LivingSocial’s $32.5 Million Tax Break Should Include a Money Back Guarantee

June 13th, 2012 | by Kwame Boadi

Today, the DC Council’s Committee on Finance and Revenue marked-up legislation that would give $32.5 million in tax breaks to LivingSocial. This major taxpayer subsidy was given the green light with less than 10 minutes of discussion and no changes were made despite shortcomings in the bill that leave the District’s interests unprotected. As the bill moves to the full Council for consideration, DCFPI urges the Council to strengthen this LivingSocial “deal” by putting in some money-back guarantees so that it is mutually beneficial for both DC and LivingSocial.

One way to do that is by putting a clawback in place which would require LivingSocial to repay some or all of the subsidy if it falls below employment targets or leaves DC before the end of the ten-year abatement period. As the bill is written now, LivingSocial could potentially claim of its tax subsidies fairly quickly and then be free of any obligation to maintain workers in DC or to hire DC residents.

A clawback is the economic development subsidy equivalent of a money-back guarantee. The LivingSocial tax break package includes provisions to discontinue the subsidy if the company doesn’t meet certain requirements, but nothing that would require the company to repay any subsidies it has already received. A clawback would give District residents reassurance that their economic development dollars will not have gone to waste if LivingSocial fails to increase employment among DC residents, to maintain its product development headquarters in DC, or to  provide substantive community benefits such as providing training to individuals and businesses and partnering with DC educational institutions.

The clawback issue is important for other reasons, too.  In such a dynamic and volatile industry, LivingSocial could be purchased by one of its competitors, just as LivingSocial has purchased several e-commerce companies from around the world in recent years. If LivingSocial is purchased, there is nothing in the legislation that would require the buyer to follow the same requirements or repay the subsidies already paid out to LivingSocial. A clawback should require any future buyer of LivingSocial to pay back the subsidies if it decides not to uphold the standards set forth in the legislation.

LivingSocial could prove to be a significant boost to the District’s economy, but the District shouldn’t buy this $32.5 million deal, unless it comes with a money-back guarantee.

2 Responses to “LivingSocial’s $32.5 Million Tax Break Should Include a Money Back Guarantee”

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