Seasoned conversations with SALT - episode 2

A discussion on how "work anywhere" has affected organizations' site selection process and how states are adapting credits and incentives during these changing times.

Jeffrey Burns

Jeffrey Burns

Partner, State and Local Tax, KPMG US

+1 312-665-1077

Ulrich Schmidt

Ulrich Schmidt

Principal, State & Local Tax, KPMG US

+1 267-256-2786

Transcript

Jeff Burns: All right, Ulrich, great to see you. It’s been quite a year. I think the last trip I took, I was with you actually, and so here we are now in this environment, and you have the distinct honor and pleasure to be on episode 2 of Seasoned Conversations with SALT, so thanks. I appreciate you joining today, and maybe if you could introduce yourself and what you do at KPMG, that’d be great.

Ulrich Schmidt: Yes, thanks, Jeff. This is certainly an honor to be part of this conversation. I’m Ulrich Schmidt. I’m a principal in what we call the Global Location and Expansion Services Group which really is a long way of saying site selection, location analysis and credit and incentives. So, our focus is really on assisting companies with identifying locations for expansions, for relocations and, in the process, not only helping them identify where they should locate or where it’s best to locate depending on the their business but also secure credits and incentives that could help them offset their business costs and their operational costs. 

So, you’re absolutely right. It’s been quite a year. I used to travel quite a bit as you can imagine in this job, and I think I’ve been on the road maybe three times which is actually something to say for. We do get out with certain projects, but it’s a fraction of what we’ve been doing in the past.

Jeff: Yes, certainly it’s been with its challenges. When I think about just the area that you’re practicing in and the things that you’re seeing, what are some of the major themes you’re seeing come out of this current economic and societal situation as it relates to site selection incentives and that being the overarching theme?

Ulrich: That’s a great question. With a lot of these projects, one of the biggest drivers where companies were looking where to expand and, again, depending on what type of business you’re in, was talent availability. So a lot of the places that had the best and brightest talent or best manufacturing workforce were usually the recipients of these projects. 

Now in a service project, you could work from anywhere. In a manufacturing environment, that is still you need to be where the plant is obviously, but in the service business you can work from anywhere, so you could really hire people across the country, across the globe for that matter, and what’s interesting is incentives were always based on job creation or investment in a state, in a particular location, and people had to show up at a place, and companies had to qualify for incentives based on that job creation at that location which doesn’t really matter so much anymore. 

What hasn’t happened is states haven’t really caught up with addressing these changes in their incentive programs. A lot of these programs are still driven by, look, the job needs to be in one location and, if it’s not, you don’t earn a tax credit. So, I think there’s still some catching up to do for states to adjust their incentive programs to this new environment. We’ve seen some states have made some changes as part of their new budgets, have come up with new programs or have allowed companies to ... as long as they’re paying a W-2 wage, it doesn’t matter where the job is located. So the job could be at home, but it would qualify for an income tax credit, for example.

So, it’s been a slow process. I think more and more states are going to get around to that to addressing that, but it’s certainly important for our clients and companies.

Jeff: That’s an interesting framework, because when you think about it, we went from having very well-defined space, whether that was at a manufacturing location, an office. Certainly, there’s going to be some trend towards a remote workforce. I think we started to see the beginnings of that before last year, and now it’s just been accelerated. Do you think that we’re going to start to see some of those incentive packages match what’s actually happening where you’ve got this dispersed workforce?

Ulrich: I think so. I think there’s a couple other factors at play here that, with the pandemic, there’s a lot of pressure on corporate budgets, and companies are trying to figure out. They’re still investing. They still need to improve technology and systems and need really a lot of help to offset operational costs.

So, incentives were never a driver, but they were always there to close a gap and to make a good location even better. If it’s not so much driven by location anymore, these incentive programs have to adjust in order to make a difference. So maybe things will change and maybe move away from a location-driven type incentive to more of an overall let’s measure a company’s investment in a facility, in its people. Are they training their employees wherever they area which would be good for everybody? Right? Maybe incentives will change that way.

I think state and local budgets also have been under pressure. So, states are trying to figure out what really has the biggest impact with the limited dollars that they have to spend, and they need to be creative. It’s not the old chasing the smokestacks so much anymore. It’s the new economy. There’s a lot of technology being implemented where people don’t have to be where they used to work. So, the incentive programs both on the state and local side have to catch up with that.

Jeff: Absolutely, and quickly to a certain extent to match what’s happening. What are some things we should be thinking about then as we look towards the future and how we address incentives, statutory credits, things of that nature?

Ulrich: I think in general states are still very aggressive. States are still trying to attract new investment, new jobs, and so maybe there’s the location element that is changing, but companies should think about availing themselves of these benefits. We’ve seen developments, as I mentioned, on the state side. There’ve also been a lot of developments on the federal side. The federal Welfare to Work credit has been extended to through 2025.

Some of the other federal programs, the Empowerment Zone, Indian Employment Credit have been extended to address some of these changes and uncertainties that have been out there for quite some time. These programs typically expire every year. So, there’s also other federal considerations which is somewhat new to support certain industry sectors. You hear a lot of talk about the semiconductor industry right now. There’s a shortage of chips. So, the federal government might look at supporting companies or a specific industry sector there. So, it’s a constantly changing environment. 

There’s a lot of things that could be missed, so it’s always worthwhile to dig a little deeper to say, here’s what I’m planning to do. Let me maybe talk to some folks that work in that area. I’ve been working in this field now for the last 20 years or so, and there’s not a day where you don’t see a new development, a change to a program. Somebody comes up with something new, and it really takes a lot to sift through all this new information to make sure that you can identify what actually is meaningful to a company and help implement and secure it.

Jeff: Very well put, Ulrich. Well, I think we had a great discussion, given a lot of information and a lot of things to process for people to think through. So again, I appreciate your time. This has been an interesting journey and just the fact that we’re able to get together and at least do this and have a conversation is much appreciated. So Ulrich, thank you again. I really appreciate it.

Ulrich: Thank you, Jeff, and at some point, we’ll meet in person.

Jeff: I sure hope so. I look forward to it.