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Capital Business
Posted at 06:04 PM ET, 06/07/2012

LivingSocial finds support for $32.5M city tax incentive deal

Local business advocates, company executives and city economic developers all testified in favor of D.C. Council legislation Thursday that would save LivingSocial $32.5 million on city taxes in exchange for keeping its headquarters in the District and hiring city residents

Many said they endorsed the bill as a sign that the District would begin to compete more aggressively with neighboring Maryland and Virginia to attract and retain businesses.

The proposal provides the fast-growing daily deals business with corporate and property tax abatements beginning in 2015. By then, the company expects to generate taxable income, add 1,000 local employees and consolidate its local workforce into one office.

The legislation, which was drafted by the Office of the Deputy Mayor for Planning and Economic Development after lengthy negotiations with the company, stipulates that the LivingSocial be headquartered in the District and ties the size of the tax abatement to the percentage of new hires who reside within the city limits.

Despite having yet to turn a profit, LivingSocial has quickly become one of the city’s largest private sector employers. Its staff has swollen from four to 5,000 since 2007, about 1,000 of which are based in the District.

That rapid growth has forced the company to spread its local employees across six District offices, including its headquarters on New York Avenue NW. The company eventually plans to house all of its local employees in a newly built or significantly renovated office building, the exact location of which has not been determined.

Even the most critical voices at Thursday’s hearing didn’t oppose the legislation, but instead suggested provisions be added that would more closely tie the tax incentives to LivingSocial’s future growth.

Kwame Boadi, an analyst at the D.C. Fiscal Policy Institute, said the council should stipulate a minimum percentage of the company’s workforce be District residents. The bill as written would still award LivingSocial half of the tax incentives in the unlikely scenario that none of the company’s employees or new hires reside in the District. LivingSocial said about half of its local workforce resides in the District currently.

Additionally, both Boadi and Ken Archer, editor of the economic development blog Greater Greater Washington, urged the council to make the tax incentives contingent on LivingSocial creating new positions, rather than new hires, thus preventing the company from claiming credit for employees who are hired as a result of natural turnover.

Whether LivingSocial would actually leave the District is debatable. Its staff consists primarily of young, urban dwellers who might balk at reverse commutes to the far reaches of Montgomery or Fairfax counties.

But LivingSocial executives said Thursday that the company could shave tens of millions of dollars off its operating costs by consolidating its offices in a jurisdiction with lower corporate taxes and rental rates than the District.

Holding onto the company would be symbolically important for the city’s burgeoning technology sector. Industry advocates often point to LivingSocial as its main— and to date only—example of a D.C. tech start-up turned international corporation.

The company also helps to attract coveted Web design and engineering talent to the city and its widely anticipated that staff members who leave the company will create the region’s next generation of tech companies.

The legislation — called the Social E-Commerce Job Creation Tax Incentive Act of 2012 — will be marked up by the D.C. Council’s Committee on Finance and Revenue next week, and after a vote by the entire Council, could be sent to Mayor Vincent Gray’s desk as soon as next month.

By  |  06:04 PM ET, 06/07/2012

 
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