Discretionary Tax and Economic Incentives

  • ID: 3619433
  • Book
  • Region: Global, United States
  • 436 Pages
  • ALM Media, LLC
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Discretionary Tax and Economic Incentives provides a much needed overview of discretionary state and local incentives from a national perspective. It reviews the discretionary state and local incentive process from its inception at the project identification stage through completion of the transaction at closing, and offers guidance on post-closing administration. It then covers important issues that companies encounter in completing these arrangements, including non-compliance with closing obligations, the potential invalidation of incentives, protection of confidential company information, and the constraints of incentive inducement tests.

This unique guide offers frontline examples, knowledge and information that will benefit business, legal, tax and other professionals, both experienced and inexperienced, in their pursuit of successful incentive arrangements. Specific examples include the interplay between brownfields incentives and traditional economic development incentives, and the state and local tax benefits of utility incentives. Discretionary Tax and Economic Incentives also offers best practices recommendations to advise companies on how to reduce risk factors associated with these transactions.
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CHAPTER 1 Introduction to Discretionary State and Local Incentives
§ 1.01 The Role of Incentives
§ 1.02 Automatic and Discretionary Incentives
§ 1.03 Considerations About Incentives
[1] Public Skepticism About Incentives
[2] The Business Reality of Incentives
[3] Misconceptions by Companies
§ 1.04 Factors Affecting Incentive Transactions
§ 1.05 Skillful Navigation of Incentive Transactions

CHAPTER 2 The Project
§ 2.01 The Composition of the Project
[1] Evolving Transactions
[2] Well-Planned Projects
[3] Asset Based Transactions
[4] Best Practices for Asset Description
[5] Employment Based Transactions
§ 2.02 Project Confidentiality
§ 2.03 Presentation to Public Bodies
[1] Exaggeration
[2] Consequences of Exaggeration
[3] The Understatement
[4] A Best Practices Approach
§ 2.04 The Timing of the Project
[1] Establishing the Schedule
[2] The Schedule’s Contribution to the Project
[3] Force Majeure Extensions
§ 2.05 Goals
[1] The Impact of Incentives
[2] An Assessment of Goals

CHAPTER 3 Actors in an Incentive Transaction
§ 3.01 The Incentive Team
[1] Organization
[2] Challenges
§ 3.02 Incentive Team Profiles
[1] Profile 1
[2] Profile 2
[3] Profile 3
[4] Profile 4
§ 3.03 Prequalification of Incentive Professionals
[1] Consulting Services
[2] Lobbyists
[3] Legal Counsel
§ 3.04 Public Officials and Other Parties
[1] Identification of Key Players
[2] Local Public Bodies and Communities
[3] Other Interested Parties

CHAPTER 4 Due Diligence Activities
§ 4.01 Background
§ 4.02 Business Due Diligence
[1] Overview
[2] Special Project Inquiries
§ 4.03 Incentive Due Diligence
[1] Typical Investigations
[2] Benefits of Business Due Diligence
[3] Impact of Incentive Review on Business Transactions
[4] Checklists and Timelines
§ 4.04 Project Timing
§ 4.05 Review of Policies and Practices of Public Bodies
[1] Policies
[2] Administration of Programs
§ 4.06 Validation of Funding Sources
[1] Low Risk Profiles
[2] High Risk Profiles
[3] Underwriting the Public Body
§ 4.07 Legal Considerations
[1] Legal Authority
[2] Effective Use of Counsel
[3] Additional Benefits of Early Involvement
[4] Counsel’s Review of Individual Incentives
[5] Availability of Background Documentation
§ 4.08 Third Party Guidance
§ 4.09 Transaction Soft Costs
[1] Fees and Costs of Public Bodies and Third Parties
[2] Company Professionals and Vendors
§ 4.10 Company Self-Evaluation

CHAPTER 5 Approaches to Incentive Transactions
§ 5.01 Underlying Factors
[1] Goal Oriented Companies
[2] Process Oriented Companies
[3] The Effect of Due Diligence
§ 5.02 Common Profiles
[1] The Casual Observer
[2] The Reluctant Participant
[3] The Personal Touch
[4] Strategic in Outlook
§ 5.03 Practices Not Recommended
[1] The Overly Aggressive Mode
[2] Improper Conduct
[3] Overwhelming Public Officials
[4] An Incentive as a Routine Transaction
[5] The Role of Outside Professionals
§ 5.04 The Political Process
[1] Its Purpose
[2] Public Bodies’ Use of the Process
[3] Companies Concerned with the Political Process
[4] Companies’ Politicization of the Process
[5] Over-Reliance on the Process
§ 5.05 Pursuit of the Political Process
§ 5.06 Long-Term Consequences

CHAPTER 6 Considerations in Structuring Transactions
§ 6.01 Overview
[1] Incentive Frameworks
[2] Other Participants
§ 6.02 Formats of Popular Programs
[1] Ad Valorem Property Tax Abatement and Exemption Programs
[2] Illustrative Formats for Public Body Ownership
[3] Structural Issues with Tax Abatement or Exemption Programs
§ 6.03 Sales and Use Tax Exemption Programs
[1] Exemptions Established by Program Agreements
[2] Exemptions Established by Other Structures
[3] Additional Considerations
§ 6.04 Tax Increment Financings
[1] Use of Proceeds
[2] Tax Increment Projections
[3] Credit Enhancement Structures
[4] Joint Participation in TIF Districts or Allocation Areas
§ 6.05 Loan Transactions
[1] Effect on Existing Financing
[2] Cross Default
[3] Intercreditor Issues
§ 6.06 Tax Credit Programs
[1] Identification of the Correct Company
[2] Transferability of Program Agreements
[3] Financing Considerations
[4] Tax Planning
§ 6.07 Mega Projects
§ 6.08 Appendix 1: Tax Abatement Agreement
§ 6.09 Appendix 2: Lease Agreement
§ 6.10 Appendix 3: In Lieu of Tax Payments Agreement
§ 6.11 Appendix 4: New Markets Tax Credits Typical Leverage Structure
§ 6.12 Appendix 5: Economic Development Agreement
§ 6.13 Appendix 6: Service Agreement
§ 6.14 Appendix 7: Tax Credit Agreement

CHAPTER 7 Program Documentation
§ 7.01 Preliminary Documentation Stage
[1] Exchange of Concepts and Terms
[2] Basic Terms
[a] Initial Negotiation of Terms
[b] Term Sheets
[c] Global Summaries
[3] Confidentiality Considerations
[4] Best Practices
§ 7.02 Preauthorization Stage
[1] Submissions for Incentive Approvals
[2] Fulfillment of the Inducement Test
[3] Approval of Specific Program Documentation Provisions
§ 7.03 Documentation–Closing Stage
[1] Program Documentation
[a] Factors Affecting Documentation
[i] Legal Authority
[ii] Practice and Policies
[iii] Third Parties
[iv] The Benefit of the Preliminary Documentation
[v] Timing [b] Leverage
[2] Approaches to Negotiation
[a] Tradition
[b] Use of Resources
[c] New Programs and Structures
[d] Document Checklists
[3] Final Authorization and Approval
[4] Pre-Closing Documentation
[a] Due Diligence Documentation
[b] Pre-Closing Documentation and Closing
[c] Closing
[d] Coordination with the Business Transaction
§ 7.04 Post-Closing Documentation
[1] Pre-Activation Phase
[a] Obligatory Documentation
[b] Administrative Documentation
[2] Post-Activation Phase
[a] Obligatory Post-Activation Documentation
[b] Administrative Post-Activation Documentation
[c] Best Practices
[d] Complementary Structures
§ 7.05 Appendix 1: Memorandum of Understanding
§ 7.06 Appendix 2: Revenue Bond Financing, Preliminary Term Sheet

CHAPTER 8 Post-Closing Non-Compliance
§ 8.01 Types of Non-Compliance
§ 8.02 Administrative Non-Compliance
§ 8.03 Substantive Non-Compliance
[1] Material Breach
[2] Administrative Failure
§ 8.04 Cross-Default
[1] Incentive Cross-Defaults
[2] Cross-Default of Other Company Undertakings
§ 8.05 Identification of Non-Compliance
[1] Occurrence of Non-Compliance
[2] Type and Extent of Non-Compliance
[3] Recruitment of Company Representatives
§ 8.06 Communication About Non-Conforming Conduct
[1] Initial Communication Among Company Representatives
[2] Communication with Third Parties
§ 8.07 The Role of Counsel
[1] Initial Engagement of Counsel
[2] Due Diligence
[3] Notification of and Initial Response to Substantive Non-Compliance
[4] Recommendations for Action
[a] Curative Action
[b] Settlement Profiles
[c] Prescriptive Action
[d] Extreme Action
[e] Culpable Parties
[f] Implementation of Recommendations
[5] As Advocate
[6] As Arbiter
§ 8.08 Identification of Key Actors
[1] Initial Due Diligence
[2] New Decision Makers
§ 8.09 Affirmative Response by the Company
[1] The Risk of No Action
[2] The Benefit of Preemptive Action
[3] Response to Administrative Non-Compliance
§ 8.10 Advocates for the Company
§ 8.11 Public Relations Considerations
§ 8.12 Response to Non-Compliance by Interested Parties
[1] Administrative Non-Compliance
[2] Substantive Non-Compliance
[3] Response by Private Funding Parties
[4] Response by Public Bodies
[a] Lack of Predictability
[b] Conciliatory Response by Public Bodies
[c] Aggressive Action by Public Bodies
[d] Company’s Failure to Cure
[e] Pilot and in Lieu of Agreements
[f] Administrative Non-Compliance with Program Documentation
§ 8.13 Rights and Remedies
[1] Program Documentation
[a] Financing and Other Arrangements
[b] Provision of Remedies in Incentive Arrangements
[c] Omission of Remedies in Program Documentation
[2] Enforcement of Program Documentation by Interested Third Parties
[3] Taxing Authorities
[a] Contract Breach or Default as Substantive Non-Compliance
[b] Ministerial Failure as Substantive Non-Compliance
[4] Quantification of Liability
[a] The Benefit of Defined Liabilities
[b] The Challenges of Undefined Liabilities
§ 8.14 Judicial Treatment of Incentive Arrangements with Public Bodies
[1] Overview
[2] Strict Adherence by Courts
[3] A Pragmatic Approach by Courts
[4] Counsel’s Expectation of Judicial Response
§ 8.15 Public Body Non-Compliance
[1] Incidence of Non-Compliance
[a] Unintentional Non-Compliance
[b] Intentional Action
[2] Remedies Available to Companies

CHAPTER 9 Brownfields
§ 9.01 Brownfields Incentives
[1] Background
§ 9.02 Brownfields Examples
[1] Scenario 1
[2] Scenario 2
[3] Scenario 3
§ 9.03 Types of Incentives
[1] Summary of State and Local Incentives
[2] Tax Incentives
[3] Economic Incentives
[4] Optimum Use of Brownfields and Traditional Incentives
[5] Risk Based Compliance Incentives
[6] Liability Relief Incentives
[7] Federal Incentives
§ 9.04 Institutional Controls
[1] Physical Limitations
[2] Use Restrictions
[3] Legal Controls
[4] Remediation Requirements
[5] Perfection of Institutional Controls
[6] The Marketability of the Brownfields Sites Subject to Institutional Controls
§ 9.05 The Lender’s Perspective
[1] Lender Exemptions
[2] Effect on Brownfields Financing
[3] Alternative Lender Structures
§ 9.06 The Incentive Team for Brownfields Projects
[1] Environmental Professionals
[2] Construction Professionals and Contractors
[3] Approaches by Construction Professionals and Contractors
§ 9.07 Judicial Treatment of Brownfields Programs

CHAPTER 10 Invalidation of Incentive Arrangements
§ 10.01 Federal and State Legal Theories
§ 10.02 Federal Constitutional Challenges
[1] Federal Equal Protection
[2] The Dormant Commerce Clause
[3] Prospective Use of Federal Constitutional Challenges
§ 10.03 State Law Claims
[1] Standing
[2] State Constitutional Challenges
[a] State Equal Protection Clause
[b] Uniformity of Taxation
[c] Prohibition of Gifts
[d] Public Purpose
[3] Traditional Constitutional Objections
[4] Special Constitutional Claims
[5] Statutory Claims
§ 10.04 Preparation by Companies to Reduce the Risk of Invalidation
[1] Risk-Oriented Factors
[2] Risk-Oriented Due Diligence
[a] Cost-Benefit Analysis
[b] Examples of Risk-Oriented Due Diligence
[c] Case Law Review
[3] Identification of Potential Claimants
[4] Special Judicial Proceedings
[5] Program Documentation Options
[a] Cooperation by Parties
[b] Substitute Benefits
[c] Non-Binding Arrangements
§ 10.05 Insolvency Considerations
[1] Bankruptcy and Insolvency
[2] Insolvency Risk Factors
§ 10.06 The Aftermath of Invalidation

CHAPTER 11 Special Tax Considerations
§ 11.01 Proper Planning
§ 11.02 Income Tax Implications
[1] Taxable Income Considerations of Incentives
[a] Capital Contribution Exclusion
[b] The IRS Position
[2] Incentives as Capital Contributions
[3] Income Tax Due Diligence
[a] Corporations
[b] Other Legal Entities
§ 11.03 State and Local Tax Implications
[1] Rent Taxes
[2] Mortgage Taxes
[3] Transfer Taxes
[4] Minimizing Taxes and Other Charges

CHAPTER 12 Use of Electronic Resources
§ 12.01 The Internet
§ 12.02 State Incentive Websites
§ 12.03 Disparity in Content
§ 12.04 Over-Reliance on Outside Resources
[1] Common Mistakes
[2] Resource Deficiencies
[3] Incomplete Sources of Information
[4] Effect of Improper Use
§ 12.05 Resources Provided by Incentive Professionals
§ 12.06 Best Practices
§ 12.07 Appendix 1: State-Sponsored Websites About Incentives Available in Particular Jurisdictions

CHAPTER 13 Protecting Confidential Information
§ 13.01 Confidentiality in Incentive Transactions
[1] Limited Statutory Rights of Confidentiality
[2] Contractual Arrangements
[3] Judicial Protection
§ 13.02 The Rule of Client Confidentiality
[1] Engagement of Professionals Under Attorney Aegis
[2] A Structure of Engagement
§ 13.03 Use of In-House Counsel
[1] Benefits
[2] The Application of Confidentiality Rules to In-House Counsel
§ 13.04 The General Accountant Privilege

CHAPTER 14 Inducement Requirements for Incentives*
§ 14.01 Introduction
§ 14.02 Reimbursement and Official Intent Regulation
[1] Historical Background
[2] Reimbursement Rules and Regulations
[a] Official Intent
[i] Reasonable Form
[ii] Project Description
[iii] Reasonableness
[b] Reimbursement Period
[c] Nature of Expenditure
[3] Exceptions to the Rule
[4] Rules on Refundings
§ 14.03 State and Local Programs
[1] TIFS
[a] Blighted Area
[b] But-For Test
[2] Other Incentive Programs
§ 14.04 The Importance of Careful Review

CHAPTER 15 Utility Incentives
§ 15.01 Introduction
[1] Distinctions from Economic Development Incentives
[2] Public Policy Objectives
[3] Quasi-Discretionary Features
§ 15.02 Types and Classes of Energy Incentives
[1] Energy Efficiency
[2] Renewable Energy Incentives
[a] Overview
[b] Inducements for Excess Energy Capacity
[c] Environmental Policy Considerations
[3] General Prequalification Standards
[a] Prescriptive Energy Incentives
[b] Custom Energy Incentives
[4] Economic Development Incentives
[5] Types of Energy Incentives
§ 15.03 Program Documentation
[1] Basic Documentation Process
[2] Conduct of Transactional Activities
[3] Structure and Form
§ 15.04 Due Diligence
[1] Coherent Incentive Due Diligence
[2] Select Due Diligence Considerations
[a] Custom Energy Investigations
[b] Validation of Programs
[c] Validation of In-Kind Assistance
§ 15.05 Other Incentives
[1] Water Conservation and Resource Management Incentives
[2] Sanitary Sewer Incentives
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Frederick W Kindel
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