Small business owners cry out for tax break

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As the economy grows, they say, the cost of business goes up, with the resulting aid going to the biggest corporations. The small guy is the last to get relief, paying more for fuel or plywood or office paper to do the same amount of work.

The county's tax break for Piedmont Natural Gas would offset $25 million the company said it plans to spend within five years to build new pipelines and extend natural gas service to thousands of residents in the Travelers Rest area and western Greenville County.

Council members including Finance Committee Chair Judy Gilstrap say they've struggled over the ordinance, uncertain whether it's an incentive necessary to attract new investment or a government subsidy of a $1.6 billion corporation that has aided the county in past economic development efforts and likely would have expanded here anyway.

Piedmont spokesman David Trusty said the tax break "helps keep us competitive," which means more jobs are created as a result and more people get access to a heating source at a cheaper rate.

At issue for residents is the give and take between job creation and the allocation of tax money, the possibility of new employment in the short term and the idea that long-term economic stability will come from small enterprises — the ones less interested in sending future jobs to China.

"The smaller firms say, 'Whoa. What I could do with a break of that size,' " said Michael M. Simpson, president and CEO of his own local engineering firm, Michael M. Simpson & Associates Inc.

The Piedmont tax break is an unusual one, Gilstrap said, because the incentive would go to an existing major company that probably would have added the capacity regardless. The council's finance committee has approved the measure, though the full council hasn't taken a final vote.

"I don't argue one iota that they likely would have done expansion anyway," said Jerry Howard, president and CEO of the county's Greenville Area Development Corp. who recommended Piedmont for a council-approved tax break.

Rather, he said the county is helping ensure that Piedmont charges "competitive" natural gas rates of its customers and expands to areas where the county wants to attract further industry.

Piedmont, which currently serves about 130,000 Upstate customers, is already planning the pipelines that would extend natural gas service to northern and western parts of the county, Trusty said.

The council ordinance would effectively mean that Piedmont wouldn't have to pay $804,335 in tax money through the year 2028.

In a state that charges one of the highest tax rates in the nation for industrial property, few people advocate doing away with the tax incentives that make South Carolina more competitive with its neighbors when wooing major employers.

But in Greenville and across the nation, small businesses collectively employ more people than all major employers combined, and will increasingly do so as many larger employers send their operations to China and other cheap-labor countries.

That in itself merits an equivalent tax break for the little guy, business owners say. The rigors of April 15 are still fresh in their minds.

"The small guys don't have the muscle to command that respect," said Padam Dhakad, a small businessman who himself helps other small firms find financing. "These are the people who work 14, 15 hours a day."

Campaign issue

Several council members said Piedmont officials have told them that its various divisions in South Carolina, North Carolina and Tennessee compete for the expansion money available within the company, much like a global manufacturer might debate adding new facilities in Greenville or in Mexico, but not both. A tax break, they say, would help ensure that the Piedmont expansion will happen locally.

However, both Trusty and Howard said the utility would have likely expanded here anyway because of rampant local growth.

"It's not like there's cutthroat competition for these dollars, but it's a fact that there are limited dollars," Trusty said. "The Upstate of South Carolina competes very effectively with our other service areas as being a growth area."

Trusty declined to say specifically if the county's tax break helped determine when and where the new pipeline would be added.

Gilstrap, who represents a west side district that would benefit from the new pipeline, is a convert to the merit of these tax breaks — usually called "fee-in-lieu-of-taxes," or FILOTs — after blasting her Republican counterpart for the same stance during her 2002 campaign.

The issue comes up every two years in campaigns for County Council, with challengers often alleging that such hefty reductions for big companies mean residents shoulder more of the tax burden. Proponents say the tax breaks actually help attract new corporate taxpayers who, although they get a discount, collectively boost tax revenues and help keep your tax bill from increasing.

A county FILOT typically means an industrial business will pay the equivalent of a 6 percent tax rate on its property instead of the standard 10.5 percent rate under state law.

The one for Piedmont "was a struggle for me to decide whether or not to support this," Gilstrap said. "This is a different use of a FILOT."

Councilman Scott Case said it isn't, and that he is satisfied that Piedmont's local district is competing for the company's expansion funding, thus necessitating a tax incentive to make Greenville a more attractive option.

"We're among the highest taxed states in the union when it comes to commercial and business taxes," Case said. FILOTs, he said, are a logical way "to ensure state taxes aren't a barrier to job creation."

Even with the incentive, Case said other states are able to offer more lucrative reductions on their own, much lower tax rates.

$800,000 savings

County documents show that the tax break in question would reduce Piedmont's tax bill on the new investment to $1.4 million from about $2.2 million. Case said without the incentive, though, the expansion might not have occurred because Piedmont could have chosen to invest elsewhere.

Trusty said Piedmont paid more than $1.8 million in property taxes on its existing local property last year, and will continue to pay the full tax rate on that infrastructure.

Howard said when he considered requesting a FILOT from County Council he weighed Piedmont's existing contributions to the local community and how its new pipeline would help attract other companies to the northern and western parts of the county.

"Not going totally unnoticed is that they give us a lot of money from utility tax credits that have helped win other projects to the community," Howard said. "We looked at it as an expansion of an industry that had a lot of investment already in Greenville."

Although he said the company likely would have expanded here anyway, "This all goes to help making them be more competitive, which long term helps us win projects. They met all of the qualifiers for existing industry."

Of the companies that apply for FILOTs, Howard said only 21 percent are approved. The number of FILOTs approved overall has gone down in recent years, Howard said.

Gilstrap agreed that a Piedmont tax break is partly justified by its ripple effects.

"We're trying to make the deal sweet for them so we can get several million dollars in buildings brought in here and jobs for our people," she said, pointing out her own underdeveloped west side district and the infrastructure-poor northern areas of the county.

"Those are areas where we're seeing a lot of interest in expanding, but we've got to have the infrastructure there for these companies to come in."

Case said, "That, to me, is not a valid argument," because most companies in the county could then apply for tax breaks on the basis of their supposed contribution to other economic development.

"That is not an incentive to recruit business, that's a subsidy," Case said. "Any time we're asked to provide taxpayer dollars to simply put in a development's infrastructure, that's problematic because then you're using what should be an incentive mechanism as a subsidy mechanism."

He said he's satisfied that for Piedmont, the FILOT is a necessary incentive, not a subsidy.

Trusty said when Piedmont expands, it adds not only hard assets but also additional community involvement.

"A fee in lieu of taxes helps keep us competitive," Trusty said. "It helps keep our cost of investment in a community at a level that keeps our rates competitive."

That's hard for some to swallow, Gilstrap said, because "they've flexed their muscles out there for a long time" as an almost unrivaled natural gas provider. Some county municipalities provide natural gas to local residents, and their prices can fluctuate both higher and lower than Piedmont's price because they don't have the same large reserves of pre-purchased fuel to draw from.

Trusty said the municipalities have the advantage of not paying any property taxes, giving added reason for a Piedmont tax break.

"It helps level the playing field," he said.

Supporting the little guy

Gilstrap and Councilman Jim Burns, who also sits on the Finance Committee, say they're convinced of the value of FILOTs, but they need to better explain the benefits to taxpayers and find ways the county can put money back in small business owners' pockets.

Burns said that in the future small employers will create about 70 percent of all new jobs in the area.

"We have to find ways to incentivize those entrepreneurs to start these things," Burns said.

Dhakad said even as he's trying to help Upstate hoteliers and store owners he's being hammered with Social Security taxes himself and can't afford dental and eye insurance premiums. When asked about his recent tax bill, Simpson just groaned.

Case said, "We can help small businesses as much as big businesses through lower regulation and no tax increases." He noted for example that the county doesn't charge a business license fee, though Howard said businesses do pay a "nominal" fee for a certificate of occupancy.

FILOTs, Case said, also have derivative effects on the little guy, although he said that's not a valid logic for approving them.

"Without incentives and FILOTs, taxes would have gone up significantly," Case said. "If we land a major investment in this community, the ripple out from that impacts small businesses in a positive way."