Korean Automaker Made a Big Investment in the South

A few days ago, New York Times has article on Korean car maker’s investment in U.S. (see http://www.nytimes.com/2009/04/22/us/22kia.html?ref=global-home). A few things really catch my attentions. First, Korean auto manufacturers, like Japanese auto manufacturers, mostly set up their plants in the southern states of U.S (in this case, a small town of 3000 people). &n bsp;As late entrants, why did East Asian car markets choose southern states in U.S.? How did they pick those locations? Apparently union is one of the important reasons. But there are other reasons to choose southern states over other states. I will write a more detailed analysis next time. The second point is that the article mentioned that “In the case of Kia, which is based in South Korea, state and local officials doled out some $400 million in tax breaks and other incentives.”

Actually, almos! t every state has some investment tax incentives to attract business investment. Since the investment opportunity is so precious now that state and local governments also are willing to dole out additional public subsidies.

Recently, I collect some investment tax incentives from several Midwest states. I choose Midwest because this is a region that is traditionally specialized in manufacturing.
Five states that have Investment Tax Credit programs are analyzed here. While each program is unique there are some similarities (see Table 1).

Table 1

All five states have som! e Enterprise Zone or special zone programs, which are aimed to! direct investment to specific communities and locations. The other similarity is that most states award tax credits based on the additional economic activity induced by the investors. The usual measurements for the additional economic activity include the minimum investment criteria, the number of new jobs, and the average wage of new jobs. The Enterprise Zone Program in Iowa provides a basket of public incentives, such as a property tax exemption, a supplemental New Jobs Credit (260E), a sales and use tax refund to the construction period, an Investment Tax Credit, and a supplemental Research Activities Tax Credit. Illinois’s enterprise zone program offers an Investment Tax Credit equal to one half of one percent of the value of qualified property, a sales tax exemption, and an enterprise zone tax credit for new jobs created (Illinois Department of Commerce and Economic Opportunity). Indiana’s enterprise zone program only offers credits for increased wages of local emp! loyees in private companies in the enterprise zone. Nebraska has programs specially aimed to promote investments in rural areas. For Wisconsin, both investment and the new jobs are awarded with the tax credits.

Final point is that the list in the table does not include all incentive programs that promote business investment in those states. More often, the terms and conditions of public incentives are subject to negotiation. For those big name investors with deep pockets, asking the governments to tailor a new tax incentive for them is a quite normal practice.

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