Local Tax Sharing Agreements
Local Tax Sharing Agreements are negotiated arrangements where a city, county, or other local taxing authority agrees to share a defined portion of future tax revenue with a business in exchange for a specific economic outcome.
Why Local Tax Sharing Agreements Exist
Local governments use tax sharing agreements to shape economic outcomes they could not achieve through zoning or regulation alone. These agreements are designed to close financial gaps in projects that deliver measurable public value such as job creation, capital investment, redevelopment, or long-term tax base growth.
For businesses, these agreements are a way to align project economics with local policy goals without relying on blunt incentives or short-term abatements.
How Local Tax Sharing Agreements Are Structured
A Local Tax Sharing Agreement is typically structured as a performance-based contract between a business and one or more local taxing authorities.
Common structural elements include:
– A defined project scope tied to investment, jobs, or redevelopment
– A baseline tax revenue level established prior to the project
– A formula that determines how incremental tax revenue is shared
– A fixed agreement term with renewal or sunset provisions
– Reporting and verification requirements
Unlike abatements, taxes are still assessed and collected. The incentive occurs through redistribution, not forgiveness.
Taxes Commonly Included in Tax Sharing Agreements
The specific taxes included depend on local authority and statutory constraints, but commonly include:
– Property tax increment
– Local sales and use taxes
– Local income or payroll taxes
– Utility or excise taxes tied to operations
– Special district assessments where applicableAgreements often exclude school district taxes or voter-restricted levies unless separately approved.
Who Negotiates and Approves These Agreements
Negotiation typically involves:
– Economic development staff
– Finance and budget officials
– Legal counsel for the municipality
– The business and its advisorsApproval authority varies by jurisdiction but usually requires:
– City council or county commission approval
– Public notice and hearing
– Formal execution through ordinance or resolutionMulti-jurisdiction projects may require coordinated approvals across multiple taxing bodies.
Financial Benefits for Businesses
When properly structured, Local Tax Sharing Agreements can:
– Improve project-level cash flow without reducing assessed value
– Offset operating costs tied to growth or relocation
– Reduce downside risk in early project years
– Improve internal rate of return and financing feasibility
– Align long-term tax exposure with actual project performance
These benefits are realized only if the agreement aligns with realistic operating and growth assumptions.
Compliance, Reporting, and Clawback Considerations
Tax sharing agreements are compliance-driven instruments.
Common requirements include:
– Annual or quarterly reporting of employment and payroll
– Capital investment verification
– Ongoing tax payment verification
– Audit rights retained by the jurisdiction
Clawback provisions may apply if performance thresholds are not met, often requiring repayment of previously shared revenues or termination of future benefits.
How SumIt Credits Supports Local Tax Sharing Agreements
SumIt Credits approaches Local Tax Sharing Agreements as financial instruments, not marketing incentives.
Our support includes:
– Opportunity analysis to determine if tax sharing is viable
– Financial modeling of cash flow and tax impacts
– Scenario analysis across multiple jurisdictions
– Negotiation support grounded in municipal finance realities
– Agreement review for compliance risk and enforceability
– Ongoing monitoring to ensure reporting accuracy and alignment
The goal is precision, not persuasion.
Process Overview
Evaluate
– Identify eligible jurisdictions
– Analyze tax base and projected increments
Model
– Quantify shared revenue under multiple scenarios
– Stress-test assumptions
Negotiate
– Align performance metrics with business operations
– Clarify risk allocation and clawback terms
Execute
– Support approval and documentation
– Prepare compliance frameworks
Monitor
– Track performance and reporting obligations
– Adjust strategy as conditions change
Common Pitfalls to Avoid
– Overestimating tax increments
– Accepting vague performance definitions
– Ignoring long-term reporting costs
– Failing to align agreement terms with financing structures
– Treating tax sharing as guaranteed revenue
Local Tax Sharing Agreements - Top 10 Questions & Answers
- What is a Local Tax Sharing Agreement?
A Local Tax Sharing Agreement is a contract where a local government shares a portion of future tax revenue with a business based on agreed performance metrics. - How do Local Tax Sharing Agreements differ from abatements?
Abatements reduce or eliminate taxes owed. Tax sharing agreements collect full taxes and then redistribute a portion back to the business. - Which local taxes are typically included?
Property, sales, income, or other locally controlled taxes may be included depending on jurisdictional authority. - Who approves these agreements?
Approval usually requires a vote by the governing body of the city, county, or taxing authority involved. - How long do Local Tax Sharing Agreements usually last?
Terms commonly range from 5 to 20 years, depending on project size and public impact. - What are common compliance requirements?
Reporting on jobs, payroll, investment, and tax payments is standard, often with audit rights retained by the government. - Can agreements be renegotiated?
Some agreements allow modification under defined conditions, but renegotiation is not guaranteed. - What risks should businesses understand?
Risks include underperformance, clawbacks, reporting burdens, and changes in local policy or leadership. - How do these agreements impact long-term tax planning?
They affect cash flow timing but do not eliminate tax liability, requiring careful integration into tax planning. - How does SumIt Credits help manage these agreements?
SumIt Credits provides modeling, negotiation support, compliance tracking, and ongoing advisory services.
Example Positioning Angles
– Local Tax Sharing Agreements for Multi-Jurisdiction Projects
– Tax Sharing Agreements vs Traditional Property Tax Incentives
– Using Local Tax Sharing Agreements to Improve Project ROI
Executive Takeaways
– Local Tax Sharing Agreements are performance-based financial tools, not tax forgiveness.
– Proper modeling and negotiation determine real value.
– Compliance obligations are as important as the incentive itself.
– Multi-jurisdiction coordination increases complexity and opportunity.
– Expert advisory support reduces risk and improves outcomes.
For organizations evaluating Local Tax Sharing Agreements as part of a broader incentive strategy, Sum It Credits provides disciplined analysis, structured negotiation support, and long-term compliance oversight aligned with real-world operations.