Generally, Tax Increment Financing (“TIF”) is a financing tool for business expansions or new business development. A new business investment has to be situated within an existing economic development district or TIF District where a 2% sales tax increment is charged on all eligible sales tax generated sales including those created from hotel room rentals. Eighty-percent (80%) of the sales tax increment generated by a particular development/project over a period of years is returned to the business on a monthly basis to partially or totally reimburse the business for new property/land improvements. Other limitations and conditions may apply.
As an economic development incentive to encourage new or expanding business investment, the PILOT program allows for-profit companies to reduce or eliminate certain taxes such as State and local sales & use taxes and/or local ad valorem taxes over a period of years. Under this incentive the subject property (which consist of land and/or other improvements) would be titled to the Industrial Development Board of the City of Minden. Because of State law, the IDBM-owned properties are exempt not only from ad valorem taxes, but also from sales and use taxes depending on the structure of the economic development arrangement with the IDBM. The company is still treated as the owner of the project for purposes of depreciation, insurance, maintenance, and operation but because the IDBM has title, the project is exempt from property taxes and Sales & Use Taxes!
Private Activity Bonds (“PABs”)
A common form of corporate finance involves the issuance of tax-exempt bonds for private businesses, today referral to as Private Activity Bonds (“PABs”). Pursuant to Louisiana law, the Industrial Development Board of the City of Minden (“IDBM”) can issue PABs for a greater variety of business investment projects than can parishes or other municipalities. The IDBM of the City of Minden can issue bonds for industrial, commercial, retail, and hotels whereby parishes and municipalities can only issue PABs for industrial projects.
Depending on the creditworthiness of the company (borrower) and the structure of the bond, the interest rate can be lower than a conventional (i.e. taxable) loan. It is possible to establish a PILOT feature and use a “leaseback” arrangement whereby the IDBM can obtain title to the financed project during the term of the bonds. The borrower is still treated as the owner of the project for purposes of depreciation, insurance, maintenance, and operation but because the IDBM has title, the project is exempt from ad valorem taxes.