For the last several weeks, we’ve been blogging about tax incentives and the push of states to lure companies such as Tesla to build plants and employ workers in their state. Last week, Tesla announced that it will be locating its new factory to produce lithium ion battery packs (the so-called “Giga-factory”) in Nevada, just outside of Reno. Not Texas, Arizona, New Mexico, or the company’s headquarters state of California. The final tax incentive package reportedly offers the company tax breaks of over $1Billion including sales tax abatements over 20 years, real and personal property tax abatements over 10 years, payroll tax abatements, and even some transferrable tax credits (that the company can sell to other companies). While Tesla CEO Elon Musk claimed that the deal was done with Reno not solely for the tax incentives, they certainly had a huge impact on the decision.
As a Californian, I couldn’t decide if I was happy or sad to see the plant go to Nevada. Certainly, the obvious answer is that, as a citizen, I would have liked to see us retain or gain 6,500 jobs in the manufacturing sector. That would be good for everyone – right? But the state tax professional in me, and regular cynic of California politics is smiling a little bit deep inside that Tesla gave us the jilt. I want to say, “See, I told you so!” We watched as Governor Jerry Brown and our legislature did away with Redevelopment programs across the state in one fell swoop and then eliminated the successful enterprise zone program the following year – all in the name of somehow being friendlier to business in the Golden State. (Right? Help me with that math!) All of our tax rates are high (corporate, individual, and sales/use tax), we continue to have among the highest worker’s compensation rates in the country, and we make it difficult for companies to navigate our environmental laws to construct buildings – just to name a few things. While Mr. Musk didn’t specifically call out the state about these things, I can’t help but wonder if that didn’t have something to do with his decision to locate the factory outside of California. Tesla is the kind of company that gets things done. My guess is that trying to build such a Giga-factory here wasn’t going to “get done” quickly.
Don’t get me wrong. There are certainly a lot of things to love about California, which is why so many of us make this our home. But I think it is time for Sacramento to open its collective eyes and put its actions toward truly making this a better place to do business. If not, we’re likely to see some of our other gems leaving for other states. Not every deal will be a $Billion and promise 6,500 jobs, but small and mid-size companies can talk with their feet as well.
