States Race to Cut Taxes
States Race to Cut Taxes to Attract Intel
Sun Mar 6,10:15 PM ET
By Daniel Sorid
SAN FRANCISCO (Reuters) - Intel Corp. (Nasdaq:INTC - news), the world's largest chip maker, is offering U.S. states the promise of dollars of capital investment in exchange for an overhaul of their tax laws, which it says are making the United States less competitive than other regions of the world.
The Santa Clara, California-based company is now heavily lobbying officials in Arizona and Oregon for tax cuts that could save the company tens of millions of dollars a year in property and income taxes.
At the same time, executives have begun speaking out more forcefully about the lure of China, Singapore and Malaysia, whose governments are offering free land and tax holidays to Intel to build its first Asian factory in their borders.
Critics say Intel is playing local governments off of one another to reduce its state tax burden to virtually nothing.
"We call it the race to the bottom," said Michael Mazerov, a policy analyst at the nonpartisan Center on Budget & Policy Priorities, in Washington, D.C. "The companies have gotten very sophisticated at pitting localities against each other in a bidding war."
Intel executives say they can only be expected to push for competitive tax laws when other regions offer so much. The company points to a report it sponsored that shows its presence creates a "multiplier effect" on local economic growth. Executives also hint the company can always pick up and leave.
"If we don't invest, we don't pay taxes anyway," Steven Grant, the vice president in charge of Intel's factory network, said in a recent interview.
Intel will spend about $5 billion this year on its factory network.
SATISFYING THE CHIP GIANT
Local officials sound eager to satisfy the chip maker.
"We want to be progressive and keep Intel happy, and keep the jobs here," said Boyd Dunn, the mayor of Chandler, Arizona, a suburb of Phoenix where Intel employs around 10,000 people. Intel last month expanded preliminary plans to build one or two additional factories in the city.
Dunn said he supports a bill making its way through the state legislature that would significantly trim Intel's state income taxes. The bill would change the state's tax code to assess corporate income taxes based on in-state sales, rather than a combination of sales and local payroll. For a company like Intel, with a large state payroll but relatively small in-state chip sales, the law would be an economic boon.
In Oregon, Intel is seeking to renew a property tax shield called a Strategic Investment Program that is set to expire in 2014, and which it said it needs to remain competitive if it is to invest further in Oregon.
Intel, Oregon's largest private employer, says it is quickly approaching the program's cap of $12.5 billion in high-tech investment, and is now seeking to raise the investment limit to $25 billion.
Even with the property tax abatement, Intel says it pays more property taxes in Oregon -- it paid $11 million in 2001, the only year Intel publicly discussed -- than the next five highest-paying companies together. It says it is penalized for investing in high-tech equipment that increases property value but requires no additional municipal services.
"It becomes an absurd amount versus almost any other business in the area," Grant said. "Equipment doesn't demand services or schooling."
Intel has already won tax relief from a third state, New Mexico, which last year granted Intel an industrial revenue bond akin to the Oregon program worth an estimated $2 billion to the chip maker.
While the United States tries to retain its competitive advantage in manufacturing, Intel says overseas governments regularly offer tempting incentives.
Ireland was prepared to give Intel an incentive package of around $225 million for building two factories in a city west of Dublin. Last week, the proposal was withdrawn after the European Union (news - web sites) said they were prepared to block the deal on the grounds that it violated rules on state aid.
Intel, which has already invested nearly 4.5 billion euros, or about $6 billion, in Ireland since it arrived in 1989, has made rumblings that the move could affect future investment in the country.
"We'll factor this development into future plans for increasing investment in Ireland," a spokeswoman for Intel in Ireland said.
The wild card may be Asia.
Due to a combination of export restrictions and the availability of skilled labor, Intel could not yet easily build a chip factory in China, the world's fastest-growing market for chips.
But the company has said it is looking.
"You look at some of the great opportunities -- free land, tax holidays," Grant said.