What is a payment in lieu of taxes?

Jay Matteson

A Payment in Lieu of Taxes or “PILOT” is an economic development tool that may mean the difference between a business locating in your community or locating somewhere else in New York State or the United States. The use of a PILOT brings about a gain in the tax base and usually more jobs. A PILOT helps grow the local economy by helping an existing business grow or a new business to start up in a community. 

    The PILOT works by allowing for a “managed” increase in taxes for the business. Let’s use an example to make this clear. A new business comes into the community and buys an acre of land. Prior to the business opening its doors, the acre of land brings $1,000 of tax revenue to the community. After the business opens its doors, let us say the full taxes on the higher-valued property is $20,000. To help the business get started and better manage its initial startup expenses, a payment in lieu of taxes (PILOT) agreement is negotiated. The PILOT may last for 15 years, under which the business would pay 25% of the higher tax assessment for the first 5 years (an additional $5,000/yr.), 50% ($10,000/yr.) for the next 5 years, 75% ($15,000) for the last five years, and then ramp up to the full tax of $20,000 in year 16. This is all new money for the community. The business started out on year one paying more in taxes than was collected before the business opened it doors. More tax revenue for the community. By year 16 the company was paying full taxation on the property. If the PILOT had not been employed, the business may not have started or may have decided to locate elsewhere which equals no increase in the tax base or local jobs. 

    This was a simple example of how a PILOT may be set up. The PILOT helps the company manage its tax increases over a negotiated number of years. The following is a real example of a PILOT negotiated with Great Lakes Cheese Company in Adams in 2007 when they began considering building a new cheese plant. Great Lakes was considering moving the plant to western New York and was receiving pressure to do so. Jefferson County Economic Development stepped in and helped the company by negotiating a 20-year PILOT because of the size of the project and the number of jobs created. As you review the graph, you’ll see the taxes paid by Great Lakes Cheese went up $35,000 the first year of their project and then over 20 years the taxes have gone up in a manageable manner. Great Lakes Cheese built their $86 million dollar plant next to their old plant in Adams. This created jobs, brought new revenue into the community and supported the dairy industry in Northern New York. 

    The Jefferson County Economic Development is responsible for managing the tax incentive tools such as a PILOT. Jefferson County Economic Development staff will work with affected municipalities, such as Jefferson County, a local school district and other municipalities to negotiate the PILOT with the project developer. The goal of Jefferson County Economic Development is to create a win – win situation for everyone involved. The community wins by supporting the expansion of the existing business and adding jobs or through bringing in a new business creating new jobs, new opportunity and a stronger tax base. 

    PILOTS may be employed to assist with traditional business start-ups such as manufacturing and service industries., as well as to attract renewable energy projects – all of which can bring thousands of dollars to local communities. In Jefferson County PILOTS are not available to small retail business, retailers, or food establishments. PILOTs are a good tool to use to grow our local communities. 

Leadership Honored at 9th Annual 20 Under 40 Awards

The 2019 20 Under 40 Award Recipients pose for a portrait at the luncheon on Friday in Watertown. Julia Hopkins/NNYBusiness

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20 Questions: From the kitchen to the community

Julia Hopkins/NNY Business
Matt Hudson, Executive Chef of the Hilton Garden Inn, poses for a portrait in front of his kitchen in Watertown.

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New Medical Review Officer: Dr. Walter Minaert receives certification

Dr. Walter A. Minaert

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100 percent: The Importance of Board Member Giving

“The most powerful leadership tool you have is your own personal example.” — John Wooden

Rande Richardson

It is generally understood that nonprofit board members are responsible for an organization’s success. Our region is blessed with passionate and sincerely well-intentioned volunteers who answer the call to serve as leaders for the many charities that change our world. As board members are recruited and oriented, they should be made aware of the many functions that are part of their responsibilities. Above all, you must be a roaring advocate for your shared work and mission. You are an evangelist in a sense, and your example is a testimony to that passion and an invitation for others to catch that same energy. Yes, board members are volunteers. The best board members give their hearts, souls, and one of the most precious gifts of all: their time. However, as leaders of an organization that relies on others to make a financial commitment, that leadership must not be overlooked.

Anyone who has served on a board quickly gains a keen awareness of the important role donors play in the ability to fulfill an organization’s work and mission. Unfortunately, what is often downplayed is the way board members must be accountable for the financial health of the institution. Board member giving is natural and essential. The strongest and most engaged boards are those where every board member, in some form, participates in fundraising for the organization. A personal gift by a board member of an organization seeking public support is non-negotiable. Without 100 percent participation, a nonprofit is at a major disadvantage when asking others to commit financial support to a mission driven by board leadership. When organizations ask the Community Foundation to financially participate in a certain program, project or initiative, knowing their leadership is not fully invested is understandably problematic. You would be surprised how often board member names are absent from an organization’s own donor list. Somehow, they have not recognized that leadership giving:

• Is a public declaration that the board member has invested in the charity.

• Indicates that the board member has a commitment to the organization and its work and mission.

• Encourages other donors to give and leads the way for others who provide grants or other support.

As they expect others to give, there is simply no way one can be a fully enthusiastic ambassador for the organization they lead without their own multidimensional skin the game. If a board member does not give, how can they encourage staff to effectively partner with them to raise funds? If a board member does not give, how can they expect them to effectively thank and steward existing donors? While the goal is 100 percent participation at any level, board leaders should consider giving a stretch gift that is among their top three charitable gifts they give each year. People are watching. People want to know. Other funders will ask. Give a gift that you are proud of. Give a gift that invites others to join you. Lead, don’t follow.

When you and your organization are recruiting board members, be sure to explain, write down, and clarify these expectations. It is important enough to commit to something as simple as “Each year, I will make, without being reminded, a personal financial contribution to the organization for which I serve as a board member at a level that is meaningful to me.” The board chairman and members should hold one another accountable around these expectations rather than leaving it to staff. Prospective board members should be told whatever expectations exist and be given a chance to bow out of the process if they aren’t comfortable with them.

Would you be less likely to be a passenger on a plane that the pilot is flying from the ground? You were recruited and asked to serve on a board for various reasons and you’re much better able to be a champion for your cause if you serve from a front row seat. You and the board are instrumental in the future of your organization. As a visible and vocal ambassador, you are passionate about the example you set. It creates and reinforces a culture of giving that is not as achievable by volunteering alone. If you don’t feel that kind of drive for your organization, it may be the wrong cause for you. Board service is a joy and a privilege. Done right, you will always get so much more than you give.

Which Business Form Is Right For Your Business?

Jennifer McCluskey

People looking to start a business ask me all the time what form of business is right for them, but it can also be useful for owners of an existing business to re-evaluate their business structure and talk to their professional support team of accountants, attorneys and others. It may be advantageous to switch business forms, especially considering new tax laws that have been put in place over the last couple of years. In the next couple of paragraphs, I’m going to go over a quick review of the different business structures; sole proprietorship, partnership, LLC, S-Corporation, and C-Corporation so that you will know what questions to ask your team. 

    The simplest and easiest business set-up is a sole proprietorship (single person or married couple) or general partnership (more than one person). A business becomes a sole proprietorship or partnership by filing a DBA (Doing Business As) form at the county clerk’s office. This registers the business’s name at the county level, but does not provide any protections beyond that. Specifically, it does not provide any legal protections. If a business is a sole proprietor and gets sued, the business is fully connected to the owner so all of the owner’s assets are at risk. A time to consider switching would be if a business grows and creates jobs, or opens a storefront, both of which may make it more likely for a lawsuit to happen. Business liability insurance can protect businesses as well, but it may be important to have an additional layer of protection that a different legal structure can provide. 

    The next step up beyond a sole proprietorship is an LLC, S-Corporation, or C-Corporation. These business structures help protect a business should a lawsuit happen by creating a separate legal entity for the business. They’re not foolproof; someone can still sue the business owner personally, but they often can help. Creating one of these business entities will register a business’s name at the state level. Most of the businesses that I work with are set up as sole proprietorships or LLC’s. 

    Filing a business as an LLC or Corporation at the state level gives the business owner some more choices in how he or she pays taxes as well. All sole proprietorships and general partnerships fill out their business taxes as part of the personal tax return of their owner or owners. If a business owner sets up an LLC, she can choose to continue filing taxes as a “disregarded entity,” meaning she would continue filing taxes on her personal return. However, LLC’s do have the option to file taxes as a corporation, which may allow the owner to take advantage of better tax rates if the business has a high profit. Owners of high profit businesses also may want to consider setting up as an S-Corp. To do this the business owner would file as a Corporation at the state level and then fill out paperwork for the IRS to get the S-Corp designation. This will let the business owner do their taxes a little more simply than a C-Corp, but will let the owner take corporate tax rates for any business income beyond the owner’s salary. An owner of an S-Corp has to be able to pay themselves a “market rate” salary, so this setup would not be as useful for businesses that are lower profit. Finally, a business owner could choose to set her business up as a full C-Corp. This will allow her to distribute dividends to investors and owners and will require tax filing as a corporation. 

    At the SBDC we can only give overviews; we are not accountants or attorneys to offer tax or legal advice. We recommend speaking to your accountant and attorney before making any business structure decisions. We can help connect you with a local support network if you do need one of these professionals to help advise you along your business journey. You can contact the SUNY Canton SBDC at (315) 386-7312, SUNY Canton SBDC at Clinton Community College at (518) 324-7232, or the Watertown SBDC at JCC (315) 782-9262 for free and confidential business counseling. 

Food Evolution Summit: Exciting, inspiring and concerning

Jay Matteson

As I write this column, I’m traveling at 400 miles per hour, 30,000 plus feet above the heartland of the U.S. It’s appropriate to be writing at this altitude as the last two days have allowed me to view our food systems from high above sea level. Our journey to the Food Evolution Summit in Palm Springs, California, was exciting, inspiring and concerning. I met many food developers, chief executive officers, food researchers and company vice presidents during the two-day conference. Our three-fold mission during the conference was to look for potential companies considering new locations on the east coast and especially New York state; explore opportunities to bring new business to our companies in Jefferson County, and gain a broader perspective on new food and beverage trends. 

    Our first presenter was David Rice, vice president of research and development strategies and portfolio management for Pepsico. Mr. Rice discussed world demographics and our aging populations. Food companies need to be adjusting their products to meet the needs and tastes of an older population while also creating new and exciting food products for new generations. David also indicated that the consumer, especially the U.S. consumer, is demanding our food stream produce less waste, from the farm to the table. “Upcycling” became a hot topic during the conference. Upcycling is going beyond the traditional three “R”s of waste reduction. Upcycling is finding waste products and converting them into new food products or packaging. It’s not just reusing the waste product as it is, but converting the product into a different use. Almost every presenter after Mr. Rice discussed upcycling at some point in their presentations. 

    As a great example of upcycling that came out of the conference was a company using grape pomice, the byproduct of wine-making that contains seeds, skins and stems. A company in California has developed a technology to isolate the resveratrol from the pomice and turn it into either a concentrated powder or liquid. The resveratrol can then be added to other food and beverages to bring its health benefits to the product. The presenter from Napa Hill Inc., is using the concentrated liquid in a specialized water product that contains concentrated juices from the grapes grown in Napa Valley. This creates a unique almost wine-like flavor without the alcohol but containing many of the health benefits obtained in wine. The pomice is upcycled, reducing the waste stream from the winemakers. 

    Joshua Reid, senior director for research and development at Kashi discussed their new line of food products called Kashi for Kids. Kashi gathered together a group of teenage food entrepreneurs from across the United States. These kids were involved in creating their own food businesses or were very active in sustainability efforts. Kashi brought the group together to create a new line of food products geared towards kids. The teenagers were given basic ingredients to work from and allowed to be creative in developing the products. Everything from developing the flavor profiles to the shape and texture was examined. The team of teenagers also looked at sustainability issues of the product and its packaging, causing Kashi to adjust how they normally package their products. We had the opportunity to sample the products and they are incredible. I’m bringing home a box of their honey cinnamon cereal. The cereal is a combination of crunchy pieces of cereal with a cinnamon coating and then cereal puffs filled with a honey apple mixture. It was impressive to learn how the kids were given a big palette to work from to create healthy food products. My only disappointment with this effort was the failure to expose the teenage team to the farmers who grow the ingredients. We heard extensively about how Kashi sources their products and demands strong sustainability practices from the farms. But they failed to bring the kids to the farms. 

    This has been an ongoing concern of mine, long before this summit. Food processing companies are marketing their products with environmentally conscious messages, but not connecting with the farmers who produce the ingredients to understand why farms use the practices they do, what farms have already done to minimize their carbon footprint, and to build better partnerships between the consumer, the farmer and the food processor. I did ask Mr. Reid quietly about why they hadn’t connected the kids with the farms. His answer was simple: they had not considered it. Perhaps in the future they will place more importance on that connection. 

    There were several other interesting presentations and fantastic connections made. We’ll work to maintain and build these connections with hope that perhaps it will bring more food processing to Jefferson County. 

Young professionals honored in 2019 20 under 40 class

SYDNEY SCHAEFER/WATERTOWN DAILY TIMES
NNY Business 20 Under 40 award winners were presented with plaques.

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20 Under 40 luncheon

Thank you for your interest in attending the 9th annual 20 Under 40 awards. Our online registration has closed at this time.

For more information, contact Holly Boname at 315-661-2381.

We hope to see you next year! 

A Family Focus On Business: Relph Benefit Services serve the north country

From left to right: Jack Gorman, John Bartholf, Bob Relph Sr, Fred Tontarski, Bob Relph Jr, Mike Wiley stand together at the site of their newly built office in 1989.

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