Daily Tax Report: State provides authoritative coverage of state and local tax developments across the 50 U.S. states and the District of Columbia, tracking legislative and regulatory updates,...
Gov. Scott Walker (R) and Foxconn Technology Group Chairman Terry Gou will sign a final agreement Nov. 10 granting the electronics giant $3 billion in tax incentives for a massive manufacturing campus in southeastern Wisconsin.
The final agreement, approved by the Wisconsin Economic Development Corporation (WEDC) Nov. 8, contains new terms to protect the state in the event Foxconn defaults on its obligations or fails to meet certain targets for job creation. A key provision makes Foxconn’s parent company and Gou personal guarantors for hundreds of millions of dollars in potential subsidy clawbacks.
“Terry Gou is personally guaranteeing in the event of a default and we have to go after Foxconn to get some of the tax credits back,” WEDC spokesman Mark Maley told Bloomberg Tax. “So the company and Terry as well are guarantors.”
The WEDC board approved the final agreement by a vote of 8-2. Two Democratic lawmakers serving on the board objected, asserting the deal was unnecessarily expensive and would leave state taxpayers vulnerable if Foxconn defaults.
The agreement authorizes the state to issue up to $2.85 billion in income and franchise tax credits to Foxconn. In addition, Foxconn could reap $150 million in sales and use tax exemptions on purchases of building materials, supplies, and equipment used for the construction project.
The package will assist Foxconn, the operating arm of Taiwan-based Hon Hai Precision Industry Co., as it builds a 20 million-square-foot manufacturing campus for the production of liquid crystal display panels for televisions and electronic devices. The company said it would spend $10 billion on the project and create up to 13,000 jobs.
Maley said Walker, Gou, and WEDC chief Mark Hogan will sign the agreement Nov. 10 in Racine, Wis. U.S. House Speaker Paul D. Ryan (R-Wis.) is expected to attend.
“They may still have some local issues to take care of, but from the state’s point of view, the signing of the contract is the final step in this process,” Maley said.
WEDC had been scheduled to act on the final agreement last month, but the agency postponed action in response to criticism that the emerging document left the state unprotected. Maley said WEDC negotiated additional protective language, including a personal guarantee from Gou, who holds a net worth of approximately $10 billion according to Forbes Magazine.
Under the guarantee provisions, Hon Hai, Gou, and SIO International, a private company that Gou indirectly owns, would serve as guarantors in the event of a default. Hon Hai Precision would be responsible for 75 percent of the clawback amount, which could be as much as $965 million in 2023 if job targets and other violations are detected. Gou and SIO would guarantee 25 percent of the clawback amount.
According to WEDC’s summary of the deal, additional protective features include the following:
State Rep. Dana Wachs (D), a member of the WEDC Board, voted against the agreement and called it a “massive gamble in a foreign company.”
“I remain gravely concerned that we are putting too many eggs in one basket,” Wachs said in a statement. “I support economic development and job creation measures that ensure a reasonable investment of taxpayer money in multiple industries and fields, and the Foxconn deal is just too much of a risky investment in one company.”
To contact the reporter on this story: Michael J. Bologna in Chicago at firstname.lastname@example.org
To contact the editor responsible for this story: Cheryl Saenz at email@example.com
WEDC's summary of the agreement is at http://src.bna.com/t8g.
Copyright © 2017 Tax Management Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)