When a new business wants to come to Johnson County, a standard — and often expected — request is for a tax break on its building and equipment.
Those incentives, known as abatements, allow a company to pay a reduced amount of property taxes for as many as 10 years.
Currently, 55 companies across the county have a tax break on more than $145 million worth of property and equipment. That means the local governments in those areas, including cities and towns, fire departments, libraries and schools, are only receiving a portion of the property taxes the company should be paying.
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With a 10-year tax break, for example, the company pays no taxes on its property or equipment the first year, and the amount increases by 10 percent each year until the abatement ends. That’s when owners start paying their full property tax bills.
Tax breaks are approved by city governments but affect all local governments, such as school districts.
But local mayors said that even with the loss of those tax dollars initially, the tax breaks are worthwhile because they help bring businesses and jobs to communities, along with multi-million dollar investments that will collect taxes for years to come.
“It’s actually investing in the future of your city to get them here and get them started,” Franklin Mayor Steve Barnett said.
Communities can also use the tax breaks to try to attract the types of companies they want, giving a larger tax break for companies with higher paying jobs, for example, mayors said.
In Greenwood, a company that pays an hourly wage of $16 or more is more likely to get a full, 10-year tax break. A company offering $14 or $15 per hour, which is lower than the county average, will get a shorter-term tax break, Greenwood Mayor Mark Myers said.
And a company that pays about $12 an hour or less likely won’t be offered a tax break at all, he said.
“We have been really blunt about that with a couple companies,” Myers said.
Part of the issue is that the city wants higher-paying jobs, but another concern is whether the company will be able to fill those jobs, Myers said. Local companies are struggling to hire workers at $13.50 per hour because residents want to make closer to the average wage, Myers said. Newgistics, a new company coming to Greenwood, is starting employees at $17 an hour, he said.
Myers also views the tax break as an incentive to promote a large investment in the community, since some of the companies recently coming to the city are building multi-million facilities.
While the city won’t immediately get the full tax revenue, they will continue receiving those tax dollars for years to come, Myers said. Even if a company gets a 10-year tax break on its building, the city still gets another 10, 15 or 20 years worth of property tax collections before that building will depreciate in value due to age, he said.
And often, that one building will lead to growth in values for the entire area around it, he said.
New buildings typically result in an automatic increase in tax revenue — even with a tax break — because they are replacing a vacant piece of land with a facility and equipment that typically is valued in the millions, Barnett said.
So even if a company does get a 10-year tax break, when it begins paying taxes at 10 percent, that amount is typically more than the city was collecting on the empty land, he said. And that money continues to add up in years to come, he said.
Franklin follows guidelines based on investment, wages and number of jobs when deciding what tax breaks to offer a company, Barnett said. Officials want to try to use tax breaks to bring in the best companies with high-paying jobs. Higher wages typically means a larger tax break, he said.
But without offering any tax breaks, the city simply couldn’t compete, especially since abatements have become so commonly used in communities across the state and nation, Barnett said.
“There is competition with other cities and counties, and we want to be competitive and get them here,” Barnett said.
Here is a look at the tax breaks given by local communities:
Total value of property and equipment with tax breaks in the county: $145 million
Edinburgh: $2 million
Franklin: $35 million
Greenwood: $107 million
Businesses with tax breaks: 55