Tesla deal: $1.1 billion in tax breaks on the table

Under a deal Gov. Brian Sandoval is asking the state Legislature to approve in a special session next Wednesday, Tesla and its partner Panasonic would essentially pay no direct taxes for the first 10 years of operation.

In trade for a $5 billion initial investment and hiring 6,500 workers, the electric carmaker would get an incentive package up to $1.3 billion — depending on the factory’s business. That includes elimination of the property tax, Modified Business Tax and Personal Property Tax for 10 years and the sales and use tax for 20 years.

But Steve Hill, director of the Governor’s Office of Economic Development said it’s still a great deal for Nevada because the plant would have a projected $100 billion impact on the western Nevada economy over those 20 years, generating nearly $2 billion in state and local taxes.

According to documentation supplied by the Governor’s Office of Economic Development, the sales tax is more than half the total abatements but officials there say since five states charge no sales tax and another 34 states exempt manufacturing from that levy, there was never going to be a deal unless Nevada did so as well.

The abatement also applies to the construction materials used to put up the 5 million square foot building.

Hill said it’s still a great deal for Nevada because of the economic impact those 6,500 jobs — paying an average of more than $25 an hour plus benefits — and the estimated 16,000 jobs created by the plant’s indirect impact.

He said the abatements are Nevada’s investment in the project.

“The real selling point is the opportunity it brings to the state and its citizens,” Hill said.

GOED’s analysis of the deal says the Tesla battery manufacturing plant will have a $40 billion impact from the plant itself and $60 billion in indirect impacts.

The first impact will be some 3,000 construction jobs building the plant at Tahoe Reno Industrial Complex, 15 miles east of Reno. Many of those workers are expected to move inside the building once they finish, taking some of those manufacturing jobs.

It also projects significant improvements in the housing market and other benefits to Reno-Sparks and Storey and Lyon counties.

The analysis GOED contracted for predicts that, despite the tax abatements, the Tesla battery plant will generate $1.9 billion in state and local taxes over the 20 year period — some $430 million of that to the state General Fund.

The deal also includes building U.S. Parkway connecting Highway 50 to Interstate 80 near the plant site. That would open the door for workers in the Dayton corridor to take jobs at the plant, boosting that area’s economy as well. That project will cost $43 million for the right-of-way alone — a significant chunk of which is currently owned by the operators of the industrial park.

In addition, Tesla and Panasonic will get a transferable investment credits worth $25 million a year for five years. And $70 million worth in the Jobs Transferable Act credits ($12,500 per employee). To pay for that, the deal shifts most of the film industry’s jobs credit to the Tesla deal, shifting $70 million of the $80 million available for film credits to Tesla.

Combined, those two transferable credits are worth $195 million and they can be transferred (sold) to any other business in the state.

The green energy discount program for generating stations up to 25 megawatts will be expanded from five to 10 years, worth another $2 million in the first two years alone. That discount will expire after eight years.

GOED officials say there are specific performance requirements in the deal. The company has to pay back taxes if it doesn’t make at least a $3.5 billion investment. In addition, almost all of the breaks expire after different periods of time.

Tesla has agreed to donate $7.5 million a year for five years once the plant opens to help offset the impact children of those workers will have on area schools. Details of that portion haven’t been worked out yet.

The company also will contribute $1 million to UNLV for battery research.

Finally, Tesla has agreed to make hiring Nevada residents and veterans a priority.

The Nevada Legislature will be called into its 28th special session next Wednesday to vote on the different elements of the deal.