States and municipalities compete for the attention of businesses that seek to relocate. As a prominent example, Amazon’s decision to establish a second headquarters set off a bidding war in 2018. New York State won with a package that reportedly totaled $3 billion; recent reports suggest that the value of the incentives total $4 billion.

What are the tax consequences? Under current law the value of cash incentives or of property provided as an inducement appears to be taxable: In 2017, Congress amended section 118 of the Internal Revenue Code, which provides that a corporation can receive contributions to capital on a tax-free basis, adding a provision that a contribution to capital does not include “any contribution by any governmental entity or civic group (other than a contribution made by a shareholder as such).” I.R.C.… Read More