Foxconn’s $3B Tax Incentive Package Clears Wisconsin Assembly

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By Alex Ebert

The Wisconsin Assembly has OK’d a controversial $3 billion incentive package for electronics manufacturer Foxconn Technology Group.

The 59-30 vote late Aug. 17 sends the unprecedented incentive package as amended by the House to the state’s Senate for a vote as early as next week. The legislation provides tax credits, exemptions, and subsidies facilitating Foxconn’s plan to construct a 20 million-square-foot campus in southeastern Wisconsin for the production of liquid crystal display panels for televisions and electronic devices.

The Legislature is under the gun to accept the terms of the company’s memorandum of understanding by Sept. 30, and Gov. Scott Walker (R) has prioritized the incentive bill to the level of the state’s budget.

Assembly Speaker Robin Vos (R) said the deal is necessary to revitalize a part of the state that experienced 14 percent unemployment in the Great Recession and never bounced back.

“That’s why we need to do everything we can to bring business there to replace those that moved outside our borders,” he said. “That’s why this is such a great day for Wisconsin. August 17, 2017: that’s when you’re going to look back and say, ‘I was part of something bigger than I even understood.’”

But democrats roundly criticized the deal’s size and said the state was getting duped.

“If you took the top five largest corporate handouts in the state’s history, added them all together, and multiplied it by 10, you’d still have less than what you’re considering today,” Rep. Melissa Sargent (D) said.

Payroll Credits

In total, payroll tax credits to Foxconn could be up to $1.5 billion if the company creates the 13,000 jobs the state estimates. But detractors of the tax break say there is no way to stop the company from hiring workers from Illinois.

Illinois and Wisconsin have a tax reciprocity agreement, so Illinois workers are taxed on income earned as an employee by their home state, not Wisconsin. Hundreds of workers commute daily across the border for jobs in Chicago, Milwaukee, and the industrial border between the states.

“The winners in this deal are clear: Foxconn and Illinois,” Rep. Mark Spreitzer (D) said. “Illinois gets the jobs, and Wisconsin pays the bills.”

Benefits in 2043

In addition, Foxconn could be eligible for payments of 15 percent of its annual capital expenditures. Since the plant could cost up to $10 billion, the state’s nonpartisan Legislative Fiscal Bureau says this could mean payments totaling $1.35 billion.

Additionally, the company will be exempt from sales and use taxes on building materials and equipment used in the facility’s construction.

Due to the structure of the credits, Wisconsin would make huge annual payments to Foxconn for several years before seeing any return. The state projects payments of $312 million annually to Foxconn between 2023 and 2026.

Those out-of-pocket payments would drop to approximately $120 million in 2027, but continue through 2033. However, the LFB said the state wouldn’t see positive cash flow from its investments, even in the most optimistic scenario, until 2043. Detractors called that a long-term risk.

“Try to think back to 25 years ago. Electronics were floppy discs and dial-up modems,” Spreitzer said prior to the vote. “Foxconn makes iPhones and TV monitors. Will these things be around in 25 years? Who knows?”

But proponents say the investment is worth it.

“We’re talking about bringing an entire industry to North America,” Rep. Dale Kooyenga (R) said. “And that’s a game-changer.”

Exemptions for Tax Districts

A sticking point in the original bill was a limit on tax incremental district law in Wisconsin that might have left communities unable to properly fund services on a 1,000-acre project like Foxconn.

Wisconsin law normally prohibits municipalities from creating a tax incremental district (TID) that exceeds 12 percent of the total value in that community. The law also prohibits TID expenditures from funding construction of police, fire, and general operating expenses.

In a call with media last week, Vos and Reps. Adam Neylon (R) and John Nygren (R) said an exemption was placed in the bill to allow smaller communities to create a TID for Foxconn and use those funds to pay for expanding emergency services. However, the legislators expect Foxconn to supply its own security force as well.

Keeping Jobs In-State

More than a dozen legislators expressed concern that construction and manufacturing jobs from the project would go to out-of-state workers. Tweaks to the original bill aim to steer those jobs and contracts to Wisconsinites.

The amended bill provides for a new full-time “electronics manufacturing small business development director” in the Wisconsin Economic Development Corporation, who will work to connect Foxconn with Wisconsin suppliers and small business partners.

The bill also requires that to qualify for job credits, Foxconn’s employees must make between $30,000 and $100,000 annually. And if those jobs aren’t created, Wisconsin reserves the ability to claw back some money—although detractors criticized that this clawback isn’t mandatory.

Highway Cash

A key amendment also permits the state to issue up to $252.4 million in bonds to fund renovation of I-94 in the southern part of the state near a possible Foxconn site near Racine, Wis.

The 35-mile project, scheduled for completion in 2022, links Milwaukee to Chicago. Legislators have discussed having flexibility in the amount of bonding in order to seek matching federal transportation funding.

To contact the reporter on this story: Alex Ebert in Columbus, Ohio at aebert@bna.com

To contact the editor responsible for this story: Jennifer McLoughlin at jmcloughlin@bna.com

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