Tax incentives are a common tool used to spur economic growth and development locally and across the nation. Like other incentives, tax saving opportunities are meant to encourage new investments that increase the local and state tax base and encourage job creation and retention. Tax incentives may also be used to target specific geographic areas to help catalyze rehabilitation or new development where it is otherwise unlikely.

Tax incentives are often used by site selectors to compare one community to another. Companies consider local and state incentives as one factor among many that help them decide where to invest. Tax incentives are so common, though, that they rarely are “the” deciding factor. Tax incentives have become an expectation of companies considering investing, right alongside quality of life, infrastructure, broadband connectivity, and the quality of the workforce.

They come in many forms, but the two most common tax incentives promoted by Be Noble Inc., Noble County’s local economic development organization, are tax abatements and vacant building tax deductions. As we unpack these incentives, it is important to note that the information provided is based on the current provisions provided under the Indiana Code and the common practices of the governing bodies within Noble County.

What is a tax abatement?

A tax abatement is a reduction in taxes approved by a taxing authority, or designating body, to be realized by the taxpayer at the completion of a capital project. In Noble County, the designating bodies are  town councils, city councils, and the Noble County Council. Each has its own geographic area of responsibility. Combined, they oversee 22 taxing districts that make up Noble County.

The reduction in taxes that an abatement provides to a taxpayer does not diminish, in any way, the taxing districts existing tax revenues. Tax abatements are only eligible, authorized, and realized on the net increase in assessed values that result from the taxpayer’s capital investment. If a project does not result in a higher tax base, then there is no reward to the taxpayer. If the investment adds to the tax base, their reward is a short term discount on the taxes they pay on the increased valuation.

What is eligible for a tax abatement?

Investments in tangible personal property, including new manufacturing equipment, logistical distribution (material handling, warehouse racks, etc.), research and development, and information technologies (hardware, scanners, workstations, etc.) used in a manufacturing process are eligible when made within a geographic area that has been previously designated as an Economic Revitalization Area (ERA).

Residential real estate improvements in an ERA may also be eligible for tax abatement, but only in the case of multifamily housing. At least twenty percent of the units must made available for use by low and moderate income individuals, or the project has to be in an area designated as a “residentially distressed area.”

While most real property abatements involve new structures or a major building renovation, it is also possible to approve a vacant building deduction on a structure that has been vacant for at least one year, is located in an area zoned for commercial or industrial use and is within an ERA. The tax break is given not because the building is vacant, but because it is being put back to use.

“New manufacturing equipment” does not necessarily mean brand new equipment; it may also pertain to equipment that is simply “new” to Indiana. This means, for example, that if an industrial company relocates an existing production line from a facility outside of Indiana into Noble County, the equipment is considered “new” to Indiana, and it may be eligible for a tax abatement.

Some facility improvements that are required to support associated new equipment installations may also be included under a personal property tax abatement application. For example, a concrete foundation poured to support the installation of a new heavy press is eligible. Likewise, a hydraulic line required to run a lifting mechanism would be eligible as part of a new equipment installation.  

Investments that improve real property, including new construction, expansion, and the rehabilitation of existing structures, are also eligible for a tax abatement. Any improvements that increase the value of real property can be considered. Upgrading from a gravel to paved parking lot, for example, is considered as real property improvement. As with personal property investments, real property investments are only eligible when made in a previously designated ERA.

ERAs are designated by the same taxing authorities – town councils, city councils, and the Noble County Council.

What is an Economic Revitalization Area?

An ERA is a legal description of an area that is within the limits of a town, city, or county that has become undesirable for, or impossible of, normal development and occupancy. In Noble County, ERAs have been established in most incorporated communities. The incentives available within these ERAs have helped grow local industrial parks, in particular. All of the geography that is not within an incorporated community, but still within Noble County, has also been established as an ERA by Noble County Council. This designation has helped spur rural industrial investment and development at locations such as the former Dekko complex west of Kendallville on US Highway 6 and the industrial complex at State Road 8 and Country Road 150 East near Albion.

Before an employer’s application for a tax abatement moves forward, it must first be established that the operation is located within an ERA, or a new ERA must be approved.

What are the limitations of a tax abatement?

Tax abatements are never approved for or realized on land alone. Some equipment used in a manufacturing company is ineligible, including office equipment, semi tractors and trailers, and pollution control equipment (which is already tax exempt.)

Vacant building deductions are only based on the assessed value of the vacant structures that are being put back into use. Tax savings under a vacant building deduction are typically realized over the period of one or two years. Like other abatements the savings are not applied to land values. Vacant building deductions are ultimately subject to the discretion of the county auditor.

Other abatements are based on the projected net increase in assessed values of personal property and improvements to land. Taxing authorities may choose, at their discretion, over how many years an abatement may be granted and what the percentage of savings each year will be. Typically, tax abatements are approved for a period of three, five, seven, or 10 years at a gradually decreasing rate that begins with a 100% tax break the first year. Each year thereafter, the amount of reduction diminishes until it reaches zero at the end of the approved duration.

Timelines matter. Applicants are urged not to get too far into a project before seeking an abatement on their planned investment. The process is, after all, intended to be an incentive to invest. Applications should be approved for personal property investments before any new equipment is installed. Equipment “installation” is defined as the point at which the integrated production process is completely functional.

For real property investments, applications should be considered and approved before any new construction has begun. While some ground movement is not a deal-breaker, no structures should begin going up ahead of application review.

Be Noble Inc. recommends that employers apply for a tax abatement sometime after vendor or contractor quotes have been gathered and before or in conjunction with purchase (or move) orders being issued.

The time needed to apply and appear before the necessary taxing authorities can take up to sixty days. Adding sixty days to a project timeline should provide ample time to prepare the application and appear in front of the necessary designating bodies before the project begins.

How to apply for a tax incentive

Be Noble Inc. offers free assistance to employers in Noble County, regardless of tax district. The economic development team maintains relationships with all local tax authorities and will work to ensure their individual needs are met and the required meetings are scheduled. To begin an application, employers will be asked to complete a simple questionnaire and may do so online or on paper.

In Northeast Indiana, Region 3A Economic Development District also offers support for tax incentive applications, as well as other programs. Fees may apply. Help may also be available from a local tax accountant.

The forms used to apply for a tax abatements and vacant building deductions in Indiana are generally referred to as SB-1s. There are, however, different versions of the form. Additional forms must also be filed in a timely manner, as prescribed by the state, in order to realize tax breaks. Be Noble Inc. recommends employers rely on a tax accountant familiar with spring property tax filings to ensure compliance.

In addition to completing an SB-1, application packets prepared for tax authorities also include an addendum prepared to provide an estimate of benefits and to lay out the savings that could be realized each year over the years the abatement may be granted. An estimate of the return on investment for the taxing district may also be provided. Each tax authority may require a slightly different set of supporting documents. Employers are encouraged to provide copies of vendor or contractor quotes, equipment lists, and other information that supports their request to be included in the application packet as well. The applicant will be expected to attend, or send a representative to attend, all meetings scheduled for review of the application. This may require multiple meetings, but typically no more than two are necessary.

What to expect after application

In Noble County, each designating body has guidelines they use to help ensure applicants are given fair and equitable consideration within their jurisdiction. Guidelines help these decision-makers determine how much and for how long a tax abatement might be appropriate. Factors they consider include the amount of new investment and projected increase in assessed values, the number of jobs to be retained and new jobs added, and the wages paid by the employer. Guidelines vary. The City of Kendallville and Noble County Council utilize the same general guidelines, but other authorities may rely on precedent or other considerations.

Applicants can expect to be asked questions by tax authorities that pertain to their business and the proposed project. Tax authorities will be especially interested to know if the investment could occur at a different location outside of Noble County, for example. Understanding the possible negative consequences of not approving a tax abatement locally could make the difference between being approved or being denied. Impacts may also affect the duration and total value of a tax break. Applicants should prepare to advocate for their project, company, and community.

For more information or for help to explore other incentives, such as those offered by the State of Indiana for new investments, contact Melanie Kellogg, Executive Director of Be Noble Inc. at (260) 636-3800 or visit onenobleco.com. Learn more about local business incentives here.