Issue What are the income tax consequences of South Carolina's offer to BMW?
What are the advantages of South Carolina's offer from the perspective of New Jersey?
What form should New Jersey's subsidies take so that they can minimize the negative income tax impact on the recipients?
Facts
The purpose of this letter is to confirm with you (Mr. Glynn) our yesterday phone conversation. In which, I asked you for assistance in regards to a formulating a reinvigorated industry search program in the State of New Jersey. It is well known that the State of New Jersey has run an industrial recruitment program. As part as our recruitment activities, the state and various local governments offer financial inducements, which commonly take the form of direct subsidiaries such as land on which factories built, cash is used to construct new infrastructures or purchase machineries and equipment. I understand as happened in the case of the State of South Carolina when successfully the BMW located its plan in South Carolina. The strategy consisted in offering its assistance as a form of land and plant, whereas a competitive state offered to provide its assistance in the form cash and inventory. Moreover, after yesterday conversation I noticed that for BMW is was more convenience for tax purposes to stablish in South Carolina.
Therefore, I would like to know the tax consequences and advantages of South Carolina and in addition find out how it can be minimize the negative tax impact in New Jersey.
Analysis
Transaction (Diagram)
4008120146050The state provides Land =
Not depreciable
Not taxable
00The state provides Land =
Not depreciable
Not taxable
276415593980State of South Carolina
00State of South Carolina
Investing
BMW Plant 4008120120015The state provides Cash = Asset
Depreciable
Taxable
00The state provides Cash = Asset
Depreciable
Taxable
276415583185State of New Jersey
00State of New Jersey
Example
96744531763300-18075373365Corporation
0Corporation
Investing
The state of South Carolina offers a variety of tax incentives for corporations and individuals. It includes a Credit for Infrastructure Construction. According with the South Carolina Department of Revenue indicates those corporations are able to invest in the state or creating new jobs in any county of the state and they would be eligible to receive maximum economic development incentives allowed by State Law. In the case of Infrastructure Construction, it states that a credit against corporate income tax or bank tax equal to fifty percent (50%) of the contributions or expenses paid or accrued by the taxpayer for the construction or improvement of water lines, sewer lines, and road projects which are dedicated to public use or a qualifying private entity. Moreover, a credit is available for each infrastructure project of the taxpayer, but is limited to $10,000 per project per year. Any unused credit, up to $30,000 for each project, may be carried forward for three (3) years. The maximum infrastructure credit that may be claimed for each project is $40,000 (pp. 13).
In addition, it also provide incentives for Corporate Headquarters Location, give a credit against corporate income tax, corporate license fees, or bank taxes equal to 20% of the qualifying costs of establishing a corporate headquarters in this state, or expanding or adding to an existing corporate headquarters. The credit is made up of two parts: the real property costs and the personal property costs. It is allowed a credit against any tax due.
Considering, the case of the BMW plant and the advantages in the state of South Carolina. It seems to be beneficial because the state offered
