Trickle-Down Effect of Corporate Tax Incentives Will Aid All Property Owners In the Long Run

From the annual 4th of July fireworks display to weekly trash pick-up, the services provided by every municipality are heavily dependent upon the town’s budget. It’s why that much-loved fireworks show is often among the first offerings to hit the chopping block during times of austerity; the money can simply be put to better use elsewhere. Property taxes typically make up a massive portion of any municipal operating budget, with various forms of state aid and sales tax supplementing the additional costs of running a local government. For this reason, there’s often a flurry of negativity surrounding any talk of offering “tax incentives” to businesses that are considering a relocation and/or expansion. That’s why the Town of Islip Office of Economic Development wants to dispel rumors and show readers why lower tax rates with a definite “sunset” date, for example, are a win-win for all involved.

Any business is free to choose where it sets up shop, especially those in the industrial sector like manufacturers and distributors. And they often choose to locate where their costs for labor, transportation and taxes are lower.  If your town can offer a large pool of talented applicants, convenient transportation and available real estate to grow on, many companies will be competing to get in. During these ensuing negotiations, it is typical for companies to consider moving elsewhere in search of a more favorable cost structure. Thus, town leaders may offer partial property tax payments as a way to entice interested parties. The theory here, according to the Lincoln Institute of Land Policy, is “some property tax revenue is better than none.” In fact, most economic development transactions lead to an increase in tax revenues over and above that which preceded the new construction that often occurs. This may be an over-simplification, but there are measurable side effects of cutting one company a break and seeing additional economic activity from sourcing raw materials from local vendors and even simply from increasing lunch hour foot traffic in the area every single day. The spill-over effect of new businesses moving into the town could also include other operations deciding to set up shop there and pay in full when their own tax bill comes due.

According to the Lincoln Institute of Land Policy, discounting property taxes for a business will deliver the following incentives and help reach larger economic goals:

  • Increasing income/employment: Tax incentives can promote the creation of “industry clusters” that will drive productivity and attract facilities that export goods/services into neighboring regions.
  • Improving fiscal health: Companies pay more than property taxes for the privilege of operating. Thus, a discounted property tax bill doesn’t carry over to other fees they pay to exist. Moreover, even a partial property tax payment is a boost to the town’s coffers.
  • Promoting urban renewal: Distressed areas often require an incentive to entice new construction. In many cases, it is a property tax break and there are cities across the U.S. that stand as a testament to the effectiveness of this approach.

The relief that new businesses bring to a municipality may not be felt right away because that new business’s taxes, by and large, increase incrementally each year. But combined with the extra assessed value portion of the tax rate, the individual taxpayer eventually ends up paying less over time thanks to new ratables coming into town.

For more information about the ways our office provides assistance to local businesses, please reach out to us at or (631) 224-5512.