Valid cash incentive or illegal tax rebate?

<p>Tyler Mulligan is a School of Government faculty member.</p> <p>One news outlet reported that in exchange for constructing a data center in North Carolina, Apple Inc. will be reimbursed by North Carolina local governments for “50 percent of tax revenue on real estate property — buildings and land — and 85 percent of tax revenue on business property — computers and other equipment — for the next 10 years.” How do we determine whether this is an improper tax exemption or a valid incentive? I’m afraid there’s no “app for that.”</p> <p></p> <p></p> <p>It is not uncommon for local governments to calculate cash incentives for a business as a percentage of property taxes paid. Cash incentives awarded in this way tend to be prospective in nature; in other words, a business is eligible to receive a cash incentive each year for some number of years, provided it pays its taxes and meets other criteria during each eligible year. There are several practical reasons for using this format, primarily to ensure that the business pays property taxes first and that the incentives awarded never exceed a set percentage of the tax revenue it generates.</p> <p>One school of thought, however, suggests that local governments should avoid calculating the incentive as a percentage of tax revenue received, lest the incentive be viewed as an illegal tax rebate prohibited by G.S. 105-380. Furthermore, the North Carolina Constitution establishes in Section 2 of Article V that only the General Assembly may classify or exempt property for taxation. Taken together, the concern is that poorly designed incentives [...]</p>