Tax exemptions for industry under attack

by Becky Gillette

Published: July 12,1999

PASCAGOULA — In the past all Jackson County industries had to do to receive 10-year tax exemptions on new investments was to ask. But current applications by three industries for $250 million in tax exemptions has been tabled by the Jackson County Board of Supervisors, who cited the county’s financial difficulties and concerns about how the industry tax exemptions would affect taxes for homeowners.

Chevron, the largest property taxpayer in the county, has applied for exemptions on $203 million worth of new investments. Friede Goldman has applied for exemptions of $43 million and First Chemical want exemptions of about $3.4 million.

Jackson County currently has a $2-million deficit, and there are continuing state and federal investigations in several areas. Former Chancery Clerk Lynn Presley, county land appraiser Don Hearn Sr. and his son, Don Hearn Jr., were indicted recently on federal racketeering and money-laundering charges in indictments that allege they stole $1.6 million from county taxpayers in connection with a contract to computerize land records.

The supervisors have voted to set up a board to review industry requests for tax exemptions to determine if the exemptions are justified. But some say industry is at a disadvantage at present because there is no county economic development head to provide direction for considering the complex issue of industrial tax exemptions.

Connie Moran, who was fired as head of Jackson County Economic Development earlier this year, said she believes the review panel should come up with a formula that would grant exemptions based on the economic benefits from the development.

“The panel would consider factors such as the number of jobs created, and how many of the employees live in Jackson County,” Moran said. “If there were incentives for having more employees live in the county, it would encourage industries to participate in plans available through FannieMae to help subsidize employees who buy homes in Jackson County.”

Moran said other factors that could be considered are the level of investment, the amount of supplies purchased locally, environmental programs, safety ratings, training opportunities, the level of wages/salaries, use of the port or other local infrastructure, and an overall quality of life index determined by the company’s participation in community activities.

Harrison County uses such a formula to determine tax exemptions. Michael Olivier, executive director of the Harrison County Development Commission, said the formula helps takes the politics out of industrial tax exemptions.

“We have a formula where we plug in the variables of economic impact to measure the full economic impact, both direct and indirect, giving our development commission and our supervisors a measure whereby they can determine if, in fact, this is a good deal or not,” Olivier said. “We have a staff person who attended a national program on economic impact analysis who has devised this methodology which we have been using for the last two years.”

The Harrison County formula has been requested by a number of other counties and economic development agencies in the state. Instead of giving the full ten-year exemption allowed by state law, in Harrison County five-year exemptions are allowed if companies meet the criteria. Companies have the opportunity for a second five-year exemption if it can be proven that the company continues to have a positive economic impact.

Industrial tax exemptions are for county taxes only. There is no exemption for school taxes.

Steve Renfroe, public affairs manager for Chevron in Mississippi, said denying Chevron’s current application would be unfair. He said when Chevron made the investment in its new paraxylene plant, it was with the understanding that Jackson County’s long-standing policy has been to grant tax exemptions for new industrial developments.

“They have done that in the past, and have never said anything about changing that policy,” Renfroe said. “We support looking at revising the policy, but feel for this application they should grant the exemption because that was the board’s policy at the time we made the investment.

“I think that this controversy about tax exemptions is not good for the county. It certainly is not good for economic development. Industry wants to know what the rules are, and they want everyone to play by the rules. When you start changing things, it makes it really difficult for existing industry and prospective new business.”

Renfroe said Chevron has invested $2 billion in the past 30 years in Jackson County. As a result the property taxes paid by the refinery has gone from $2 million in 1975 to $13 million in 1998. The proposed $203-million exemption would result in a 10% break on Chevron’s taxes in Jackson County.

Renfroe also points out that the assessment rate for industry — the amount of assessment that is taxed — is 15% for industry compared to 10% for homeowners. Homeowners also get a 40% homestead exemption. “So homeowners are paying a lower percent taxes than industry,” Renfroe said.

Also, industry is reappraised on a yearly basis compared to homes, which are reappraised every four years.

However, some homeowners in Jackson County have protested that Rule 8 approved by the Mississippi State Tax Commission several years ago allowed accelerated depreciation of industry assets. In some cases that has meant by the time the ten-year tax exemption is up, the value of investment put on the tax rolls has declined to very little. Critics of Rule 8 claim it has shifted the burden of taxation from industry to home owners and small business people. The same year that average home appraisals went up an average of 25% in Jackson County, the total appraisal value for industry went down.

Robert M. Megginson, director of the office of property tax, Mississippi State Tax Commission, said Rule 8 establishes uniform methods for determining appropriate personal property depreciation schedules for businesses and industries. He said the rule is based on IRS regulations that show most equipment has a shorter life span than ten years. For example, oil exploration equipment is expected to have a class life of six years, and apparel manufacturing equipment has a class life of nine years.

Rule 8 affects the entire state, not just Jackson County.

Megginson said the industrial tax exemptions in Mississippi that began with the passage of the Economic Reform Act in 1989 have been successful in industrializing Mississippi, providing new jobs and other benefits.

“To give you a clue on how successful the Economic Reform Act has been, we started processing applications July 1989,” he said. “Right now we are averaging through this office 60 to 65 applicants per month statewide. Some of the counties and municipalities grant on five years instead of 10, or can grant two five-year exemptions, or a four-year and six-year exemption. Or they don’t have to grant any. It is at their discretion whether or not they grant them.”

Only manufacturing and distribution facilities are eligible for the exemptions.

Contact MBJ staff writer Becky Gillette at mullein@datasync.com.

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