Most incentives today come in the form of tax credits, exemptions, abatements, low-interest financing or infrastructure improvements. In this article, we highlight Property Tax Abatements, how they work, and how you can determine whether it makes sense to pursue for your expansion.
If you are going to significantly increase the assessed value of a property, you might consider requesting a property tax abatement. Typically this is only worth pursuing if you are going to add square feet to a property, or build a new building. Façade improvements or interior build-out will not typically sufficiently increase the value of a property to make an abatement worth pursuing.
A property tax abatement typically locks-in a total amount of property tax paid for a set number of years, incrementally increasing, or “easing in,” the amount due as a percentage of the new tax incurred due to the increased assessed value. This does not decrease or eliminate property tax; it slows down the rate at which the tax on the improvements will be phased into the amount due by the property owner.
What to look for: Ask whether the property has a pre-approved abatement. This will make the abatement automatic, without having to approach each taxing body to get an abatement approved individually. NOTE: you cannot abate property taxes in a Tax Increment Financing (TIF) District.
Administrating Body: All participating taxing bodies approve abatements individually. It is possible to have only some taxing bodies participating for a partial abatement.
Example: The City of Rochelle, Illinois has a pre-approved 50% property tax abatement for six years; this means that companies are only pay 50% of the increase in assessed value for six years. This is only approved for properties located in their Enterprise Zone.
Financial incentives are changing, and predictions are difficult as to what will be available in five years. One trend is that incentives are coming under increasing political scrutiny as taxpayers demand more transparency and clear articulation as to the economic impact of financial incentives. While practitioners of economic development can often clearly demonstrate the financial return provided to economies from these incentives, governments are coming under increasing financial pressure – causing them to decrease services, putting further pressure on these programs.
When considering incentives, keep these key things in mind: