
Nevada strikes $1.25B tax break deal with Tesla - webXL
http://www.rgj.com/story/news/2014/09/04/nevada-strikes-billion-tax-break-deal-tesla/15096777/
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bellerocky
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
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.

~~~
gph
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.

~~~
mikeash
I don't think the "blow up in their face" scenario makes sense. If the factory
fails, then Nevada is back where they started. Since these are tax breaks,
they're just cutting down on revenue they would have otherwise collected from
the factory. If the factory fails, then it stops paying taxes regardless. It's
not like Nevada wrote a $1.25 billion check to Tesla.

It's sort of like giving a really good chef a discount on rent if he moves
into your apartment. You think it's worth it because he'll cook some great
food for you. If he loses his job and has to move out, you're just back where
you started. That you were planning on giving him a total discount of $100,000
over 10 years (for example) doesn't mean you're now out $100,000 whet it
didn't work out.

I don't like the idea of localities competing on tax breaks like this, but the
downside in my view is simply letting _successful_ companies avoid taxes, not
any trouble from extending tax breaks to failing ones.

~~~
gph
Not entirely. From the article:

>$195 million in transferable tax credits, which other Nevada companies will
be able to buy from Tesla in order to reduce their own tax liabilities to the
state.

Credits are basically the state writing them a check. Plus the article
mentions the state buying the USA parkway for an additional 43 million. And
I'm not completely sure how the reduced electricity bill works, but I gotta
imagine that it will be passed on to the government somehow.

If Tesla went belly up 5-10 years into this project before the tax breaks are
up, the state would lose out quite a lot. Might not exactly be 1.25 billion,
but still a lot.

Edit: Wanted to add there is also unseen expenses and burdens placed both on
the state and county government where this project occurs. Tesla wouldn't be
paying property tax, yet there would be a very significant increase in
population to the area. That means more police, teachers, infrastructure, etc.
The burden would be placed on local individuals and other businesses. There
isn't an exact number to put on this, but I wouldn't be surprised if it would
be hundreds of millions of dollars.

------
Retric
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
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
I don't see how targeted tax breaks could be equitable.

~~~
GreenPlastic
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.

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alexandros
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
Hey, SendGrid got 65k from the city of Boulder.

------
ilamont
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_da...](http://www.oregonlive.com/business/index.ssf/2012/08/dark_days_for_solarworld.html)

2\.
[http://online.wsj.com/news/articles/SB1000142405274870446130...](http://online.wsj.com/news/articles/SB10001424052748704461304576216330349497852)

3\. [http://www.bloomberg.com/news/2012-09-05/in-stadium-
building...](http://www.bloomberg.com/news/2012-09-05/in-stadium-building-
spree-u-s-taxpayers-lose-4-billion.html)

~~~
jrapdx3
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
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&...](http://development.cfed.org/focus.m?parentid=34&siteid=1629&id=1649)

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.

~~~
jrapdx3
I don't remember what happened back then, but I do know that here in Oregon,
Intel has received tax breaks from the state and Washington County where the
Intel R&D fab is located. OTOH while Intel has fabs in many places, their
investment in this region has grown rather steadily over the years.

It's reported that Intel remains the state's single largest employer. As far
as Oregon is concerned, and the Portland metro area in particular, the tax
break for jobs tradeoff looks like a pretty good deal after all.

Though property owners grouse about Intel avoiding its "fair share" of taxes,
our local, regional and state governments aren't likely to complain or change
their policies.

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fastball
People in this thread are strawman'ing with the whole sports-team argument.

Apples and oranges, guys.

------
speeq
"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)

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jusben1369
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.

------
FiatLuxDave
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.

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

------
teach
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
> 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
> 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
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

      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.

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ck2
Was it Nevada purely for tax reasons?

Is Nevada a good workforce location?

$25/hr seems like a pretty nice wage.

~~~
webXL
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.

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jellicle
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
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
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
s/Tesla/Any large company/g

