In a tough economy – when a state can’t yet pay its bills – you’d think the fiscal plan for the future would be conservative. Not so, North Carolina. Despite massive budget woes, the state legislature has agreed to special tax breaks designed to bring Apple to the Tarheel State.
Apple, the company that makes Mac computers (including the very MacBook I’m typing this blog entry on), the ubiquitous iPods and the iPhones that I would buy if they hadn’t struck a silly deal with AT&T, has confirmed that it will build a data warehouse “somewhere” in North Carolina. The deal requires Apple to build the warehouse outside of the twenty most wealthy counties in the state. This means no to counties like Wake and Mecklenberg; most of the Research Triangle Park and the Piedmont will be excluded.
The deal wasn’t unexpected, as North Carolina worked hard to position itself to get the business – even passing a massive tax break specifically targeted to Apple.
So what does this get the state? Free computers for its cash-strapped schools? New iPods to support the struggling arts programs? Nope, it gets – wait for it – the guarantee of 50 jobs over 9 years.
Whew. Just let that sink it. Fifty whole jobs.
Of course, Governor Perdue of North Carolina (no chicken jokes, please) believes that an additional 250 jobs could be attributed to the data center. Those jobs would be related to providing services for the whopping 50 new employees.
In defense of their position, Commerce Secretary Crisco was ready with his obligatory crystal-ball reading. “Technology-driven projects like this may bring fewer overall jobs than traditional industry, but they have a tremendous economic impact through locally purchased goods and services.”
In other words, they’re hoping that it brings in more cash.
How much is it costing the state? Initially, about $46 million in foregone tax revenue over the next ten years. If Apple sticks it out in NC for at least 30 years, the company could save more than $300 million on corporate taxes. That’s more than the tax package the state offered Google just a couple of years ago to open its data center in western NC: Google will only save $260 million over 30 years.
But hey, look what Google has brought to NC… *sounds of crickets chirping*
(At least Apple will make NC look cool.)
As you can imagine, not everyone is excited about the new tax breaks. A law suit has already been filed against the state with respect to Google – expect more of the same in response to the Apple package. While those companies get tax breaks, NC taxpayers are being asked to cough up a little more out of their own pockets in order to meet the $4.6 billion budget gap looming on the horizon.
I generally think encouraging investment is a good thing. And as a former North Carolina girl, I understand that the state could use additional revenue. Unemployment rates are increasing as companies move their manufacturing jobs out of the state (my dad was a victim of DuPont’s flight south to Mexico) and agriculture increasingly becomes outsourced (yes, it’s true that we actually import a significant amount of food in the US). Giving companies incentives to move to North Carolina may be good for the state. May.
But, in this case, the timing and scale seem a little off. This is the same state that threatened to delay tax refunds as well as raise taxes and fees to meet the budget in 2008 – in a year that saw the poverty rate in the state increase. People in the state are hurting. And yes, I get that people need industry and investment to survive. But the statistics since 2000 have not demonstrated a correlation between increased spending for investment and increased prosperity for the people of the state.
The investment in Google in the western part of the state hasn’t provided a significant bump in the economy. Although the company indicated that it might hire as many as 200 employees, a year after the deal was finalized, Business Week reported that Google had hired 1 full time employee. Just one.
How ’bout them apples?
Update: More from the Tax Update Blog with a must see illustration!
Image details: Boston To Auction Off Subway Stop Names served by picapp.com
Massachusetts’ Economic Assistance Coordinating Council is expected to give its approval to a $3.5 million tax break for JPMorgan Chase & Co. voted in by the Boston Redevelopment Authority (BRA) and City Council. The tax break includes a $2 million cut in property taxes and a $1.5 million break on state income tax.
It’s a good day to be JPMorgan Chase.
Proponents of the tax break claim that it’s a good thing for Boston, as well, since it will keep the company and its employees in Beantown. “The JPMorgans of the world have other options,” said BRA director John Palmieri.
Tax incentive breaks were originally intended for businesses building in blighted areas that needed a boost. However, companies like JPMorgan Chase are taking advantage of these programs to avoid taxation. In a tough economy, critics question why prosperous companies need a tax break to relocate to thriving urban centers.
As a resident of such as “thriving urban center” (Philadelphia), I concur. A few years ago, Philadelphia was host to a similar argument when the Cira Centre was built in a special zone that allowed for tax breaks – despite being literally minutes from a booming downtown Philadelphia and its universities – it wasn’t as if law firms like Dechert and Woodcock Washburn were being given an incentive to move to Kensington. The break allowed partners at Dechert to receive tax breaks, including not having to pay the city’s business privilege tax. The idea, as in Boston, was to encourage extending companies to locate into an area designated as blighted, thus expanding the city’s business district. The problem? The area wasn’t blighted. The bigger problem? Dechert’s law partners got the break as part of the negotiations – but associates and support staff didn’t get the same deal; they continue to pay the wage tax.
I’m all for urban revitalization – heck, I live in the City. I want to see it vital.
But massive tax breaks for companies to encourage them to “stay” in the City? Guess who’s funding those breaks? Yeah, you got it.
The Supreme Court will take a break today from the phenomenon that is Anna Nicole consider whether tax breaks that Ohio passed in order to woo DaimlerChrysler to build an assembly plant are constitutional.
What Ohio did wasn’t unusual. In fact, many states and some municipalities (such as our own City of Philadelphia!) use tax breaks and tax incentives to attract companies to do business in their area rather than flee to what might otherwise be more attractive tax venues elsewhere. And by "many", I mean at least 45 states – similar suits are pending in North Carolina, Minnesota, Nebraska and Oklahoma. And for that reason, this case will be closely watched by a number of folks with vested interests in promoting economic development in their own backyards.
The case, Cuno v. DaimlerChrysler, was brought by Ohio resident Charlotte Cuno and other residents of Ohio who claim that tax breaks and incentives granted to Daimler Chrysler in 1998 violated the commerce clause of the U.S. Constitution. The tax package granted to DaimlerChrysler offered up to $280 million in tax incentives if Daimler would choose to put its new Jeep facility in Ohio as opposed to another state. In exchange for locating the plant in Toledo, DaimlerChrysler received an investment tax credit, worth 13.5% for investments it made in the project over a two-year period. It also received a 10-year exemption from property taxes.
The constitutional clause in question authorizes Congress to "regulate Commerce with foreign Nations, and among the several States," and prohibits states from enacting taxes that discriminate against interstate commerce.
A U.S. District Court ruled in favor of DaimlerChrysler initially. However, in 2004, the U.S. Court of Appeals in Toledo found that Ohio had, in fact, violated the commerce clause by creating a tax structure that benefits companies only if they invest in Ohio. A company who chooses not to invest in Ohio would, under the same set of circumstances, have a higher tax liability.
Despite the early arguments, a decision is not expected until July.
