Expert: Tax structure important for businesses

There is no magic-bullet policy that would automatically make Maryland more competitive as a business location. But tax structure is among key factors that come into play during the location decision-making process for businesses, according to site-selection expert Andrew Shapiro.

The site-selection process, in which Maryland and other states compete as locations for expanding or relocating businesses, “has changed remarkably even in the last five or ten years,” Shapiro told members of the Greater Baltimore Committee’s Tax Restructuring and Spending Accountability Commission this week.

The commission is working to develop recommendations for strengthening Maryland’s tax structure to make the state more competitive as a location for business growth and job creation.

In choosing business locations, “we’re making faster decisions than we ever did before,” said Shapiro, managing director of New Jersey-based business location consultants Biggins Lacy Shapiro & Co. The firm advises primarily large companies making decisions involving hundreds of millions of dollars in investment and sometimes thousands of jobs, he said.

What used to be at least a year-long, deliberative site-selection process has evolved into an exercise that now commonly takes less than six months, said Shapiro. Because of the shortened timelines, site selection is now an abbreviated “process of elimination,” he said.

A state must survive two elimination stages of the process – the initial screening and a second “staying in the game” stage – to make it to the “short list” of finalists. The purpose of the first two stages is “to get to the short list as quickly as we possibly can,” said Shapiro.

Tax structure usually ranks among the top ten variables companies say they consider in these stages. In the most recent survey by Area Development Magazine, for example, companies rank corporate taxes 4th, said Shapiro. But from a practical standpoint, taxes are considered among a mix of factors, at least half of which relate to workforce and skill availability, as well as other forms of operating costs.

“The impact of taxes tends to loom larger at the margins” in the later stages of the decision-making process, Shapiro said.

Nevertheless, taxes are increasingly becoming a factor in the initial elimination screenings, he said.

In the second stage of evaluation, more time is spent looking at the “big three” taxes – corporate income taxes, property taxes, and sales taxes that typically impact the cost of a company’s initial investment, according to Shapiro. Personal income taxes may also be evaluated at this stage as a quality-of-life factor.

Once a state makes the short list, “the impact of taxes becomes much more material at the end of the decision-making process,” said Shapiro, who added, however, that tax structure by itself “rarely is the ultimate deciding factor.”

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