Property Tax Post: Apple Must Conduct Foreign Trade to Benefit From Foreign Trade Zone

Apple Inc. may be reaping the benefits of a Foreign Trade Zone (FTZ) property tax benefit in Arizona without actually conducting any foreign trade there, according to a report in the Phoenix Business Journal. Much like Art Vandelay, a fictional importer/exporter on Seinfeld, the company may need to come up with some concrete examples of what it imports and exports to justify its property tax status.

Apple owns property in Mesa, where it plans to open a $2 billion data center. However, the state’s original FTZ agreement was with now-bankrupt company GT Advanced Technologies, which would have manufactured components to be placed in Apple products at the Mesa property.

Despite these circumstances, Apple continued to reap the property tax benefits from the FTZ agreement, the report notes. Now, Apple is being pressed to show that it is conducting some form of importing, exporting or other international operations to justify continued benefits from the FTZ.

In 1991 Arizona enacted a law to structure a narrowly focused property tax assessment rate reduction for foreign trade zone projects to stimulate international trade within the state, according to an explanation from the city of Chandler, a Phoenix suburb.

Even though the actual tax rate that is applied to different taxpayers in Arizona is uniform within each county and municipality, the amount of property subjected to that rate varies based on how the property is classified. For example, most commercial properties in Arizona are assessed based on 25 percent of their value.

By contrast, properties in FTZs are assessed at a mere 5 percent—the same rate applied to historic properties, property used for environmental remediation, and property held by a minority-owned manufacturing business. In other words, other properties for which very narrow exceptions were carved out.

In addition to property tax benefits, being in an FTZ carries other significant benefits as well, such as duty exemptions, inverted tariffs (where imports have higher duty rates than a finished product entering the U.S. market), and exemptions from state and local inventory taxes. Apple likely saves between $880,000 and $1 million annually from the property tax breaks alone, the report estimates.

The petroleum refining industry is the largest industry that currently benefits from FTZs, but the electronics, automotive and pharmaceutical industries also reap significant benefits, according to the Arizona Commerce Authority.

Continue the conversation on Bloomberg BNA’s State Tax Group’s LinkedIn page: Do property tax assessment rate reductions effectively promote international operations?

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