A sales tax sharing agreement is an agreement between two or more parties to share the revenue generated from sales taxes collected within a defined geographic area. This type of agreement is common between cities, counties, and states and is used as a means of promoting economic development within a region.
The purpose of a sales tax sharing agreement is to attract businesses to an area by offering them a more favorable tax environment. By agreeing to share the revenue generated from sales taxes, the parties involved can offer businesses a lower tax rate while still generating adequate revenue to fund important public services.
For example, let`s say two neighboring cities, City A and City B, are competing to attract a new manufacturing plant to their area. City A has a higher tax rate than City B, but it also has more established infrastructure, a larger population, and a more favorable location for the manufacturer. To make their offer more attractive, City A proposes a sales tax sharing agreement. Under this agreement, the revenue generated from sales taxes collected from the manufacturer would be split evenly between the two cities. This would allow the manufacturer to save money on taxes while still providing both cities with important revenue to fund their public services.
Sales tax sharing agreements are typically agreed upon for a set period of time, often several years. During this time, the parties involved must work together to promote economic development within the defined geographic area. This can include joint marketing efforts, infrastructure improvements, and other initiatives designed to attract and retain businesses.
Sales tax sharing agreements can be complex, and it`s important to have experienced legal counsel to help negotiate and draft these agreements. It`s also important to ensure that the agreement is fair and equitable for all parties involved.
In conclusion, a sales tax sharing agreement is a useful tool for promoting economic development within a region. By offering businesses a more favorable tax environment, cities, counties, and states can attract new businesses while still generating adequate revenue to fund important public services. If you`re considering negotiating a sales tax sharing agreement, be sure to work with experienced legal counsel to ensure that the agreement is fair and equitable for all parties involved.