TIF For Tax – Incentives for Small Business Growth
Small businesses are the core of the Berkshire economy. These companies comprise more than half of the county’s employer establishments, with more than 2,700 employers staffing fewer than 10 people. To survive and to thrive, many need to expand—but expansions are costly.“We’ve shifted in recent years from the model of attracting large companies to trying to figure out how to allow the small- and medium-sized companies to scale up,” says state Senator Adam Hinds (D- Pittsfield), who represents the Berkshire, Hampshire, Franklin and Hampden District. Hinds serves as vice chair of the Committee on Economic Development. “Smaller businesses expand reliably. Because they’re not in the start-up phase, they aren’t as risky to invest in. It’s a sweet spot.”
Hinds, along with other state and local officials, is focused on providing a wide array of resources and financial incentives to support small business growth. “Tax incentives, low-interest loans, grants, technical assistance—we try to bring as many tools to the table as possible.”
It can be particularly difficult for a small business to expand its facility. High assessments, limited available property, zoning issues, and increasing commercial tax rates are some of the obstacles that companies face. Given the property rates in Pittsfield and North Adams—the two highest commercial rates in the state in 2018—tax credits could defer portions of these payments or help to secure traditional financing.
Such credits, including tax increment financing (TIF) agreements, can be worthwhile when awarded and used the right way. A TIF is a decremental tax break on the value of a commercial property above its initial assessment, which comes from renovations and other improvements.
“A TIF is a delay tactic that allows a business to grow and get on its feet,” explains Tony Blair, of Stone House Properties. “It makes a bigger difference to the company’s books than the city’s books.”
David Curtis, a business development consultant for 1Berkshire, agrees. “For a business that’s already here, a TIF can help with the hurdle of expanding,” he says. “A city sees that foregone real estate revenue in other ways such as sales tax, room occupancy tax, or residential property tax.”
Shawn Kinney, CEO of Berkshire Sterile Manufacturing, received a 15-year TIF from the town of Lee in 2014, two years before he opened the $9 million facility. He promised to create 60 jobs in five years. Not only was this met, it’s nearly doubled. “We started with three people in 2014; now there’s 91,” says Kinney.
The company occupies only 35 to 40 percent of its 120,000-square-foot building, so he continues to look for growth opportunities within the space as sales increase. Kinney is wrapping up a $2 million expansion with plans to hire up to 50 more people by the end of 2019 and to add a higher capacity clean room to the facility in the next few years. “We’ll put another $6-10 million into buildout and equipment which will require an additional 100 employees on top of what we’re adding this year,” says Kinney.
The more a TIF recipient invests in the property, especially within the first few years of the agreement, the more the tool is utilized. “It has enabled us to take that tax money and put it into people,” says Kinney. It was not the only component he considered when shopping for commercial real estate, but “it sweetened the pot.”
“Big picture, taxes are a small issue compared to investments and improvements a business might need to make anyway,” says Blair. “Two reasons companies don’t relocate here are cost and workforce issues.”
Which makes Wayfair’s expansion to Pittsfield so significant.
In December, the online retail giant announced it will create an additional 3,300 jobs in the Berkshires and in Boston, its operational home base. Wayfair has been growing steadily since its founding in 2002 and, later this year, will expand again with the addition of a call center in Pittsfield. Identifying a strong local workforce to meet its needs, the company pledged to bring 300 customer service and management jobs to the city.
In exchange, Wayfair was provided with $31.4 million in state tax credits over a ten-year period.
For Blair, that seems like a well-allocated incentive. “To make a tax break worthwhile, it needs to involve a significant investment,” he says. Even if the call center build-out amounts to a portion of Wayfair’s $34 million expansion investment, “that’s a lot for the Berkshires.”
Business owners aren’t always aware of all the incentives available to start or grow their companies. Commercial property tax breaks vary town to town.
Incentives that target specific business needs:
◗ Community Development Block Grants/Loans (CDBG)
◗ Tax Increment Financing (TIF)
◗ Small Business Technical Assistance Grants
◗ State tax credits, of which there are many: mass.gov/service-details/business-tax-credits
Offices where business owners can learn more:
◗ Massachusetts Office of Business Development (MOBD) Western Mass Regional Office, statewide provider of tax credits, grants, technical assistance
◗ Pittsfield Economic Revitalization Corporation (PERC), countywide provider of loans, grants, technical assistance
◗ 1Berkshire, countywide support services
◗ Community Development Corporations/Offices (Pittsfield, North Adams, Lee, South Berkshire, Adams), local support services
◗ Massachusetts Growth Capital Corporation (MGCC), statewide provider of loans, credit, guarantees, grants, diversity programs
◗ MassDevelopment, statewide provider of loans, grants
◗ Massachusetts Small Business Development Center’s (MSBDC) Berkshire Regional Office, statewide advising, business planning