State Says Amazon Tax Credit Will Depend on Performance

Amazon is getting a tax break from the state worth about $4 million dollars for its planned Euclid facility, but that money comes with some strings attached. 

Make that about a thousand strings.

"This incentive is a performance based program," said Todd Walker, spokesman for the Ohio Development Services Agency, which oversees the state's Job Creation Tax Credit program. "So the company doesn't actually receive anything until they actually create jobs and we verify that." Walker says the agency can reduce or "claw back" a tax credit if a company isn't creating the jobs it promised. 

In Amazon's case, that means at least 1,000 new full-time hires in about three years. On top of new hiring goals, he says Amazon will have to prove those employees are generating at least 28-million dollars in new payrolls per year. To make sure it meets that goal, Walker says the company will have to submit annual employment numbers, which will be cross-checked with state tax records. Walker says in recent years, the agency has rolled back at least part of the tax credit from companies that failed to meet their targets.

According to an assessment by the  Pew Charitable Trusts, Ohio is one of 18 states "making progress" when it comes to evaluating the effectiveness of tax incentives (although it was not one of 10 states "leading" in this area).

Still, even with that oversight, many companies fall short. In 2016, the state attorney general studied over 300 businesses that got the job creation tax credit and found that about 20 percent of them failed to meet their commitments under the program.

And even if a company does keep its promises, that still leaves a trickier question: was it worth it? 

Dan Shoag, a visiting professor at Case Western Reserve University, says studying the effect of tax incentives on job creation is difficult, "because we only get to see the world once," he said. Would the employees who go to work for Amazon have been unemployed otherwise, or would they find new jobs someplace else? 

"It can be hard to measure," he said. For economists and public policy wonks, "we sort of have to make our best guess as to what the world would have looked like if the incentives hadn't been in place."