Mississippi has taken an unusual step to polish its image for interstate banks - a tax credit for new jobs.
The law, passed at the end of last month, would give a $1,500 tax credit to a bank for each new job created in the year after an interstate merger. And for five years after each first-year new job, the credit would continue to be awarded on a declining scale.
"Our state provides tax incentives for lots of industries to invest here or build plants here, and it seemed at least as appropriate to give job incentives in banking as it does in manufacturing," said Aubrey B. Patterson Jr., president of the Mississippi Bankers Association and chief executive of Bank of Mississippi, Tupelo.
Many states that have opted into federal interstate branching have done away with tax structures that would put them at a disadvantage in attracting out-of-state banks. But few, if any, have offered a tax incentive.
"As far as I know, that's unique," said Mathew H. Street, the American Bankers Association's associate general counsel, who follows state banking laws. "It's a good, creative idea."
The move is yet another example of the competition among states in trying to attract the headquarters, or at least substantial operations, of multistate banks. The credit also represents an effort to mitigate the layoffs that often accompany large mergers.
Unless a state has opted in early or opted out of the federal legislation, known as the Riegle-Neal Interstate Banking and Branching Efficiency Act, interstate branching will be allowed June 1, 1997.
The promoters of Mississippi's tax incentive law said they don't expect it to have much of an impact on the key decisions that go into a merger between banks in two different states. But where all else is equal, they hope it will serve as a "tiebreaker" in favor of locating or retaining operations in Mississippi, Mr. Patterson said.
"The idea is that this would help tip the balance a little bit to keep the jobs there," said Henry C. Ruempler, national director of bank tax services for Ernst & Young, in Washington.
The big accounting firm was hired by the Mississippi Bankers Association to help formulate the bill, which was passed in conjunction with the state's opt-in legislation. Ernst & Young has worked with several other states, including Maryland and Rhode Island, to recodify their tax codes in anticipation of interstate branching.
"State taxes will now be more of a consideration in the location of bank headquarters than ever before," Mr. Ruempler said.
Mississippi's opt-in legislation prohibits banks that are less than five years old from being acquired by out-of-state institutions. And banks can enter the state through acquisition only, not simply by creating a branch.
