8 ms·

Nevada strikes $1.25B tax break deal with Tesla

91 points by webXL 12y ago

Retric 12y ago
In many ways I think this should be illegal. If for no other reason as it creates huge incentives for bribery up front and after these expire to keep a factory from moving. But, also because at a constitutional level it interferes with state commerce much like Nevada deciding on an import tax from other states. However, city's or states lowering their taxes on every business is a different story.
- webXL 12y ago
  And this is why many enter politics. It's why there's such a huge lobbying industry; why there is such an industry. We entrust them with a lot of power, they just wield it. I actually have no problem with a state doing this, so long as they dish out the tax breaks equitably.
  - Retric 12y ago
    I don't see how targeted tax breaks could be equitable.
    - GreenPlastic 12y ago
      Even if it's not completely equitable it doesn't have to be 0 or negative sum. If I were making 15 an hour at the local casino, I'd be pretty happy to pay more taxes and take a 25 dollar an hour job at Tesla. Sure, Tesla isn't paying its full share but we're both better off.
  - declan 12y ago
    > they dish out the tax breaks equitably A tax break by definition is something that's not dished out equitably. :) ("Favorable tax treatment of any class of persons" is how Wikipedia describes a tax break, which sounds about right.) What you're describing is the opposite of a tax break. One example would be across-the-board tax relief such as lowering income taxes or property taxes for everyone, whether they're in an industry favored by the current politicians in office or not.
- sp332 12y ago
  If you can tax gasoline to reduce the amount used in your state, you can untax battery manufacturers to get more of them.
  - Retric 12y ago
    Your comparing production of something with it's use. There giving incentives to a factory so the equivalent would be subsidizing a refinery which as you might imagine would have little impact on gas usage in a state.
    - sp332 12y ago
      I'd guess it's not really about the batteries, although it is cool. It's about the 6,500 jobs Tesla plans to create. Over the 20 years this tax break runs, that $1.25B is about $9,600 per employee per year. They might make that up in payroll, sales, and property taxes from the employees alone.
      - gph 12y ago
        >They might make that up in payroll, sales, and property taxes from the employees alone. I might be wrong, but I think Nevada doesn't have income tax. And property tax is typically paid to local county/city governments. I think it's still open to debate whether Nevada will really recoup all this money in taxes. Of course there are benefits other than pure tax dollars. This could lead to a convergence of high tech manufacturing in the area.
- mlinksva 12y ago
  Agreed! Not about Tesla, but noting the constitutional angle -- http://gondwanaland.com/mlog/2013/10/14/negative-sum-us-state-competition/ http://gondwanaland.com/mlog/2013/10/14/negative-sum-us-stat... -- I have not searched much but would love to know if anyone serious has arrived at this conclusion.
teach 12y ago
As a Texan, I'm now suddenly glad Tesla didn't build here. I love Tesla more than the average human, but I'm not sure I want to give them a billion-dollar tax break at my expense.
- sitkack 12y ago
  > In exchange, the company must invest a minimum of $3.5 billion in manufacturing equipment and real property in the state—a threshold that is much lower than the $10 billion state officials expect the company to invest in Nevada over the next two decades. At the same time Texas loses having a high tech manufacturing base. How would this have been a net negative on Texas?
  - maratd 12y ago
    > How would this have been a net negative on Texas? Not for Texas. For Texans. These tax reductions are given out to those with bargaining power, leaving those without to pay the bills. Mainly, the average tax payer.
    - wfjackson 12y ago
      Not sure I understand. Lets say the tax burden on a Texan today is X. Without the TSLA factory, lets say it would be Y, and let it be Z if the TSLA factory is built. Why do you think Z would be much higher than Y ? The government isn't paying to build the factory is it?
      - nordsieck 12y ago
        9% ($120M): Transferable tax credits 6% ($75M): $12,500 per job transferable tax credits (6,000 jobs) This is the only part, as far as I can tell, where the state could potentially lose out.
      - maratd 12y ago
        Who is paying for the roads, sewer, fire protection, police protection, etc.? Those services aren't free. Normally the burden is shared by all, by with these special deals, they're shared by those who didn't get the special deal.
jellicle 12y ago
Why is it, that if Tesla is such a great and noble company doing great and noble things, that it can't operate without cheating on its taxes? Every person in Nevada now gets to pay for Tesla's selfishness. And no, there won't be any massive influx of good jobs or any 0.0% unemployment rate. Tesla's factory will be run by robots and temporary foreign workers being paid half the local wage, because "they just can't get good workers". And no, there won't be any taxes collected in 10 or 20 years when these deals expire, because Tesla will simply threaten to move to another state unless the deals are extended. Shameful all the way around. Crony capitalism at its finest.
- GreenPlastic 12y ago
  How is a negotiated tax incentive, one that the other party has just as much say in as Tesla, cheating on taxes? I'm not sure why a company has to pay 100% taxes to be considered noble.
  - obvious_throw 12y ago
    The answer is clout. A 25 employee software company that is equally innovative on a per-head basis would get laughed out of the government offices if they requested a rate-equivalent tax break. Your point is taken, but the ability of Tesla to do this whilst other companies do not have the same opportunity strikes many as unfair.
    - rurounijones 12y ago
      s/Tesla/Any large company/g
- rukittenme 12y ago
  Nobody is paying for anything. They're just deferring revenue. If they hadn't, that future revenue would exist somewhere else and wouldn't benefit Nevada. Now, Nevada will receive more jobs in the short term, more revenue in the long term, and lay the foundation for more industries to take advantage of (rails, roadways, power, etc.).
bellerocky 12y ago
The comments here are ignoring the jobs this brings into Nevada. It's like an investment. Tesla gets a tax break because it will provide jobs. The jobs create economic stimulus. People spend more money, leads to economic growth, this is not corruption, this is competing for companies to bring jobs into the state. There is no evidence of personal financial gain for the officials who got this deal to be made. In the absence of evidence, all you have is speculation, based on a misunderstanding of how tax breaks for jobs usually work. So Tesla building this plant is a good thing for Nevada.
- Afforess 12y ago
  Agreed. The people here decrying this as near-bribery or unethical don't understand economics. If the 1.25B tax break causes a net gain in tax receipts due to the expansion of the economy, then the deal is a net positive for everyone, job-seekers, Nevada, and Tesla. No one loses when the economic pie gets bigger. Economics is not zero-sum.
  - mlinksva 12y ago
    It is negative sum for the world.
  - gph 12y ago
    Finding this unethical or wrong doesn't mean we don't understand economics. Even if this leads to profit for the state through higher tax receipts, I still question whether this is a good thing in the big picture. It's one thing when an entire industry gets a tax break, like how a lot of states have tax incentives for film makers. But to give only this company a singular and specific tax break just seems wrong and anti-free market. It's one step towards a planned economic model. Plus there is an outside chance this blows up in their face. What if some other company has a breakthrough that makes this battery technology obsolete? What if Tesla then goes belly up and the factory is shut down? That is very much a possibility. Should our government leaders be deciding what companies to bet on? It's almost like they are quasi-investors in Tesla now.
    - 12y ago
ck2 12y ago
Was it Nevada purely for tax reasons? Is Nevada a good workforce location? $25/hr seems like a pretty nice wage.
- webXL 12y ago
  Not when you factor in benefits, which should be done. Not sure if it was done in this case, or if the benefits are that good.
jusben1369 12y ago
This happens all the time. It's Tesla so it's on HN. And this is a single deal for Nevada but again because it's Tesla it's a huge win. With CA next door and facing so many challenges suddenly Nevada is "sexy". Big move all round. So many secondary businesses will set up shop near the mother ship.
ilamont 12y ago
Sizable state/municipal tax breaks have been granted to other companies and industries over the past three decades. While things generally worked out for the southeastern U.S. states that granted breaks to auto manufacturers and their suppliers, the situation hasn't been so rosy for states that targeted huge solar research/manufacturing projects (1) or municipalities which have subsidized stadiums for professional sports teams (2, 3). In Tesla's case, what if the demand doesn't meet the projections cited in the article? What would that mean for taxpayers in Nevada? 1. http://www.oregonlive.com/business/index.ssf/2012/08/dark_days_for_solarworld.html http://www.oregonlive.com/business/index.ssf/2012/08/dark_da... 2. http://online.wsj.com/news/articles/SB10001424052748704461304576216330349497852 http://online.wsj.com/news/articles/SB1000142405274870446130... 3. http://www.bloomberg.com/news/2012-09-05/in-stadium-building-spree-u-s-taxpayers-lose-4-billion.html http://www.bloomberg.com/news/2012-09-05/in-stadium-building...
- jrapdx3 12y ago
  Here in Oregon, notable tax breaks have been granted to Nike, Intel and others. The issue comes up periodically, especially in election years. Concerns about companies paying a "fair share" of taxes is very common, but doesn't go anywhere. As I see it, giving the tax break is a gamble. The state or local government wagers that the tax relief will bring in more revenue (through increased jobs, stimulating local business, etc.) than lost in the incentive package. With really large companies the bet usually pays off, but of course it sometimes doesn't. But that's what gambling is all about.
  - dmckeon 12y ago
    IIRC, Intel shopped for a location for a chip fab back in the 1990s - Pentium F00F bug timeframe - and narrowed the possible sites down to 12 or 15, then to 8 or 10, etc. and finally to 3 states, and basically asked them to bid with tax credits for a ~2 billion project, and they all gradually raised their bets until nobody would offer more - and then Intel accepted all 3 offers - New Mexico, Oregon, and one other. Smooth move on Intel's part, and it worked out for them. The "winning" states had more mixed feelings. edit: s{386}{Pentium} and here's an adequate recap: http://development.cfed.org/focus.m?parentid=34&siteid=1629&id=1649 http://development.cfed.org/focus.m?parentid=34&siteid=1629&... So, when I see that Tesla needs to spend ~$10 billion, and is only required to spend 3.5B, I can't help but wonder if other sites/states are still bidding.
fastball 12y ago
People in this thread are strawman'ing with the whole sports-team argument. Apples and oranges, guys.
speeq 12y ago
"This was not the biggest incentive package", says Elon Musk at the announcement - https://www.youtube.com/watch?v=g7XTyJJmlyo https://www.youtube.com/watch?v=g7XTyJJmlyo
alexandros 12y ago
The fact that these deals happen, and the fact that a small company can't get them, feels like the tax equivalent to the net neutrality debate. Big guys can afford the transaction costs of preferential treatment, small guys have to get by like everyone else. In both cases the provider is a government-backed monopoly. You can port the net neutrality arguments to this issue with a simple term substitution. All I am saying that if someone is 'for' net neutrality, it's hard to be 'against' tax neutrality. Having said that, in a world where these deals happen, Tesla is right to extract the best deal they can, regardless of what would be the global optimum.
- GreenPlastic 12y ago
  Hey, SendGrid got 65k from the city of Boulder.
- ricardobeat 12y ago
  The analogy doesn't hold. In cases like this everybody wins - the money 'given away' by the state is merely virtual, both sides and the economy as a whole end up with net gains. In the case of net neutrality, the big guys get rich while customers suffer from poor service, and no value is created.
ElComradio 12y ago
I wonder how many people who decry Walmart's receiving "corporate welfare" have no problem with this.
FiatLuxDave 12y ago
I see a lot of discussion in these comments about the effects of competition between states. But it seems to me that the real objection, among those who have an objection, is the tax discrimination. In other words, I don't think anyone would have a problem with Nevada luring companies in by lowering their tax rate. But that is not what is happening. They are luring Tesla by the lowering the tax rate for Tesla alone. There is certainly a fairness issue here, where a large company in Nevada pays one rate and all the small companies in Nevada pay a different rate. Here in Florida, it is quite common for large companies to move operations here from up North and not pay any property taxes for 10+ years, due to deals like this. Of course, when I start a small business in Florida, you'd better believe I have to pay my property taxes. So, this kind of "local economic development" results in a kind of subsidy for large companies at the expense of small ones. Tesla is primarily competing with other large businesses, who are getting subsidies also, so its unlikely that this deal is directly effecting the competitiveness of any small businesses in Nevada. However, local businesses will compete with Tesla for employees, and also have to split the cost for roads, sewage, law enforcement, etc. unevenly with Tesla. So, Nevada taxpayers are certainly within their rights to expect the new company in town to pay the same tax rates as they have to. Now, I don't think that these local economic development deals alone are behind the consolidation which has been happening in our economy for the last few decades. But it sure isn't helping. You'd think people on a site focused on small businesses would get this.

91 points by webXL 12y ago

In many ways I think this should be illegal. If for no other reason as it creates huge incentives for bribery up front and after these expire to keep a factory from moving. But, also because at a constitutional level it interferes with state commerce much like Nevada deciding on an import tax from other states. However, city's or states lowering their taxes on every business is a different story.

webXL 12y ago
And this is why many enter politics. It's why there's such a huge lobbying industry; why there is such an industry. We entrust them with a lot of power, they just wield it. I actually have no problem with a state doing this, so long as they dish out the tax breaks equitably.
- Retric 12y ago
  I don't see how targeted tax breaks could be equitable.
  - GreenPlastic 12y ago
    Even if it's not completely equitable it doesn't have to be 0 or negative sum. If I were making 15 an hour at the local casino, I'd be pretty happy to pay more taxes and take a 25 dollar an hour job at Tesla. Sure, Tesla isn't paying its full share but we're both better off.
- declan 12y ago
  > they dish out the tax breaks equitably A tax break by definition is something that's not dished out equitably. :) ("Favorable tax treatment of any class of persons" is how Wikipedia describes a tax break, which sounds about right.) What you're describing is the opposite of a tax break. One example would be across-the-board tax relief such as lowering income taxes or property taxes for everyone, whether they're in an industry favored by the current politicians in office or not.
sp332 12y ago
If you can tax gasoline to reduce the amount used in your state, you can untax battery manufacturers to get more of them.
- Retric 12y ago
  Your comparing production of something with it's use. There giving incentives to a factory so the equivalent would be subsidizing a refinery which as you might imagine would have little impact on gas usage in a state.
  - sp332 12y ago
    I'd guess it's not really about the batteries, although it is cool. It's about the 6,500 jobs Tesla plans to create. Over the 20 years this tax break runs, that $1.25B is about $9,600 per employee per year. They might make that up in payroll, sales, and property taxes from the employees alone.
    - gph 12y ago
      >They might make that up in payroll, sales, and property taxes from the employees alone. I might be wrong, but I think Nevada doesn't have income tax. And property tax is typically paid to local county/city governments. I think it's still open to debate whether Nevada will really recoup all this money in taxes. Of course there are benefits other than pure tax dollars. This could lead to a convergence of high tech manufacturing in the area.
mlinksva 12y ago
Agreed! Not about Tesla, but noting the constitutional angle -- http://gondwanaland.com/mlog/2013/10/14/negative-sum-us-state-competition/ http://gondwanaland.com/mlog/2013/10/14/negative-sum-us-stat... -- I have not searched much but would love to know if anyone serious has arrived at this conclusion.

teach 12y ago

As a Texan, I'm now suddenly glad Tesla didn't build here. I love Tesla more than the average human, but I'm not sure I want to give them a billion-dollar tax break at my expense.

sitkack 12y ago
> In exchange, the company must invest a minimum of $3.5 billion in manufacturing equipment and real property in the state—a threshold that is much lower than the $10 billion state officials expect the company to invest in Nevada over the next two decades. At the same time Texas loses having a high tech manufacturing base. How would this have been a net negative on Texas?
- maratd 12y ago
  > How would this have been a net negative on Texas? Not for Texas. For Texans. These tax reductions are given out to those with bargaining power, leaving those without to pay the bills. Mainly, the average tax payer.
  - wfjackson 12y ago
    Not sure I understand. Lets say the tax burden on a Texan today is X. Without the TSLA factory, lets say it would be Y, and let it be Z if the TSLA factory is built. Why do you think Z would be much higher than Y ? The government isn't paying to build the factory is it?
    - nordsieck 12y ago
      9% ($120M): Transferable tax credits 6% ($75M): $12,500 per job transferable tax credits (6,000 jobs) This is the only part, as far as I can tell, where the state could potentially lose out.
    - maratd 12y ago
      Who is paying for the roads, sewer, fire protection, police protection, etc.? Those services aren't free. Normally the burden is shared by all, by with these special deals, they're shared by those who didn't get the special deal.

jellicle 12y ago

Why is it, that if Tesla is such a great and noble company doing great and noble things, that it can't operate without cheating on its taxes? Every person in Nevada now gets to pay for Tesla's selfishness. And no, there won't be any massive influx of good jobs or any 0.0% unemployment rate. Tesla's factory will be run by robots and temporary foreign workers being paid half the local wage, because "they just can't get good workers". And no, there won't be any taxes collected in 10 or 20 years when these deals expire, because Tesla will simply threaten to move to another state unless the deals are extended. Shameful all the way around. Crony capitalism at its finest.

GreenPlastic 12y ago
How is a negotiated tax incentive, one that the other party has just as much say in as Tesla, cheating on taxes? I'm not sure why a company has to pay 100% taxes to be considered noble.
- obvious_throw 12y ago
  The answer is clout. A 25 employee software company that is equally innovative on a per-head basis would get laughed out of the government offices if they requested a rate-equivalent tax break. Your point is taken, but the ability of Tesla to do this whilst other companies do not have the same opportunity strikes many as unfair.
  - rurounijones 12y ago
    s/Tesla/Any large company/g
rukittenme 12y ago
Nobody is paying for anything. They're just deferring revenue. If they hadn't, that future revenue would exist somewhere else and wouldn't benefit Nevada. Now, Nevada will receive more jobs in the short term, more revenue in the long term, and lay the foundation for more industries to take advantage of (rails, roadways, power, etc.).

bellerocky 12y ago

The comments here are ignoring the jobs this brings into Nevada. It's like an investment. Tesla gets a tax break because it will provide jobs. The jobs create economic stimulus. People spend more money, leads to economic growth, this is not corruption, this is competing for companies to bring jobs into the state. There is no evidence of personal financial gain for the officials who got this deal to be made. In the absence of evidence, all you have is speculation, based on a misunderstanding of how tax breaks for jobs usually work. So Tesla building this plant is a good thing for Nevada.

Afforess 12y ago
Agreed. The people here decrying this as near-bribery or unethical don't understand economics. If the 1.25B tax break causes a net gain in tax receipts due to the expansion of the economy, then the deal is a net positive for everyone, job-seekers, Nevada, and Tesla. No one loses when the economic pie gets bigger. Economics is not zero-sum.
- mlinksva 12y ago
  It is negative sum for the world.
- gph 12y ago
  Finding this unethical or wrong doesn't mean we don't understand economics. Even if this leads to profit for the state through higher tax receipts, I still question whether this is a good thing in the big picture. It's one thing when an entire industry gets a tax break, like how a lot of states have tax incentives for film makers. But to give only this company a singular and specific tax break just seems wrong and anti-free market. It's one step towards a planned economic model. Plus there is an outside chance this blows up in their face. What if some other company has a breakthrough that makes this battery technology obsolete? What if Tesla then goes belly up and the factory is shut down? That is very much a possibility. Should our government leaders be deciding what companies to bet on? It's almost like they are quasi-investors in Tesla now.
  - 12y ago

ck2 12y ago

Was it Nevada purely for tax reasons? Is Nevada a good workforce location? $25/hr seems like a pretty nice wage.

webXL 12y ago
Not when you factor in benefits, which should be done. Not sure if it was done in this case, or if the benefits are that good.

jusben1369 12y ago

This happens all the time. It's Tesla so it's on HN. And this is a single deal for Nevada but again because it's Tesla it's a huge win. With CA next door and facing so many challenges suddenly Nevada is "sexy". Big move all round. So many secondary businesses will set up shop near the mother ship.

ilamont 12y ago

Sizable state/municipal tax breaks have been granted to other companies and industries over the past three decades. While things generally worked out for the southeastern U.S. states that granted breaks to auto manufacturers and their suppliers, the situation hasn't been so rosy for states that targeted huge solar research/manufacturing projects (1) or municipalities which have subsidized stadiums for professional sports teams (2, 3). In Tesla's case, what if the demand doesn't meet the projections cited in the article? What would that mean for taxpayers in Nevada? 1. http://www.oregonlive.com/business/index.ssf/2012/08/dark_days_for_solarworld.html http://www.oregonlive.com/business/index.ssf/2012/08/dark_da... 2. http://online.wsj.com/news/articles/SB10001424052748704461304576216330349497852 http://online.wsj.com/news/articles/SB1000142405274870446130... 3. http://www.bloomberg.com/news/2012-09-05/in-stadium-building-spree-u-s-taxpayers-lose-4-billion.html http://www.bloomberg.com/news/2012-09-05/in-stadium-building...

jrapdx3 12y ago
Here in Oregon, notable tax breaks have been granted to Nike, Intel and others. The issue comes up periodically, especially in election years. Concerns about companies paying a "fair share" of taxes is very common, but doesn't go anywhere. As I see it, giving the tax break is a gamble. The state or local government wagers that the tax relief will bring in more revenue (through increased jobs, stimulating local business, etc.) than lost in the incentive package. With really large companies the bet usually pays off, but of course it sometimes doesn't. But that's what gambling is all about.
- dmckeon 12y ago
  IIRC, Intel shopped for a location for a chip fab back in the 1990s - Pentium F00F bug timeframe - and narrowed the possible sites down to 12 or 15, then to 8 or 10, etc. and finally to 3 states, and basically asked them to bid with tax credits for a ~2 billion project, and they all gradually raised their bets until nobody would offer more - and then Intel accepted all 3 offers - New Mexico, Oregon, and one other. Smooth move on Intel's part, and it worked out for them. The "winning" states had more mixed feelings. edit: s{386}{Pentium} and here's an adequate recap: http://development.cfed.org/focus.m?parentid=34&siteid=1629&id=1649 http://development.cfed.org/focus.m?parentid=34&siteid=1629&... So, when I see that Tesla needs to spend ~$10 billion, and is only required to spend 3.5B, I can't help but wonder if other sites/states are still bidding.

fastball 12y ago

People in this thread are strawman'ing with the whole sports-team argument. Apples and oranges, guys.

speeq 12y ago

"This was not the biggest incentive package", says Elon Musk at the announcement - https://www.youtube.com/watch?v=g7XTyJJmlyo https://www.youtube.com/watch?v=g7XTyJJmlyo

alexandros 12y ago

The fact that these deals happen, and the fact that a small company can't get them, feels like the tax equivalent to the net neutrality debate. Big guys can afford the transaction costs of preferential treatment, small guys have to get by like everyone else. In both cases the provider is a government-backed monopoly. You can port the net neutrality arguments to this issue with a simple term substitution. All I am saying that if someone is 'for' net neutrality, it's hard to be 'against' tax neutrality. Having said that, in a world where these deals happen, Tesla is right to extract the best deal they can, regardless of what would be the global optimum.

GreenPlastic 12y ago
Hey, SendGrid got 65k from the city of Boulder.
ricardobeat 12y ago
The analogy doesn't hold. In cases like this everybody wins - the money 'given away' by the state is merely virtual, both sides and the economy as a whole end up with net gains. In the case of net neutrality, the big guys get rich while customers suffer from poor service, and no value is created.

ElComradio 12y ago

I wonder how many people who decry Walmart's receiving "corporate welfare" have no problem with this.

FiatLuxDave 12y ago

I see a lot of discussion in these comments about the effects of competition between states. But it seems to me that the real objection, among those who have an objection, is the tax discrimination. In other words, I don't think anyone would have a problem with Nevada luring companies in by lowering their tax rate. But that is not what is happening. They are luring Tesla by the lowering the tax rate for Tesla alone. There is certainly a fairness issue here, where a large company in Nevada pays one rate and all the small companies in Nevada pay a different rate. Here in Florida, it is quite common for large companies to move operations here from up North and not pay any property taxes for 10+ years, due to deals like this. Of course, when I start a small business in Florida, you'd better believe I have to pay my property taxes. So, this kind of "local economic development" results in a kind of subsidy for large companies at the expense of small ones. Tesla is primarily competing with other large businesses, who are getting subsidies also, so its unlikely that this deal is directly effecting the competitiveness of any small businesses in Nevada. However, local businesses will compete with Tesla for employees, and also have to split the cost for roads, sewage, law enforcement, etc. unevenly with Tesla. So, Nevada taxpayers are certainly within their rights to expect the new company in town to pay the same tax rates as they have to. Now, I don't think that these local economic development deals alone are behind the consolidation which has been happening in our economy for the last few decades. But it sure isn't helping. You'd think people on a site focused on small businesses would get this.