Seizing Opportunity in an Economic Downturn: How Tax Incentives Can Help Businesses Grow
Written by Jeffrey Lee, Principal, Capalino
The COVID-19 crisis continues to create systemic and pronounced challenges for our society, and its impacts on the private sector are unprecedented. However, some of the economic disruption may create opportunities for companies in particular sectors, including technology, manufacturing, e-commerce and more. From medical and pharma manufacturers, to technology companies and distribution facilities, there is a wide swath of companies that must begin thinking about the relevance of tax incentive and economic development programs to cement their growth and to make their supply chains more resilient and responsive.
The current disruption has created opportunities across a variety of sectors. With COVID-19’s overwhelming impact on our health systems, policy makers are doubling down on supporting domestic manufacturing of medical products such as ventilators, personal protective equipment (PPE), and pharmaceuticals, all of which are mainly produced overseas. Additionally, growing concerns about maintaining access to critical technology such as semiconductors have led to discussions with world-class chip manufacturers such as Intel and Taiwan Semiconductor Manufacturing Co. on the possibility of fast-tracking the development of domestic chip manufacturing facilities (such as those operated by Global Foundries in New York’s Capital Region). Policy makers recognize the importance of supporting the growth of these sectors domestically – whether via onshoring/reshoring or through the support of home-grown companies. This support can take the form of tax incentives and other forms of public sector support.
E-commerce transactions have seen a huge jump in sales, having grown by 49% over the month of April. Grocery delivery in particular, led by companies like Instacart, have seen even larger increases, boasting a 110% growth in sales over the same time period. Tech-sector companies leveraging e-commerce and delivery platforms may also be candidates for incentives awards to continue their growth and to strengthen their role in providing critical goods and services. Relatedly, warehouse and distribution facilities, particularly those which are part of e-commerce and food delivery supply chains, will continue to be in demand and will be desirable to local governments looking for job-creating private sector investments while also strengthening farm-to-table supply chains.
The video gaming sector has benefited from a boom in sales during the quarantine period, with consumer spending in the sector growing 35% relative to last year. Companies like Nintendo have benefited from overwhelming demand for its Nintendo Switch console and the meteoric rise in popularity of its “Animal Crossing: New Horizons” game, selling 13 million copies since its release on March 20th of this year. However, even video gaming companies have not been immune to COVID-19 supply chain, sales and workforce disruptions, since they typically rely on physical and digital production facilities scattered across Europe, Asia, and North America. Ubisoft, a multinational video game publisher, has been better able at adapting to this crisis by redirecting its resources thanks to a culture of strategic site selection and diversification, allowing the company to source development across its 55 studio and production facilities around the world.
Whether due to supply chain disruptions, increasing geopolitical tensions with China, or the spike in demand from e-commerce services, companies delivering solutions relevant to the current social and economic environment have an opportunity to strengthen their position in the marketplace, and they should consider how growth tools and tax incentives can amplify their growth.
New York State Empire State Development Corporation (ESD) has several high-impact programs, including a new grant program to assist companies transitioning to PPE manufacturing, as well as their existing Excelsior Jobs Program. Across New York State, Industrial Development Agencies (IDAs) can be a local source of high-impact discretionary financial assistance. For businesses considering New York City locations, the recent legislative renewal of key as-of-right incentive programs such as REAP and ICAP will be pivotal for assisting the private sector in growing its way out of the COVID-19 recession.
Make no mistake: a company’s success during and coming out of a recession will take more than a generous tax incentive package. But companies which are smart about using resources wisely – operating more efficiently, marketing and branding more effectively – will want to consider incentives as a sound component of a recession-era business plan, one which positions them for near-term growth.
Capalino’s Economic Development and Tax Incentives practice helps companies to develop strategies for maximizing public support for their corporate relocations and investments. From innovative start-ups looking to open a new office and access talent, to manufacturing and industrial companies evaluating real estate and workforce options, to established companies looking to rethink their headquarters strategy, Capalino’s team of experienced economic development practitioners can help.
To learn more, contact Jeffrey Lee at jeffrey@nullcapalino.com or 212.616.5824, or visit http://www.capalino.com/services/strategy/.
