Greenwood used a tax break it had never used before when it enticed a cosmetics supplier to build a distribution center in the city.
The abatement provided bigger property tax breaks on equipment than on real estate and buildings and offered percentage discounts allowing the company to save more money over the course of the 10-year abatement than the city had ever offered in the past.
The state legislature approved the abatement formula, which allows cities to customize tax breaks for the companies they’re trying to attract, about two years ago.
Being able to adapt the abatement for ULTA helped Greenwood compete more effectively against other cities vying to attract the company, Mayor Mark Myers said.
Franklin hasn’t used an abatement such as that one but offered a similar tax break to a company that didn’t end up coming to the city.
Greenwood’s abatement is a concern to a local school superintendent, who said bigger tax cuts on equipment mean fewer dollars to fund schools, which already are losing property tax money to tax-increment financing, or TIF, districts.
TIF districts capture property taxes from new development in an area, to be spent on economic development projects in a specific part of a city. Businesses pay property taxes based on the value of the equipment, land and buildings.
Property tax money funds the school district’s capital projects and transportation budgets. The more property taxes are abated or captured in TIF districts, the less funding Clark-Pleasant schools get until the abatement period or TIF district ends.
When courting ULTA Beauty, Greenwood used a recent change to state law that allows cities to make a custom tax abatement for a company. Traditionally, a phased-in tax abatement would eliminate all property taxes for a company for one year, and then phase the taxes in by 10 percentage-point increments each year over the course of five, seven or 10 years, depending on what the city approves.
For the ULTA abatement, city officials agreed instead to give the company seven years of paying 35 percent of its property taxes on equipment and five years of paying 60 percent of its taxes on land and buildings.
In the past, a company would have had to pay 60 percent of its equipment property taxes by year seven of a 10-year abatement, and in year 10 pay 90 percent. In year 10, ULTA will still have a 65 percent discount on its equipment property taxes.
The ULTA deal was unusual, and the city won’t offer that type of abatement often, Myers said.
Using substantial breaks like that are useful only for massive projects, and the city hadn’t had a project the size of ULTA come in possibly decades, he said.
“Really, it just depends on a case-by-case basis on how important the business is to the city. That is by far the largest project I’ve been involved in,” he said.
In the past, the tax breaks on land matched the tax breaks on equipment, but the city modified the abatement in a way that could hurt the Clark-Pleasant school district in the future if the city repeats it, Superintendent Patrick Spray said.
Because a TIF district will capture the taxes on the ULTA property — which includes the land and building — the school district doesn’t lose any additional tax money from that part of the abatement, he said.
The school district loses out on money from the equipment property tax if those taxes are abated, and ULTA got bigger tax breaks on its equipment than on its land and building, Spray said.
Spray is asking the city to make the property and equipment tax breaks match, to be fair — so the city and the other taxing units, such as the schools, lose money the same way, he said.
ULTA didn’t ask for any cash incentives from the city and promised to bring hundreds of jobs and invest millions of dollars in the community, so the city was willing to give bigger tax breaks, Myers said. A developer is building a 670,000-square-foot distribution facility for ULTA in the city’s Southpoint Business Park.
“It was a one-time-only thing with ULTA because we knew that other municipalities were working on the same type of abatement, same type of percentages,” Myers said.