How to Properly Handle Property Taxes, Abatements, and Incentives in Economic Impact Studies

Tax incentives are not fixed inputs. In May 2026, the Ohio Tax Credit Authority paused consideration of new data center sales tax exemption requests while the General Assembly's Joint Data Center Committee reviewed the program; agreements already in force were unaffected. Whatever one concludes about the policy question, the analytical implication is concrete — a study completed in one quarter may be read in a policy environment that has changed by the next.

That instability is the practical case for treating incentives with the same rigor as any other component of the model. When the incentive side is estimated casually — a single point estimate, an assumption embedded rather than stated, no range around a variable that frequently dominates the result — the analysis has no capacity to absorb a change in terms. It must be rebuilt rather than updated, generally under time pressure, and generally in public.

Economic impact studies are routinely used to support data centers, manufacturing facilities, logistics hubs, and similar capital-intensive investments. The most common request from developers, economic development officials, and local governments is a clear picture of local tax revenue. It is also the request most often answered badly. Doing it properly requires separating three distinct elements — the economic impact, the fiscal analysis that flows from it, and the effect of abatements and exemptions on what is ultimately collected — and treating the third with the same rigor as the first.

The Three-Part Question

Economic impact analysis estimates total economic activity generated by a project — jobs, labor income, output, and value added — including direct, indirect, and induced effects. IMPLAN and RIMS II are the standard tools.

Fiscal analysis estimates the tax revenue that activity produces. It is related to the economic impact but not mechanically derived from it. Property tax is driven by the assessed value of the facility, not by multiplier effects. A hyperscale data center with two dozen permanent employees can generate substantial property tax and negligible municipal income tax, and no amount of induced-effect modeling alters that arithmetic.

Incentive analysis estimates what the community forgoes. Abatements, exemptions, and payment-in-lieu arrangements sit between the gross fiscal calculation and the revenue that actually arrives. For a capital-intensive project they are frequently the largest single variable in the analysis, and the one most subject to revision after the study is delivered.

Conflating the first with the second inflates revenue. Omitting the third inflates it again. The two errors compound in the same direction, which is why headline tax figures in project studies so reliably exceed what communities collect.

When the Multiplier Model Is the Wrong Tool

There is a reflex in this field to answer every question with an input-output model. It is worth resisting.

When the scope is local tax revenue and nothing more, a full economic impact model is not required and often obscures more than it reveals. Property tax on the facility, local sales tax on taxable purchases, and municipal income or withholding tax on permanent payroll can be calculated directly from assessed values, published millage rates, and expected compensation. Direct calculation is more transparent, easier to audit, and considerably harder to dispute, because every input is a public record rather than a modeled coefficient.

Indirect and induced tax effects are a legitimate enhancement when a broader picture is wanted. They should be presented as exactly that — layered on top, separately reported, and clearly labeled. A reader who cannot distinguish the portion of a tax estimate generated by the facility itself from the portion attributed to modeled secondary activity has been handed a figure they cannot evaluate, and should not be expected to defend it.

The Property Tax Component

For most major facilities, property tax is the dominant local revenue stream. The calculation is not complicated: assessed value of real and personal property, multiplied by the applicable millage rates of the county, municipality or township, school district, and any special districts. Reporting it as a single county-wide figure, however, conceals the distributional question that local officials actually care about — which jurisdiction receives what.

The complication is that the gross calculation is rarely what gets collected. Ohio provides several mechanisms for reducing it, and each behaves differently in a model:

Enterprise Zone agreements (R.C. 5709.62, 5709.63, 5709.632). Municipal agreements permit exemption of up to 75 percent of assessed value for up to ten years, or an average of 60 percent over the term. Those ceilings may be exceeded — up to 100 percent for as long as fifteen years — with the approval of the affected board of education. The statutory structure matters for modeling: the school district is a party with standing, not a bystander.

Community Reinvestment Areas (R.C. 3735.65–3735.70). CRA exemptions apply to the increased valuation attributable to new construction or remodeling. Commercial and industrial projects require a written agreement executed before construction begins, and school board approval is required where the exemption exceeds the statutory threshold. Because a CRA exempts incremental value, the pre-existing land and structure value remains taxable — a distinction studies frequently miss.

Payment-in-lieu-of-taxes arrangements. A negotiated fixed payment replaces the standard calculation. PILOTs are straightforward to model but must be handled on their own terms. Applying millage rates to assessed value alongside a PILOT payment double counts the revenue.

School district compensation agreements (R.C. 5709.82, 5709.83). Where a district is held partially harmless through negotiated compensation or income-tax sharing, that flow belongs in the analysis explicitly. Districts are typically the largest millage holder and the most exposed party. An analysis that models the abatement but omits the compensation misstates both the district's position and the community's net result.

The Scenario Discipline

Abatement terms are frequently unsettled when a study is commissioned. This is not a reason to pick a number; it is a reason to present a range.

The defensible approach reports property tax under at least two scenarios, and three where terms remain in negotiation. Presenting only the abated figure understates the trade-off the community is making. Presenting only the full-taxation figure overstates the benefit and invites the accusation — usually fair — that the study was written to sell the project. Presenting both, with terms and millage sources stated, converts a contested number into a documented range.

It also does something more useful. It makes the incentive visible as a policy choice with a price, which is what the public meeting was about in the first place.

The fourth row is the one most often omitted. An abatement that expires in year eleven is a materially different proposition from an exemption that runs fifteen years, and a study that reports only the abatement period leaves the community unable to distinguish the two.

The Exemption Trap: Sales and Use Tax

Sales tax requires the same discipline and is more frequently mishandled, because the error is easy to make and difficult for a lay reader to detect.

Ohio's data center exemption (R.C. 122.175) permits the Tax Credit Authority to grant partial or complete exemption from state and local sales and use tax on computer data center equipment, including delivery, installation, and repair. Eligibility requires at least $100 million in capital investment at the project site over three consecutive calendar years and $1.5 million in annual payroll subject to Ohio withholding. Applying the full combined sales tax rate to total capital investment therefore produces a figure that is not merely optimistic but structurally impossible — it estimates revenue on a base the state has agreed to exempt.

Three refinements separate serious work from arithmetic:

Exemptions are not uniformly 100 percent. Agreements have been executed at 50 and 75 percent as well. A study that assumes full exemption where the agreement is partial understates revenue; one that assumes partial exemption where the agreement is complete overstates it. The agreement terms are the input, not the statutory maximum.

The exemption does not reach everything. The direct payment permit mechanism does not extend to real property, and non-exempt portions of materials incorporated into real property remain taxable to the installing contractor. Studies that treat the exemption as blanket coverage of the construction budget will misstate construction-phase collections.

Where eligibility is unresolved, model both cases. During site selection, exemption status is often pending. Embedding an optimistic assumption inside a single number is the error that later reads as advocacy, however innocently it was made.

The same caution applies to construction-phase sales tax generally. Materials sourced outside the jurisdiction generate no local sales tax regardless of where they are ultimately installed.

The Net Position Question

A gross revenue figure is not a fiscal analysis. The net position requires the cost side, and three refinements distinguish serious work from boosterism.

Do not put the same instrument on both sides of the ledger. If the policy under evaluation is a sales tax exemption, crediting the firm's own remittances as a benefit while counting the forgone tax as the cost is circular. The most defensible basis before a skeptical legislative audience is often the narrowest — the indirect and induced state and local taxes generated through the supply chain and household spending, plus employees' income tax, with the subsidized firm's direct remittances set aside.

Account for public service demand. Roads, emergency services, water and wastewater capacity, and any infrastructure investment required to serve the facility are costs. For data centers specifically, transmission and substation requirements may involve public cost or ratepayer allocation that belongs in the analysis even where it does not appear in a municipal budget line.

Compare like with like, in present value. Fiscal analyses of front-loaded exemptions weigh a one-time or early-term cost against a recurring benefit stream. That comparison belongs in present value, with the discount rate and time horizon disclosed. Studies that total undiscounted nominal revenue over fifteen years and set it against a present-day incentive cost are not comparing comparable quantities.

The Disclosure Standard

An assumptions schedule is the difference between an analysis that can be updated and one that must be rebuilt.

Millage rates change. Assessed values are contested at the board of revision. Abatement terms are negotiated after studies are written, and exemption programs can be revised or paused between a study's completion and its use. An analysis that documents assessed value basis, millage rates and their source year, abatement terms and duration, exemption eligibility and percentage, discount rate, and the timing of each revenue stream can be revised when those inputs move. One that does not must be redone from scratch, generally under time pressure and in public.

This is not a formality. It is the practical difference between a study that survives a change in its inputs and one that is quietly withdrawn after it.

What to Look For in a Credible Fiscal Analysis

The Standard That Matters

The purpose of a fiscal analysis is not to produce the largest defensible tax figure. It is to produce an estimate that local officials can carry into a public meeting and defend under questioning — including questioning from people who oppose the project and have read the study closely.

That standard changes what the document looks like. It means reporting gross revenue and net revenue after incentives. It means separating what the facility pays from what the model attributes to secondary activity. It means naming exemptions rather than quietly netting them out, and bracketing the variables that carry the result rather than resolving them to a single convenient number.

This matters more when incentive programs are under review than when they are settled. A study whose incentive assumptions are documented and bracketed can be updated as terms change, and remains useful to the community that commissioned it. A study built on a single embedded assumption cannot — its conclusions travel no further than the assumption does.

At SRC EvalMetrics, our economic and fiscal impact work has been used in legislative testimony, regulatory proceedings, and local incentive negotiations. The standard we apply is straightforward: every number in the report should be one we are prepared to defend in public. The corollary applies with particular force to incentives — where the assumption is uncertain, the report shows the range rather than choosing for the reader.

Clarity about what is being taxed, what is being abated, and which assumptions are carrying the result remains the most valuable contribution an analyst makes. The number matters less than whether it holds.

References

Ohio Revised Code § 122.175. Tax exemption for sale, storage, use, or other consumption of computer data center equipment.

Ohio Revised Code §§ 3735.65–3735.70. Community Reinvestment Areas.

Ohio Revised Code §§ 5709.61–5709.69. Enterprise zones.

Ohio Revised Code §§ 5709.82–5709.83. School district compensation agreements.