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Sweetening the Deal

State Tax Incentives are a Win-Win for Companies and Utahns

By By Spencer Sutherland

If there’s one thing that the Governor’s Office of Economic Development (GOED) understands, it’s that business powers the state’s engine. To keep the business community vibrant and strong, GOED uses incentives not only to draw new companies to Utah, but to help homegrown companies continue to grow and prosper right here in the Beehive State.

Alex Nabaum

In a highly competitive national and global market, GOED looks to incentivize companies that create new, high-paying jobs that help improve the standard of living, diversify the state economy, increase the tax base, attract and retain top-level management, and encourage graduates of in-state universities to remain in Utah.
The state has a number of tools to attract new business growth. Incentives are one of the high profile tools that may be awarded in the form of a post-performance, refundable tax credit and are only available when two or more locations, other states or countries, are competing for a company’s business. Utah does not incent organic growth, but actively looks for new product lines, services or business opportunities that will result in high-paying jobs.

“If a company is growing because of the great fertile ground that we have in Utah, we want to continue to provide that fertile ground through tax incentives,” says Christopher M. Conabee, managing director of Corporate Recruitment and Incentives.
This tax incentive, called Economic Development Tax Increment Financing (EDTIF), is awarded to dozens of companies each year, across all types of industries. The list of recent recipients includes Goldman Sachs, Adobe, 1-800 Contacts, Allstate and many other industry leaders. Businesses may receive a credit of up to 30 percent, with an average closer to 20 percent, of new state revenues over the life of the project, the term is typically 7-10 years. The longer term of the agreements tends to help ensure the continuity of the jobs created and gives the companies enough time in market cycles to meet their growth targets.

Facilitating Growth

ATK Aerospace Structures, a Utah-based aerospace, defense and commercial products company, has signed several incentive deals with state over the last few years. In return for tax and training incentives totaling just over $20 million, ATK promised to create more than 1,000 new local jobs and as with any state incentive, it is only paid out as the jobs are actually created
“State incentives are critical when you’re in expansion mode,” says Joy De Lisser, vice president and general manager at ATK. “If we can use a state’s cash instead of the company’s money to build infrastructure and put up machines, it really matters.”
It also matters to ATK that GOED has been “very creative in helping our company expand here,” De Lisser says. That creativity was manifested in the state’s efforts to bring some of ATK’s suppliers to Utah. Because ATK uses products that can only be used for a limited amount of time—including some products that even need to be stored frozen—proximity to suppliers is a must. Because of incentives, one of ATK’s suppliers is now located just down the road from them.
“It’s critical to have suppliers close by that can help you and that understand your industry, the urgency and the requirements,” De Lisser says. With its vendors so close, deliveries are more like “a milk run,” she says, saving ATK money and cutting production time.
Incentives are not the only reason companies are expanding in Utah. There are many reasons why Utah has been the right fit for ATK. De Lisser says the state provides a few key factors that contribute to her company’s success. Foremost is a skilled workforce coming out of the state’s universities and technical colleges, both of which are producing graduates with engineering, math and technical skills.
Work ethic is also important to ATK. “People here are ready to work really hard,” De Lisser says. “They’re very diligent in what they do and want to be successful.” The state’s workforce is also largely union-free, something that is “a big deal to us, our industry and many manufacturers.”
She also praises the state’s business-friendly atmosphere. “The state offers us a lot of forums for us to talk about taxes, environmental issues, employee issues, education and training with the universities,” she says. “The governor’s office is also open to other ideas for future growth.”

The Right Climate for Business

Xactware is another Utah company experiencing major growth. The company traces its roots back to the pen-and-paper days when contractor James Loveland was doing insurance repair work. At one point, he almost put himself out of business when he couldn’t read his own handwriting and misplaced a decimal point. That mistake became the catalyst for creating a computer-based system for insurance estimating. In the years since, Xactware’s technological innovations have not only made the company the industry leader in the property insurance market, but have basically changed the way insurance claims are handled, improving service for customers and efficiency for insurance companies.
The company recently expanded its Utah operations and moved its 500 employees from Orem to a new facility it Lehi. The move placed Xactware’s headquarters about halfway between Provo and Salt Lake City, making it easier to recruit employees from both Utah and Salt Lake counties.
“We’ve flourished here. I think that’s an endorsement of Utah’s business climate,” says Matt Weir, vice president of marketing at Xactware. “The workforce and our people are the foundation of what helps us to be successful.”
In addition to its business climate, Utah’s physical climate also has played a role in Xactware acquiring and retaining top talent. “The range of outdoor amenities [in Utah] is a big deal,” Weir says. Some of Xactware’s employees use their lunch break for rock climbing, mountain biking or even skiing.
“When we were in our Orem office, we had an employee who would ski at Sundance at lunch,” Weir recalls. “He could get from his desk to the chairlift in about 15 minutes, so he’d take an hour-and-a-half lunch and get in a little skiing. That’s hard to beat.”
Xactware will receive a GOED post-performance tax credit over 20 years, something that made a strong impression on Verisk Analytics, Xactware’s New Jersey-based parent company.
“We were also offered incentives from the state of New Jersey, but the GOED assistance not only offset that offer but actually fostered a new level of interest from Verisk to keep us here,” Weir says.
In addition to Xactware, Verisk owns two other Utah companies, Healthcare Insight and Mediconnect. “The success of these three Utah companies speaks to the business climate in the state,” he adds. “It’s a very positive indicator.”

A Young, Energetic Workforce

Qualtrics, a company that is fast becoming the global leader in enterprise survey technology, has also benefitted from state tax incentives. The Provo-based company received a post-performance tax credit to help it create more than 1,000 new Utah jobs over the next seven years.
While the company is appreciative of the tax breaks, CEO Ryan Smith is more impressed by what it represents. He says it’s the local government’s way of saying “We’re here to support you, we want you to build, we recognize you and understand you.”
Much like tech giants Google, Facebook and Twitter, Smith says Qualtrics is in “hyper-growth” mode. Their client list includes more than half of the Fortune 100 and 97 of the top 100 business schools. To keep up with the market’s demand for Qualtrics’ products, the company is leaning heavily on local talent and is hiring in every department within the company.
Qualtrics finds an eager pool of potential employees at Brigham Young University and Utah Valley University, which are both located just minutes from Qualtrics’ headquarters, and also recruits new graduates from other universities around the state.
“One of the advantages of Utah is a young, hungry workforce that is incredibly talented,” Smith says, “We have some of the smartest people around. They’re so willing to grow on both a personal and career level that it’s been a match made in heaven for our company.”
Still, on some occasions, Qualtrics has had to look to Silicon Valley and other locations to find experienced leaders—something Smith hopes will change in the future. “We’ve had to recruit executives from outside of Utah who understand the size of scale we’re going through,” he explains. “Our head of engineering had to come from Amazon because he’s one of the few people who’d seen the type of data growth that we’ve had over such a short time.”
As Qualtrics—and other strong Utah tech companies like Domo, InsideSales and HireVue—continues to grow, Utah’s tech hub will mature and become a destination for more tenured techies. “Luckily, we have the right workforce,” Smith says, “We just need the generals to come and command this great group.”
A young and enthusiastic workforce is the perfect fit for a company that Smith says is taking a “new school” approach to data collection technology. “Basically what Qualtrics is doing is helping businesses and customers be right,” Smith says. Whether it’s a cruise line trying to figure out what to name a new ship or a startup trying to determine price points, the company’s software allows users to create surveys to create empirical data and—more importantly—answer questions.
“The market research that just a few years ago would have taken weeks and weeks to gather, we can deliver in hours or even minutes,” Smith says. “Our clients are so much further along that it’s almost like cheating.”

Good for Both Businesses and Taxpayers

While some states offer upfront incentives to businesses that expand or relocate, GOED feels its post-performance awards benefit both businesses and the state’s taxpayers.
“Instead of recruiting businesses with taxpayers’ dollars, we recruit them with their own money,” Conabee explains. “The state ends up receiving 70 or 80 cents of each dollar companies bring into the state.” Without the tax incentives, it’s likely the state could lose the entire dollar as those businesses seek more accommodating locations outside of the state.
Utah residents also see benefits beyond taxes. “The most immediate benefit is the capital expenditure. Whether a company leases or buys a building, someone is financing it, putting it in the ground and paying for it,” Conabee says.
“When a company makes a commitment to do a large-scale project, they don’t do it blindly. If we win that work, and a company deploys that level of assets, they don’t generally move them in a short period of time,” he says. “If we do our job of providing all the resources they need to flourish, that creates our next opportunity for capital expenditures. We’re in a great cycle right now where things are growing. Up and down the I-15 corridor and across I-80, you can see invested assets in the ground to the tune of hundreds of millions of dollars.”
The growth of incentivized businesses also helps grow other companies. Back in 2011, IM Flash Technologies received a tax incentive. The flash memory manufacturer and its 2,000 employees are now supported by the services of more than 200 Utah companies.
The post-performance incentives also protect the state from unforeseeable circumstances. A few years ago, GOED helped recruit a cabinet company to Utah. After building a $70 million facility, the bottom fell out of the housing industry and the company had to close its Utah location. Because of the post-performance model, rather than taking a hit on prepaid incentives—likely tens of millions of dollars—the state was still able to collect several hundred thousand dollars in taxes during the company’s short stay.
More importantly, the completed structure became a great recruiting tool. GOED reached out to Boeing, who subsequently purchased the 870,000-square-foot facility, creating a next-generation plant for building composite structures and a home for 100 new well-paid jobs.
“We couldn’t foresee the crash of the real estate market,” Conabee says. “But we found success in the darkest hours. We were able to get the building built, and when the building was resold we got new assets, new tenants and new jobs.”
While the tax incentives have played a critical role in attracting and keeping top companies in the state, Conabee says incentives are just one of the many things businesses are looking for in a location.
A qualified workforce, access to airports, mass transit and educational facilities, and the cost of living, and employees all factor in. “Having an incentive program gets us in the game,” Conabee says, “but it’s when we step up to the plate and deliver for companies on an individual level that we succeed.”