Remote Working Demand New Tax Policy and Quality of Life Strategies in 2021

Remote work will be a trend from 2020 that continues well beyond the reduction of COVID 19 infection rates.  According to a recent Forbes story, the Conference Board conducted two surveys among U.S. HR executives in April and in September. Just five percent of respondents reported that, prior to the pandemic, 40 percent or more of their employees were working primarily from home (at least 3 days per week). But by April, nearly 20 percent of respondents said they expected 40 percent or more of their employees to work primarily from home after the pandemic. By September, that number had risen to over a third of responding companies. Results are even stronger for organizations with primarily professional and office workers. Almost half believe that, a year after the pandemic subsides, at least 40 percent of their employees will work from home three or more days per week.  In short, white collar advanced services and technology companies are permitting their staff to not only work from home but to work from another state. 

Technology is making all this possible with workers growing comfort with connecting via the Internet and video conference. 

Regions hoping to attract advanced services and technology companies need to pay attention to their tax policy.  The business tax burden is impacted by the amount of government spending, who the government taxes and the rates in which they tax. Look at the example of Elon Musk and his high-profile move from California to Texas.  California’s highest marginal income tax and capital gains tax rate of over 13% creates a major disincentive for successful tech company leaders to remain when compared to all Desert Southwest states especially Texas and Nevada that do not have either tax at all.  A study by the firm 24/7 Wall St. found that Florida, Indiana, Tennessee, Idaho, Arkansas have the lowest local and state government spending on a per capita basis. Alaska, Wyoming, New York, Washington, and California are on the other end of the scale of having the highest per capita spending for local and state governments. Regions and states may tax income, property, sales transactions, or specific activities or industries through insurance premium taxes, tobacco or alcohol or hospitality activities through excise taxes, and utility service excise taxes. Different industries are impacted by local and state tax policy in different ways. Advanced services and technology companies will be focused on states that tax consumption over income.

Local and state tax policy and incentives need to be negotiated that account for remote workers.  Local and state governments generally must have a connection to workers to tax them.  This from a legal standpoint is defined as the tax situs which literally defines the jurisdiction (state, county, and city) that has the legal authority to tax a transaction. For sales tax purposes, it is generally the jurisdiction in which a sale of tangible personal property or taxable services occurs.  Remote working creates chaos with income and capital gains taxes with workers potentially living in one community but working for a company but not in their office.  Traditional state job creation tax credits will need to be adapted to permit the credit to be taken for companies whose workers are not located in the office but remain in the state.  Ohio’s Job Creation Tax Credit permits its use for remote workers and corporate site location negotiations moving forward will need to push for this approach across all fifty states.  

Finally, the growth of remote working will push companies to consider quality of life issues not just in a region but in the state in which they will likely have workers locate.  This creates an opportunity for smaller, rural communities who may not have the critical mass of workers to gain a large white collar corporate site location project.  However, the workers of those companies may well be able to attract those workers and their buying power and tax receipts. 

Transforming rural historic Downtowns to attract younger advanced service workers to live, work and play is a critical step to rural communities to gain from the remote working trend. America’s younger generation is more concerned with where they live and what they can do than necessarily where they work.  However, rural communities will not be attractive to a younger generation of workers unless they can address critical quality of life issues such as the availability of quality housing, creation of mixed-use developments, and the development of quality, local retail, and entertainment districts. Redeveloping rural Downtowns is the place to start when looking to retain and attract younger workers. 

Redeveloping rural Downtowns can be accomplished through creation of a Public-Private-Partnership (PPP) to incentivize retail, residential and office investments. Redeveloping existing sites costs more than building on greenfield sites but the payoff for developers and the community can be substantial.  Thus, states and the federal government offer a range of tools to support rural Downtown redevelopment that include Ohio and Michigan offer a Downtown redevelopment districts and many states offer the historic preservation tax credits; entertainment districts designation, state project financing; and the federal governments new market tax credit and opportunity zone programs. This PPP should begin with the creation of a Downtown redevelopment district plan that can ensure the local government has the needed Urban Overlay or mixed use zoning friendly to retail, residential and office redevelopment projects, outlines funding strategies for public infrastructure such as Tax Increment Financing, CDBG grants, and EDA grants, ensures the adoption of a property tax abatement program designed to entice residential and office investments in underutilized rural Downtown markets and reminds the private sector a number of tools such as state and federal Historic Preservation Tax Credits, state grants & loans such as Brownfield revitalization programs, and federal government New Market Tax Credits and Opportunity Zone Funds can often be used to make rural Downtown redevelopment projects profitable.  Planning is followed by local government action and marketing to the private sector for the promotion of retail, residential and office projects in rural Downtowns at identified sites. The redevelopment of historic structures is creating an economic boom in urban, rural, and suburban communities across the United States.  In part, this historic building renaissance is driven by a new market- Millennials.  The movement of Millennials to the urban core is bringing new light to the economic benefits of historic preservation. There are 77M Millennials between ages of 18-36 and they constitute the largest generation in American—just surpassing the Baby Boomers.  Regions attracting Millennials gain workers and consumers that are major drivers of the American economy.  However, attracting Millennials is not easy as their wants and needs differ from older generations– 62% of Millennials want to live in mixed-use development, 40% of Millennials want to live in Urban NOT Suburban areas, 2/3 of Millennials are renters, Millennials own fewer cars as they aspire to live in a mixed use, pedestrian friendly environment.  Fortunately for urban, rural, and suburban communities, the older, established Central Business Districts often dominated by historic structures are primed to attract Millennials as they are designed before the car dominated America’s development patterns.