Council Asked to Consider Tax Exemption for TechSmith

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In 2016, East Lansing's City Council granted Inovateus Solar a personal property tax exemption for the solar array installed in MSU's parking lots.

This morning saw a big announcement from the Lansing Economic Area Partnership (LEAP) that local software development company TechSmith is considering building a new headquarters on the site of MSU’s Spartan Village.

Because the property falls within the City of East Lansing’s territory, the move could mean more tax revenue for East Lansing.

But with the announcement came the news that LEAP and TechSmith are hoping City Council will exempt TechSmith from at least some of those taxes. And that is bound to create a least some tension, as the Council will almost certainly debate whether to grant another relatively big corporation local tax incentives.

According to today’s announcement, “TechSmith plans to move more than 275 employees into a new headquarters in East Lansing from their current headquarters in Alaiedon Township, where the company has been based for nearly 20 years. With the move, TechSmith will be looking to add 25 new, high paying jobs at the new headquarters in the coming years while returning to East Lansing where the company got its start more than 30 years ago.”

The move would assuredly result in significant income tax revenue for the City, as both the corporation and the workers would be subject to the one percent municipal income tax, which voters approved for a 12-year term that started in 2019.

Because the TechSmith project would involve commissioning a new building, the project would also result in approximately $12.75 million in capital investment and provide construction jobs. 

Now, TechSmith and LEAP are hoping the Council will see all that as reason to provide “a short-term personal property exemption” from the City.

“Personal property taxes” are an oddly-named type of tax on businesses; the tax comes on owned equipment, including things like computers, manufacturing equipment, and office furniture.

In 2015, East Lansing’s Council granted a personal property tax exemption for IBM, totaling about $34,000. In 2016, the company working on the Burcham solar park array was granted by City Council a 10-year exemption that amounted to about $135,000. That same year, the company building MSU’s carport-based solar array was given a 10-year, 82 percent exemption, amounting to about $2.6 million, following a lively debate at Council.

The motivation for granting these exemptions has always been to obtain a net benefit for the City. Providing a break on the “personal property tax” can mean luring businesses that pay property taxes and now also income tax.

In this case, the property taxes would be paid only on the building and not on the land, because MSU owns the land and is exempt from paying property taxes.

In the press announcement, City Manager George Lahanas characterized himself as “thrilled” at the TechSmith plan, hailing it as an “exciting project” with great potential. But it will be up to Council, not the City Manager, to decide whether to grant this exemption.

And buried near the bottom of today’s announcement from LEAP came this: “Additional state and local support may also be considered for the project…”

Those other possible tax incentives went unnamed.

East Lansing has been hoping to get more big office users to move to the City, as office use is generally relatively gentle on the environment and involves well-paying jobs.  The City has been particularly interested in trying to draw more office users downtown.

MSUFCU is fully approved for construction of a new seven-story office building downtown, and the credit union has asked for no tax incentives on that project. But a big wrench has now been thrown into the works on that building’s plans by the owners of Dublin Square, next door. (Read more.)

Just a few feet away from where MSUFCU wants to build lie the Downtown Development Authority’s “Evergreen Properties,” for which River Caddis Development continues to have an exclusive agreement related to a proposal to build 200,000 square feet of new office space. But that project hasn’t seen much progress in terms of moving to a formal land-sale agreement and site plan proposal. In that case, River Caddis would be seeking millions in tax incentives.

One challenge with building new office space downtown has been the high cost of providing parking. In both the MSUFCU plan and current River Caddis concept, the developers would be constructing no new parking, relying instead on the City’s municipal parking system. The zoning code actually calls for that approach, requiring would-be developers to get special permission if they want to include parking in downtown redevelopment projects.

Out at the Spartan Village location, surface parking would be easy and relatively low-cost to construct for TechSmith.

Note: This article was updated on Nov. 15 with new information obtained, including information provided through the release of Council’s packet.

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