysis only includes incentives resulting in a quantifiable financial outlay by state or local governments.

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State and Local Incentives Included in this Study

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State and Local Incentives Included in this Study:Nebraska

State Program Description/Eligibility Benefits

NEEmployment &

Investment Growth Act LB775

Non-refundable credit for qualified new investment and employment levels

Income Tax Credit, Sales Tax Credit

NE

Employment Expansion & Investment Incentive

Act LB 608

Refundable credit for qualified new investment and employment levels in counties of less than

25,000 inhabitants

Income Tax Credit, Sales Tax Credit

NE Job Training Funds Training assistance on projects that offer an opportunity for economic development

Variable Funding

NECommunity

Development Block Grant

Grants and special financing for approved economic development projects Variable Funding

The above list represents incentives that were applicable and quantifiable for the seven different businesses included in the study. This list is not intended to be an all-inclusive list of incentive programs available in the state.

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State and Local Incentives Included in this Study: Colorado

State Program Description/Eligibility BenefitsCO Hiring Grants Grants for hiring of new employees Variable Funding

CO New Business Facility EE Credit

Non-refundable credit for new business facility earned on new qualified employees

Income Tax Credit

CO EZ Investment Tax Credit

Credit for qualified investment property located in Enterprize Zone

Income Tax Credit

CO Health Care Credit Non-refundable credit for new employees insured under company health plan

Income Tax Credit

CO Training Grants Grants for training employees of new or expanding companies

Variable Funding

CO EZ Job Training Credit Credit for percentage of training costs incurred in Enterprize Zone

Income Tax Credit

CO Property Tax Abatement Credit for personal property which reflects determination methods of County Assessor

Property Tax Exemption

CO EZ R and D CreditEnterprize Zone credit for current expenditures

over average of prior years expenditures Income Tax Credit


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State and Local Incentives Included in this Study: Iowa


IA New Jobs Credit Non-refundable credit for increase of workforce by at least 10% within the state

Income Tax Credit

IA EZ Investment Tax Credit

Credit for qualifying capital expenditures in enterprize zone

Income Tax Credit

IA NCIP Investment Tax Credit

Credit for qualifying capital expenditures dependant upon number of new jobs

Income Tax Credit

IA NJIP Investment Tax Credit

Credit for qualifying capital expenditures by businesses meeting specific requirements

Income Tax Credit

IA CEBA Low Interest & Forgivable Loans

Funding for businesses creating high quality jobs and new capital investment

Variable Funding

IAEZ Sales Tax Refund on

Tax Paid During Construction

Refund of state sales, service, and use tax paid to contractors during construction phase in

enterprize zoneSales Tax Refund

IANCIP Sales Tax Refund

on Tax Paid During Construction

Refund of state sales, service, and use tax paid to contractors during construction phase by

qualified businessesSales Tax Refund

IA Withholding Credit for Training

Diversion of withholding tax to establish new employee job training

Withholding Tax Credit

IA EZ Withholding Credit for Training

Diversion of withholding tax to establish new employee job training in an enterprize zone

Withholding Tax Credit

IANJIP Withholding Credit

for Training

Diversion of withholding tax to establish new employee job training for businesses meeting

specific requirementsWithholding Tax Credit

IAEZ Property Tax

AbatementCommunity determined property tax abatement

for businesses located in enterprize zone Property Tax Exemption

IANJIP Property Tax

AbatementCommunity determined property tax abatement for businesses meeting specific requirements Property Tax Exemption

IA Research Activities Credit

Credit for qualified research and development expenditures

Income Tax Credit

IA EVA Low Interest & Forgivable Loans

Funding for businesses creating high quality jobs and new capital investment

Variable Funding

IANJIP Sales Tax Refund

on Tax Paid During Construction

Refund of sales, service, and use tax paid to contractors during construction phase by

qualified businessesSales Tax Refund

This list of incentives represents incentives that were applicable and quantifiable for the seven different businesses included in the study. This list is not intended to be an all-inclusive list of incentive programs available in the state.

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State and Local Incentives Included in this Study: Kansas


KS Business and Job Development Credit

One-time, non-refundable credit for increase in employees and investment

Income Tax Credit

KS High Performance Incentive Program

Non-refundable credit for investment and training expenditures

Income Tax Credit, Sales Tax Exemptions

KS Project Exemption Exemption for purchases on specific projects Sales Tax Exemption

KS Economic Development Rider

Provided by utility companies based upon load requirements and/or load levels

Discounted Utility Charges

KS Kansas Industrial Training Program

Classroom and on-the-job training funds for specific companies

Training Incentives

KS IRB Property Tax Exemption

Exemption for property financed with Industrial Revenue Bonds


KSBusiness Machinery

and Equipment Property Tax Credit

Refundable credit regarding property taxes remitted on qualified business machinery and

equipmentIncome Tax Credit

KSResearch and

Development Credit

Non-refundable credit of percentage of expenditure difference between current year

and three year averageIncome Tax Credit

KSKansas Economic

Opportunity Initiatives Fund

Grants and forgivable loans based upon project size and community support Variable Funding


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State and Local Incentives Included in this Study: Minnesota


MN Rural Job Creation Grant

Grants for creating at least ten jobs outside of the seven county metro area

Variable Funding

MN JOBZ Benefits Refundable credits for increased employment and investment in JOBZ zone

Income Tax, Sales Tax, Property Tax

MN TIF Exemption Property tax rebate through tax increment financing upon specific conditions

Property Tax

MN R and D Credit Non-refundable credit for research and development performed in Minnesota

Income Tax Credit


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State and Local Incentives Included in this Study: Missouri


MO New Business Facility Tax Credits

Investment and new job credits for qualifying projects of new or expanding facilities

Income Tax Credit

MOEnterprise Zone

Program Credits for new investment in enterprize zonesIncome Tax Credit, Income Exemption, Property Tax

Exemption

MO Economic Development Rider

Utility company provided benefit based upon load requirements and/or demand levels

Discounted Utility Charges

MO New Jobs Training Program

Qualifying businesses receive funds to offset training costs of new employees

Training Incentive

MOSkills Development

Program

Non-refundable credit earned by entities in distressed areas for classroom training and

costsIncome Tax Credit

MOQualified Research

Expenses Tax Credit

Qualified research expenses earn credits based upon qualified expenses and limited by prior

years expendituresIncome Tax Credit

MO Chapter 100 Program Locality provided incentives via revenue bond proceeds

Property Tax Abatement, Sales Tax Abatement

MO Customized Training Program

Funding to qualifying businesses to reduce training costs, limited to actual costs

Training Incentive

MO Chapter 353 Property Tax Exemption

Property tax abatement for redevelopment in blighted areas


MO "BUILD" CreditsRefundable credits for eligible expansion,

relating to debt service payments for industrial revenue bonds issued

Income Tax Credit

MO Development Tax Credits

Credits to eligible donors who make contributions to a non-profit corporation

Income Tax Credit

This list of incentives represents incentives that were applicable and quantifiable for the seven different businesses included in the study. This list is not intended to be an all-inclusive list of incentive programs available in the state.

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State and Local Incentives Included in this Study: North Carolina


NC Job Development Investment Grant

Funding received by qualified businesses for increased levels of new employees

Variable Funding

NC Creating Jobs Credit Credits to eligible businesses creating new full-time jobs meeting minimum standards

Income Tax Credit

NCMachinery and

Equipment CreditCredits for increased machinery and equipment

investment over applicable thresholds Income Tax Credit

NC Training Credit Credit for wages earned by five or more eligible employees during worker training

Income Tax Credit

NCSales Tax Refund on

Machinery and Equipment

Sales and use tax refund for certain purchases in particular enterprise tier areas Sales Tax Refund

NC R and D Credit Credit for increased research activities using State's apportioned share formula

Income Tax Credit

NC Central Office Credit Credit for minimum new employees in conjunction with use of new central office

Income Tax Credit


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State and Local Incentives Included in this Study: Oklahoma


OKOklahoma Quality Jobs

Program

Funding received by specific businesses meeting payroll minimums and offering

particular benefitsVariable Funding

OK Training for Industry Program

Assistance to qualifying businesses to train new employees at qualifying training centers

Training Incentive

OK Small Employer Quality Jobs Incentive Act

Qualifying businesses receive funding for meeting certain levels and thresholds

Variable Funding

OKInvestment / New Jobs

Credit

Non-refundable credit for increased investment or new jobs, with certain thresholds and

requirementsIncome Tax Credit

OKLocal Abatement - Incentive District / Enterprise Zone

Incentive Districts created by authorized locality for tax exemption purposes Property Tax Abatement

OK Freeport Inventory Exemption

Specific goods or merchandise held in-state for less than 9 months are exempted from tax

Property Tax Abatement

OK Investment / New Jobs Credit (Enterprise Zone)

Non-refundable credit for minimum investment in enterprize zone

Income Tax Credit

OK Sales Tax Refund on Construction Materials

Refund for minimum levels of new investment and jobs

Sales Tax Refund


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State and Local Incentives Included in this Study: South Dakota


SD Workforce Development Program

Limited state funds to reimburse qualified employee training expenses

Training Incentive

SD Property Tax Abatement Incentives provided by specific county for qualified new investment

Property Tax Abatement


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State and Local Incentives Included in this Study: Wyoming


State Program Description/Eligibility BenefitsWY none none none

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Case Study Tax and Incentive Comparisons

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Business Case Studies

Types of Businesses Analyzed:Start-up Technology-based CompanyDistribution CompanyValue Added Agriculture Company (Cheese Processor)Information Services CompanyCorporate HeadquartersSmall Manufacturer (Rural Area)Small Manufacturer (Urban Area)

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Business Case Studies

Business Taxes Included in this Analysis:Income TaxFranchise TaxSales/Use TaxProperty TaxUnemployment Insurance

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Start-up Technology-based Company

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Start-up Technology-based CompanyBasic Assumptions

Start-up manufacturer of biotechnology tools for use in genetics research.

C corporation.

The company will initially have seven employees during 2004, with an increase to 107 by 2010.

The company will invest approximately $8 million in fixed assets during 2004, with additional investment of $16 million through 2010.

As a company with significant start-up costs, the company will not be profitable for several years.

The company will have gross sales of $2 million during 2004, none of which are in-state sales.

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Start-up Technology-based CompanyState Rankings (1=Highest, 10=Lowest)

Minnesota

Kansas

Missouri

North Carolina

Oklahoma

Nebraska

Iowa

Wyoming

Colorado

South Dakota

Total Taxes After Credits, Refunds,

& Abatements

(1 year)

Minnesota10

9

8

7

6

5

4

3

2

1

Rank

North Carolina

Iowa

Missouri

Oklahoma

Kansas

Wyoming

Colorado

South Dakota

Nebraska

Total Taxes Before Credits, Refunds, &

Abatements

(1 year)

Total taxes represents the sum of income/franchise tax, sales/use tax, property tax, and unemployment insurance

Wyoming

South Dakota

Colorado

Oklahoma

Iowa

North Carolina

Nebraska

Minnesota

Missouri

Kansas

Incentives Utilized

(over 7 years)

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-

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

$

2004 Total Taxes Before Credits, Refunds, & Abatements

Franchise Tax 5,330 - - 1,348 - 2,747 12,375 1,250 - 1,650

Unemployment Insurance 1,715 1,344 1,427 1,562 1,510 1,843 1,337 819 931 2,126

Income Tax - - - - 300 - - - - -

Property Tax 147,157 175,088 133,282 210,621 127,500 151,507 52,567 156,646 66,035 65,728

Sales Tax 598,325 411,144 246,103 236,225 129,025 236,225 260,976 283,823 630,057 440,389

Nebraska Colorado Iow a Kansas Minnesota Missouri North Carolina

Oklahoma South Dakota

Wyoming

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-

100,000

200,000

300,000

400,000

500,000

600,000

700,000

$

2004 Total Taxes After Credits, Refunds, & Abatements

Franchise Tax 5,330 - - 1,348 - 2,747 6,188 1,250 - 1,650

Unemployment Insurance 1,715 1,344 1,427 1,562 1,510 1,843 1,337 819 931 2,126

Income Tax - - - - - - - - - -

Property Tax 147,157 146,530 133,282 - - - 52,567 - - 65,728

Sales Tax 137,725 411,144 246,103 131,069 - 130,231 190,976 283,823 630,057 440,389



Wyoming

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-

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

4,500,000

$

2004-2010 Credits & Incentives

Maximum Incentives 2,652,417 688,659 1,584,224 4,306,151 3,563,858 3,702,780 1,601,129 1,240,292 240,696 -

Nebraska Colorado Iow a Kansas Minnesota Missouri North Carolina Oklahoma South Dakota Wyoming

This graph includes tax credits and incentives, as well as non-tax credits and incentives (I.e. grants, training funds, etc.). The Nebraska total includes LB775 credits used, rather than credits earned. See the following page for credits earned.

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Start-up Technology-based CompanyNebraska Tax Credit Usage - 2004-2010

2,013,083

821,917

Total Credits Not Used Total Credits Used

This chart reflects LB775 credits earned versus actually used over a seven-year period.

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Distribution Company

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Distribution Company Basic Assumptions

C corporation headquartered out of state.

The calculations have been modeled under the assumption that thecompany will open a distribution warehouse “in-state” during 2004, and that it previously had no “in-state” locations.

The company will initially have 70 employees during 2004.

The company will invest approximately $2.7 million in fixed assets during 2004, with additional investment of $6.5 million through 2010.

The company will have $1,035,000 federal taxable income in 2004.

The company will have gross sales of $90 million during 2004, of which $7 million are in-state.

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Distribution CompanyState Rankings (1=Highest, 10=Lowest)

Minnesota

Kansas

North Carolina

Nebraska

Iowa

Wyoming

South Dakota

Oklahoma

Missouri

Colorado

Total Taxes After Credits, Refunds,

& Abatements

(1 year)

Wyoming10

9

8

7

6

5

4

3

2

1

Rank

South Dakota

Iowa

North Carolina

Minnesota

Missouri

Nebraska

Colorado

Kansas

Oklahoma

Total Taxes Before Credits, Refunds,

& Abatements

(1 year)


Wyoming

South Dakota

Colorado

Kansas

Nebraska

Missouri

Minnesota

Iowa

North Carolina

Oklahoma

Incentives Utilized

(over 7 years)

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-

50,000

100,000

150,000

200,000

250,000

300,000

$


Franchise Tax 240 - - 240 - - 5,490 168 - 732

Unemployment Insurance 17,150 13,440 14,273 15,624 30,200 18,428 13,370 8,190 9,310 12,800

Income Tax 5,172 3,159 4,845 7,071 10,402 3,421 7,574 7,140 - -

Property Tax 40,827 49,699 35,658 60,144 39,738 43,059 14,921 63,977 21,804 7,248

Sales Tax 163,555 167,094 137,655 157,216 137,283 155,490 159,813 186,820 144,020 120,150



Wyoming

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-

50,000

100,000

150,000

200,000

250,000

$


Franchise Tax 240 - - 240 - - 2,745 168 - 732


Income Tax 5,172 - - - - - 3,787 7,140 - -

Property Tax 40,827 42,065 - - - 35,379 14,921 - 3,148 7,248

Sales Tax 40,355 167,094 109,655 37,152 - 155,490 39,063 186,820 144,020 120,150



Wyoming

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-

500,000

1,000,000

1,500,000

2,000,000

2,500,000

$


Maximum Incentives 977,318 288,494 1,376,887 800,005 1,240,550 1,214,418 2,009,297 2,107,369 105,988 -

Nebraska Colorado Iowa Kansas Minnesota Missouri North Carolina Oklahoma South

Dakota Wyoming


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Nebraska Tax Credit Usage - 2004-2010

1,093,616

219,084



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Value-Added Agriculture Company(Cheese Processor)

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Value-Added Ag Company (Cheese Processor)Basic Assumptions


The company will initially have 160 employees during 2004, with an increase to 360 by 2010.



The company will have gross sales of $765 million during 2004, of which $50 million are in-state.

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Value-Added Ag Company (Cheese Processor)State Rankings (1=Highest, 10=Lowest)

Minnesota

Kansas

Iowa

Nebraska

Oklahoma

Missouri

North Carolina

Wyoming

South Dakota

Colorado

Total Taxes After Credits,

Refunds, & Abatements

(1 year)

Missouri10

9

8

7

6

5

4

3

2

1

Rank

Minnesota

Iowa

Oklahoma

North Carolina

Kansas

Wyoming

South Dakota

Colorado

Nebraska

Total Taxes Before Credits,


(1 year)


Wyoming

South Dakota

Colorado

Missouri

North Carolina

Minnesota

Oklahoma

Iowa

Nebraska

Kansas

Incentives Utilized

(over 7 years)

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Value-Added Ag Company (Cheese Processor)

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1,800,000

$


Franchise Tax 730 0 0 100 0 0 27,713 141 0 3,695


Income Tax 254,047 101,920 315,943 163,356 283,260 82,609 173,710 134,736 0 0

Property Tax 300,829 367,031 125,766 424,054 131,750 313,643 110,194 357,091 80,119 25,647

Sales Tax 1,182,615 823,960 274,453 290,830 257,665 257,665 533,741 309,583 961,377 847,986



Wyoming

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-200,000

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

$


Franchise Tax 730 0 0 100 0 0 13,856 141 0 3,695


Income Tax 0 0 0 0 0 (33,333) 86,855 134,736 0 0

Property Tax 82,459 289,134 0 0 0 286,763 110,194 0 7,753 25,647

Sales Tax 119,525 823,960 176,453 44,471 0 257,665 358,741 309,583 961,377 847,986



Wyoming

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-

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

9,000,000

$


Maximum Incentives 8,743,096 1,411,399 7,346,863 8,842,338 5,626,981 4,941,046 5,297,575 5,792,173 396,083 -



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4,711,083

2,639,417



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Information Services CompanyBasic Assumptions





The company will have gross sales of $290 million during 2004, of which $7 million are to in-state customers.

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Information Services Company

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Information Services CompanyState Rankings (1=Highest, 10=Lowest)

Kansas

Minnesota

Nebraska

North Carolina

Iowa

Wyoming

South Dakota

Oklahoma

Missouri

Colorado



(1 year)

Iowa10

9

8

7

6

5

4

3

2

1

Rank

Wyoming

South Dakota

North Carolina

Minnesota

Missouri

Oklahoma

Kansas

Nebraska

Colorado



(1 year)


Wyoming

South Dakota

Colorado

Iowa

Nebraska

Missouri

Oklahoma

Minnesota

Kansas

North Carolina

Incentives Utilized

(over 7 years)

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-

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

1,000,000

$


Franchise Tax 480 - - 86 0 0 14,700 144 0 1,960


Income Tax 23,090 12,515 9,504 14,617 19,285 6,246 19,929 13,304 0 0

Property Tax 170,357 213,150 67,627 209,228 76,500 167,047 63,994 78,289 45,018 12,355

Sales Tax 637,000 654,834 282,660 609,700 609,064 609,332 633,893 732,107 510,974 468,650



Wyoming

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(100,000)

-

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

$


Franchise Tax 480 - - 86 0 0 7,350 144 0 1,960


Income Tax - - 9,504 0 0 (33,333) 9,965 13,304 0 0

Property Tax 170,357 167,910 67,627 0 0 152,647 63,994 0 7,503 12,355

Sales Tax 19,600 654,834 282,660 18,760 0 609,332 248,893 732,107 510,974 468,650



Wyoming

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-

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

9,000,000

$


Maximum Incentives 3,088,357 1,000,027 1,218,540 5,399,204 4,752,637 3,728,843 8,045,548 4,333,720 251,240 -



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Information Services CompanyNebraska Tax Credit Usage - 2004-2010

5,556,210

439,457



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Corporate Headquarters

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Corporate Headquarters Basic Assumptions

This company is a manufacturer of machinery and equipment.

The company is a C corporation with manufacturing operations worldwide.

The calculations have been modeled under the assumption that thecompany will move its corporate headquarters “in-state” during 2004, and that it previously had no “in-state” locations.

The company will have a manufacturing facility on-site at the headquarters location.

The company will initially have 1,700 employees during 2004, with an increase to 1,862 by 2010.



The company will have gross sales of $1.41 billion during 2004, of which $206 million are in-state sales.

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Corporate HeadquartersState Rankings (1=Highest, 10=Lowest)

Minnesota

Missouri

Kansas

Iowa

Nebraska

Oklahoma

North Carolina

Wyoming

South Dakota

Colorado



(1 year)

Wyoming10

9

8

7

6

5

4

3

2

1

Rank

Missouri

Iowa

North Carolina

Minnesota

Oklahoma

South Dakota

Kansas

Colorado

Nebraska



(1 year)


Wyoming

South Dakota

Colorado

Nebraska

North Carolina

Missouri

Minnesota

Oklahoma

Kansas

Iowa

Incentives Utilized

(over 7 years)

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-

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

14,000,000

16,000,000

$


Franchise Tax 17,330 - 399 - 21,732 290,700 317 - 38,760


Income Tax 1,581,584 1,154,872 2,292,976 2,216,149 2,051,057 935,173 1,754,906 1,798,395 - -

Property Tax 2,881,901 3,451,725 2,758,928 3,904,538 2,639,250 2,840,955 1,036,311 2,835,813 1,366,915 418,865

Sales Tax 9,752,855 8,172,738 4,346,055 5,298,796 4,591,946 4,960,446 6,412,521 5,959,938 9,568,818 7,204,155



Wyoming

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(2,000,000)

-

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

$


Franchise Tax 17,330 - 399 300,938 21,732 - 317 - 38,760


Income Tax - - (326,219) - - (200,000) 1,050,986 1,798,395 - -

Property Tax 2,881,901 2,905,452 - - - - 1,036,311 - 46,224 418,865

Sales Tax 1,146,075 8,172,738 2,246,055 735,828 - 706,515 5,572,521 5,959,938 9,568,818 7,204,155



Wyoming

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0

10,000,000

20,000,000

30,000,000

40,000,000

50,000,000

60,000,000

70,000,000

$


Maximum 33,203,007 10,176,622 60,662,957 52,765,738 42,874,906 42,145,340 38,257,620 49,936,449 4,633,088 0

Nebraska Colorado Iowa Kansas Minnesota Missouri North Carolina Oklahoma South Dakota Wyoming

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56




23,385,911

17,078,613


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Small Manufacturer (Rural Area)

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Small Manufacturer (Rural Area) Basic Assumptions

Family owned small manufacturer.

Non-metropolitan location (for Nebraska calculation purposes)

S corporation owned by four individuals.


The company will invest approximately $2.5 million in fixed assets during 2004, with additional investment of $1 million through 2010.

The company will have gross sales of $5 million during 2004, of which $2.5 million are in-state sales.

$615,000 federal income, net of state taxes.

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59

Small Manufacturer (Rural Area) State Rankings (1=Highest, 10=Lowest)

Minnesota

Nebraska

Kansas

Iowa

Missouri

Wyoming

Oklahoma

South Dakota

North Carolina

Colorado

Total Taxes After Credits, Refunds, & Abatements

(1 year)

Wyoming10

9

8

7

6

5

4

3

2

1

Rank

North Carolina

Oklahoma

Missouri

South Dakota

Iowa

Kansas

Minnesota

Colorado

Nebraska



(1 year)


Wyoming

Colorado

South Dakota

North Carolina

Oklahoma

Nebraska

Missouri

Kansas

Minnesota

Iowa

Incentives Utilized

(over 7 years)

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-

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

200,000

$


Franchise Tax 1,330 - - 1,682 - 936 4,217 1,250 - 562


Income Tax 21,041 22,285 27,624 30,313 20,473 27,500 41,563 33,050 - -

Property Tax 47,779 54,625 71,093 69,449 79,475 47,786 16,400 26,564 43,850 20,362

Sales Tax 115,675 107,071 77,543 75,090 74,199 74,253 81,448 89,214 128,786 86,005



Wyoming

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(200,000)

(150,000)

(100,000)

(50,000)

-

50,000

100,000

150,000

200,000

$


Franchise Tax 1,330 - - 1,682 - 936 4,217 1,250 - 562


Income Tax (157,959) - - - (40,000) - 29,563 21,050 - -

Property Tax 47,779 50,997 - - - 30,986 16,400 - 2,814 20,362

Sales Tax 115,675 107,071 16,293 7,102 - 74,253 81,448 89,214 128,786 86,005



Wyoming

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-

200,000

400,000

600,000

800,000

1,000,000

1,200,000

$


Maximum Incentives 458,250 66,265 1,041,174 937,712 987,763 561,050 291,418 327,730 116,582 -


This graph includes tax credits and incentives, as well as non-tax credits and incentives (I.e. grants, training funds, etc.).

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Small Manufacturer (Urban Area)

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Small Manufacturer (Urban)Basic Assumptions

Family owned small manufacturer.

Metropolitan location (for Nebraska calculation purposes)

S corporation owned by four individuals.


The company will invest approximately $2.5 million in fixed assets during 2004, with additional investment of $1 million through 2010.

The company will have gross sales of $5 million during 2004, of which $2.5 million are in-state sales.

$615,000 federal income, net of state taxes.

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Small Manufacturer (Urban)State Rankings (1=Highest, 10=Lowest)

Minnesota

Kansas

Iowa

Missouri

Wyoming

Oklahoma

South Dakota

North Carolina

Colorado

Nebraska

Total Taxes After Credits, Refunds, & Abatements

(1 year)

Wyoming10

9

8

7

6

5

4

3

2

1

Rank

North Carolina

Oklahoma

Missouri

South Dakota

Iowa

Kansas

Minnesota

Colorado

Nebraska



(1 year)


Wyoming

Colorado

South Dakota

Nebraska

North Carolina

Oklahoma

Missouri

Kansas

Minnesota

Iowa

Incentives Utilized

(over 7 years)

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Small Manufacturer (Urban)

-

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

200,000

$


Franchise Tax 1,330 - - 1,682 - 936 4,217 1,250 - 562


Income Tax 21,041 22,285 27,624 30,313 20,473 27,500 41,563 33,050 - -

Property Tax 47,779 54,625 71,093 69,449 79,475 47,786 16,400 26,564 43,850 20,362

Sales Tax 115,675 107,071 77,543 75,090 74,199 74,253 81,448 89,214 128,786 86,005



Wyoming

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(50,000)

-

50,000

100,000

150,000

200,000

$


Franchise Tax 1,330 - - 1,682 - 936 4,217 1,250 - 562


Income Tax 21,041 - - - (40,000) - 29,563 21,050 - -

Property Tax 47,779 50,997 - - - 30,986 16,400 - 2,814 20,362

Sales Tax 115,675 107,071 16,293 7,102 - 74,253 81,448 89,214 128,786 86,005



Wyoming

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-

200,000

400,000

600,000

800,000

1,000,000

1,200,000

$


Maximum Incentives 268,000 66,265 1,041,174 937,712 987,763 561,050 291,418 327,730 116,582 -

Nebraska Colorado Iowa Kansas Minnesota Missouri North Carolina Oklahoma South

Dakota Wyoming

This graph includes tax credits and incentives, as well as non-tax credits and incentives (I.e. grants, training funds, etc.).

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Recent Case Studies

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Recent Case Studies in State & Local Incentives

Iowa

Wells Fargo Home Mortgage and Consumer Credit Group

– 5,300 jobs, $33,500 average salary

– $118 million expansion

– $56.5 million state and local incentive package

• $28 million in periodic cash grants, dependent on job creation

• $25.9 million for road, water, and sewer improvements

– $627 million projected 10-year local-area economic impact

Integrated DNA Technologies (synthetic DNA manufacturer)

– 200 new jobs

– $52 million plant expansion

– State and local incentives:

• $1.76 million potentially forgivable loans

• Various tax incentives and abatements

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Missouri

Bayer Corp. (pharmaceuticals)

– 140 new jobs, $70,000 average salary

– $200 million plant (potential additional $1 billion expansion over 5 years)

– $44.2 million state and local incentives

• $37.2 million provided locally through Chapter 100 bonds

» Facility will be owned by Kansas City and lease back to Bayer

» Bayer will pay only about 1/3 of normal sales taxes and property taxes until bonds are repaid (about 20 years)

• $7 million from the State of Missouri

» Fund employee training

» Provide subsidies for low-interest loans

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Kansas

Goodyear

– 0 new jobs, maintenance of 1,700 jobs ($100 million payroll)

– $120 million investment in aging plant

– $20 million state and local incentive package

• Includes locally approved property tax exemptions on new machinery and equipment

• $10 million bonds will be issued for every $50 million in investment

» Bonds to be paid off over 15 years from withholding taxes

Target

– 650 new jobs

– $80 million investment in 1.3 million sq. ft. distribution center

– $18 million city and county incentive package

• Includes 143 acres of land

– State incentives

• Training; tax credits for job creation and capital investment; sales tax exemptions

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North Carolina

Merck & Co. (pharmaceuticals)

– 300 jobs, $55,000 average salary

– $300 million, 250,000 sq. ft. vaccine plant

– $36 million state and local incentive package

• $24 million to buy and prepare the plant site

• $4.7 million sales tax rebate on construction materials

• $3.7 million, 10-year cash grant

R.H. Donnelley (headquarters consolidation)

– 275 jobs, initial average salary of $70,000

– $4.3 million state and local incentives package

• Will cover 65% of employment taxes for each job in the state

• Aid over 10 years, depending upon performance targets

– Projected $325 million increase in cumulative gross state product

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Personal Tax Comparisons

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The Impact of Personal Taxes on Business Location Decisions

Have an important personal impact to decision makers

Impact employee transfers and relocations

High personal taxes hamper employee recruitment

Entry Level Employee - $22,420 annual income (two income family)

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Types of Personal Taxes Evaluated

Individual Income Tax

Real Property (Real Estate) Tax

Personal Property Tax on Automobiles

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Four Income Levels of Individuals Analyzed:

Entry Level Employee - $22,420 annual income (two income family)

Manager - $46,010 annual income (two income family)

Executive - $82,870 annual income (single income family)

CEO - $200,000 annual income (single income family)

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Personal Tax ComparisonsState Rankings (1=Highest, 10=Lowest)

Wyoming

South Dakota

Colorado

Missouri

Nebraska

Kansas

North Carolina

Oklahoma

Minnesota

Iowa

Entry Level Employee

Wyoming

South Dakota

Colorado

Kansas

Oklahoma

Missouri

North Carolina

Nebraska

Iowa

Minnesota

CEO

WyomingWyoming10

9

8

7

6

5

4

3

2

1

Rank

South DakotaSouth Dakota

ColoradoColorado

MissouriMissouri

North CarolinaNorth Carolina

OklahomaKansas

KansasOklahoma

NebraskaNebraska

MinnesotaMinnesota

IowaIowa

ExecutiveManager

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-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

$

Total Income & Property TaxEntry Level Employee

Property Tax 1,945 670 2,053 1,881 1,959 1,470 1,140 1,246 1,464 897

Income Tax 1,185 1,340 2,079 1,321 1,557 1,414 2,156 2,074 - -

Nebraska Colorado Iowa Kansas Minnesota Missouri North Carolina


Wyoming

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-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

$

Total Income & Property TaxManager

Property Tax 4,097 1,517 4,453 3,498 4,437 3,194 2,407 2,720 2,898 1,986

Income Tax 2,806 2,552 3,833 2,958 3,402 2,748 3,988 3,815 - -



Wyoming

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-

2,000

4,000

6,000

8,000

10,000

12,000

$

Total Income & Property TaxExecutive

Property Tax 6,963 2,597 7,518 5,698 7,320 5,418 4,065 4,405 4,770 3,224

Income Tax 3,617 3,101 4,434 3,723 4,238 3,190 4,818 4,603 - -



Wyoming

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-

5,000

10,000

15,000

20,000

25,000

30,000

$

Total Income & Property TaxCEO

Property Tax 13,570 5,292 14,934 7,908 14,286 10,585 8,001 8,619 9,468 6,375

Income Tax 12,044 8,524 11,633 11,200 12,840 9,840 13,657 11,314 - -



Wyoming

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Conclusions

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Conclusions: Business Taxes and Incentives

Taxes and incentives are a major consideration in attracting businesses

Competition for business remains high despite state budget issues

Cash and discretionary incentives have considerable value to businesses

Businesses often favor near-term incentives over long-term incentives

The administrative and reporting requirements necessary to obtain Nebraska incentives are burdensome

Without incentives, Nebraska is not competitive with other surrounding states

The lack of a manufacturing machinery and equipment sales tax exemption puts Nebraska manufacturers at a competitive disadvantage

Most surrounding states allow local communities to negotiate property tax abatements, while Nebraska does not

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Conclusions: Individual Taxes

Nebraska’s individual tax burden is high

Nebraska’s tax burden ranks best for entry level employees

Tax burden will impact ability to recruit necessary managerial and technical employees

Nebraska has a relatively high level of taxation on key decision makers (CEO’s)

Key decision makers will consider personal financial impact whenmaking business location decisions

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Recommended Next Steps

Initiate a statewide discussion

Create a broad coalition interested in Nebraska’s future (business, agriculture, education, elected officials, and citizens)

Build a vision for Nebraska’s future

Develop strategies to achieve Nebraska’s vision

Develop and implement policies and programs to implement these strategies and realize the vision

© 2004 KPMG LLP, the U.S. member firm of KPMG International, a Swiss cooperative. All rights reserved. Printed in the U.S.A.

a comparative analysis of nebraska’s tax and incentive...

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