Best Interest Determinations
The state benefits from increased economic activity no less than local governments, but the state is also interested in balanced growth and targeting incentives to areas of greatest need. Economic development can alleviate pockets of unemployment and spur investment, but local governments with more stable tax bases are better equipped to support schools and services that would otherwise demand state financial assistance.
Payment in Lieu of Tax (PILOT)
A best interest of the state determination must be requested from both the Commissioner of Economic and Community Development and the Comptroller of the Treasury when:
An agreement, including any renewal or extension, would provide for payments in lieu of taxes to be entered into which would result in a lessee making payments in lieu of taxes in an amount less than the applicable ad valorem taxes for a period greater than twenty (20) years plus a reasonable construction or installation period not to exceed three (3) years.
When submitting a request for a written best interest of the state determination, the corporation must attach an analysis of the costs and benefits of the agreement on a form prescribed by the commissioner of economic and community development or the commissioner’s designee.
PILOT – Best Interest of the State
Unlike tax increment finance, there is no defined term of what is considered ‘best interest of the state’ for payment in lieu of tax agreements. However, both the purposes of the industrial development act and the specific provision for a cost benefit analysis provide a general basis for consideration. Additional considerations include some combination of the following:
- Employment targets that encourage project location in areas of greater need. State tax credits favor economically distressed counties or federal designated empowerment zones.
- Evidence of increased economic activity that will generate revenue from all sources and exceed the cost of infrastructure improvements, including schools.
- Provision of city-county cooperation in PILOT negotiation, or at least guaranteed proportionate participation in payments and benefits.
- In appropriate cases, provision of ‘claw-back’ measures ensuring consequences for falling short on employment promises.
- Required minimum PILOT amounts sufficient to cover the schools portion of the local tax rate.
Additionally, other government offices such as Department of Revenue, Commissioner of Economic and Community Development, the Governor’s office, and legislative leaders may be consulted.
Tax Increment Finance (TIF)
A best interest of the state determination must be requested from both the Commissioner of Economic and Community Development and the Comptroller of the Treasury when either:
- Tax increment finance revenues are to be used for privately-owned land, improvements, or equipment or for other purposes authorized by title 7, chapter 53.
- Tax increment finance revenues are to be allocated for a period of more than twenty (20) years in the case of an economic impact plan, or more than thirty (30) years in the case of a redevelopment plan or community redevelopment plan as defined in Tenn. Code Ann. § 9-23-102
TIF-Best Interest of the State
Under the Uniformity in Tax Increment Financing Act of 2012, “best interest of the state” is a defined term.
- “Best interest of the state” for purposes of approving payment or expenditure of funds or financing the cost of a privately-owned project with tax increment revenues means the project would not have occurred but for the payment, expenditure or financing.
- “Best interest of the state” for purposes of an extended plan term, means an extended plan term or term extension is reasonably required for plan completion.
If for some reason the written determination from the Comptroller of the Treasury is not rendered within thirty (30) days, the request is deemed approved.
Filing a Request:
Requests for a best interest of the state determination should be emailed to email@example.com and a hard copy mailed to:Justin P. Wilson
Comptroller of the Treasury
Nashville, TN 37243-9034
When requesting a written determination that an extended term in a payment in lieu of tax agreement is in the best interest of the state, please submit the following documents to the Comptroller's Office and the Commissioner of Economic and Community Development:
- Request letter explaining in detail why an extended plan term is reasonably required;
- A copy of any relevant agreement or agreements demonstrating the expanded term; and
- A completed cost-benefit analysis (available below) of the agreement on a form prescribed by the Commissioner of Economic and Community Development or the Commissioner’s designee.
Tax Increment Financing
When filing a request for a written determination that a certain purpose or an extended plan term is in the best interest of the State, please submit the following documents to the Comptroller's Office and the Commissioner of Economic and Community Development:
- Request letter explaining in detail why an extended plan term is reasonably required for plan completion or why tax increment financing is essential to the development of a privately-owned project;
- Copies of all resolutions approving the original TIF plan and any amendments to the plan;
- Copy of the Development and Financing Agreement or similar agreement (draft version is acceptable if it is a proposed financing);
- Copy of any Guaranty Agreement from a private party or similar agreement (draft version is acceptable if it is a proposed financing);
- Tax increment revenue projections, including the contact information of the person or entity that prepared such projections; and
- Contact information, including e-mail addresses, for bond counsel, financial advisors, and any other professionals working on the financing.