Wisconsin’s Foxconn Tax Deal OK’d With State Safeguards

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By Michael J. Bologna

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.

Signing Ceremony

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.

Protective Features

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:

  •  Tax credits are provided on a “pay as you grow basis,” requiring Foxconn to make hires and invest capital to become eligible for benefits.
  •  Foxconn could only earn the maximum $2.85 billion in tax credits if it creates 13,000 jobs and invests $9 billion.
  •  Foxconn must submit annual performance reports and hire an independent auditor to attest to all job creation and capital investment targets.
  •  Clawback provisions would be triggered if Foxconn supplies false or misleading information, leaves the development zone or conducts the same activity outside of the development zone, ceases operations, or fails to maintain employment and investment levels through 2032.

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 mbologna@bna.com

To contact the editor responsible for this story: Cheryl Saenz at csaenz@bna.com

For More Information

WEDC's summary of the agreement is at http://src.bna.com/t8g.

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