What is the Industrial Ad Valorem Tax Exemption Program (ITEP)?
The Industrial Ad Valorem Tax Exemption Program, also known as ITEP, is an incentive program used to bring industry investments and expansions to Louisiana. It is credited with bringing thousands of jobs and billions of dollars of tax revenue to the state. In exchange for a limited property tax exemption, manufacturers commit to bringing new jobs to their communities. The program, which is more than 80-years-old, helps make Louisiana economically attractive amongst growing competition from within the United States and overseas.
How does ITEP work?
Companies that receive ITEP are granted an 80% property tax abatement for up to ten years on their capital investment. During this time, 20% of the investment’s property taxes go back to local governments to pay for teacher salaries, law enforcement and other social services. After the ITEP contract expires, 100% of property taxes go to local treasuries. In fact, over the next four years, more than $14 billion in industry investments will come onto the tax rolls of local governments across Louisiana.
How do companies receive ITEP?
Companies must submit their initial ITEP application to the Louisiana Board of Commerce, which considers factors like the number of jobs associated with the project. Next, the application is considered by the local tax-paying entities – such as the sheriff, parish council and school board. Once approved, an ITEP contract is awarded for a five-year term. After the initial five years, the company can renew their contract for an additional five years at another 80% property tax abatement.
Why was ITEP created and why is it needed?
When manufacturers are deciding where to conduct busi
ness, it usually comes down to their bottom line. ITEP was created to provide financial incentives in order to increase Louisiana’s competitiveness in a growing industry market.
Louisiana has many advantageous elements – several well-defined ports with easy access to the Gulf, an abundant supply of natural gas, a vast pipeline structure and plenty of water. However, other states with these same advantages also have a more predictable economy and favorable tax structure. For example, Louisiana’s biggest competition for new investments is our neighbor to the west, Texas. Compared to Louisiana, Texas has a significantly lower local sales tax rate, no taxes on manufacturing utilities or equipment, a unified sales tax collection and no corporate or personal income taxes.
According to Forbes’ 2018 “Best States for Business," Texas is the third best place in the country for business. Meanwhile, Louisiana is the 42nd. All of these aspects are reasons that Texas’ value of chemical shipments exceeds Louisiana’s by a factor of almost three. When the bottom line is the number one priority for most companies, it’s not difficult to see why Texas might be preferred. Louisiana needs programs like ITEP to keep our state competitive for industry investments and expansions.
ITEP was created to meet that need for prospective businesses while also making Louisiana competitive with other states. The program provides greater economic stability to individual companies and Louisiana as a whole. The chemical industry stands as the number one producer of direct jobs in Louisiana’s manufacturing sector, with a total of 29,109 people employed by the industry in 2017 – not including contract positions. Additionally, the chemical industry pays the second highest weekly wage in Louisiana’s manufacturing sector at $2,050, which is 47% higher than other manufacturing jobs in the state. Without a tax incentive program like ITEP, those job rates and wages would be much lower.
Are property tax exemptions unique to Louisiana?
No – in 2016, Louisiana Economic Development reported that 39 other states offer some form of business and industry property tax exemptions. Thirteen of those 39 states provided exemptions to manufacturers only, whereas others provided exemptions to various types of firms as well as manufacturers. Each of these states have found that offering investment incentives like ITEP is the best way to encourage growth in their state and local economies. Without ITEP, Louisiana would be one of the only industrial states without this type of incentive – which would further discourage investment in our state.
Does ITEP hurt local governments?
Some have argued that ITEP rids local government of needed income, however, a report conducted by noted economist Loren Scott shows that strong ITEP parishes have flourished from the investment. The top eight ITEP parishes all ranked in the top third of parishes in terms of property tax collections per capita. Cameron Parish, for example, has the highest value of ITEP and also receives the highest amount of property taxes, $4,850 per person – 86.6% of which is paid by businesses. In fact, in six of the top ITEP parishes, businesses paid 59% to 86% of all property taxes in the parish.
Throughout the ITEP incentive, industry pays 20% of property taxes – funds that go toward local governments to pay for teacher salaries, police officer salaries and other public services. These are funds that would not exist if the companies decided not to invest in Louisiana. Additionally, even with the incentive, in many cases industry is the largest taxpayer in the parish. As a whole, the chemical industry has contributed at least $959.5 million annually to local governments across the state.
Does ITEP hurt teacher salaries?
Studies have shown that parishes with heavy-industry presence have better schools and higher teacher pay. For example, St. James Parish has the fourth highest rate of ITEP yet has a teacher salary of $57,035 – which is higher than statewide average of $49,801. Six of the top ITEP parishes are ranked in the top 25% in teacher pay.
In fact, the chemical industry alone contributes enough money to local governments pay the salaries of 40% of Louisiana’s public-school teachers statewide. In other words, at least four of every ten public school teachers in the state owe their salary to the local taxes paid by the chemical industry.
Louisiana Administrative Code: Choose Title 13, Economic Development; Go to Part I, Chapter 5
Louisiana Economic Development: 2018 ITEP Revised Rules; Overview of the Industrial Tax Exemption Program (ITEP) Task Force on Local Ad Valorem Inventory Taxes and Associated Credits – July 2016
Loren Scott: The Economic Impact of the Chemical Industry on Louisiana Economy: An Update