Las Vegas Sun

January 22, 2018

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Apple deal proves race for new business is cut throat among cash-strapped states

To get Apple’s data center, Nevada had to compete with a down-on-its-luck former mill town in Oregon, which offered a virtually tax-free environment.

Prineville — population 9,200 — offers a 100 percent break on property tax improvements for up to 15 years. The state has no sales tax. And Oregon’s corporate income tax, of up to 7.6 percent, doesn’t apply, since there would be no sales generated at a warehouse full of data servers, Oregon officials said.

Prineville is already home to one Apple data warehouse, and has other companies, like Facebook and Google.

In fact, an analysis commissioned by Nevada comparing tax burdens with other potential sites shows Oregon’s tax gains would have been minimal on the potential $1 billion investment by Apple.

Faced with such nearly tax-free competition, Nevada economic development officials have said they had to offer significant tax breaks to draw the company to Reno — despite the Silver State’s own relatively low-tax environment.

Nevada’s tax burden on Apple was just 30 percent of that in more mature areas in the west, such as Phoenix and Salt Lake City, according to a state economic development analysis.

Still, the Nevada Governor’s Office of Economic Development last week approved a deal offering Apple tax breaks worth $89 million over 10 years. In exchange, Apple will have 35 full-time employees here and hire 200 more contractors on site, primarily in security and maintenance.

Coming out of the recession, states are aggressively competing for new businesses. To do that, they’re offering generous tax incentive packages to companies promising jobs.

But such tax incentives are facing criticism for promoting a race to the bottom among states.

“You’ll always have somebody who can come in and say, ‘we’ll build a lot of stuff, bring a lot of jobs, do a lot of good, but you have to nudge the tax down,” said Joe Henchman, vice president of state and local government affairs for the Tax Foundation, a D.C. nonprofit think tank. “Once you do that, another person comes in wanting a better deal, and another person and another person.”

In Nevada, where business interests and many politicians have doggedly protected the state’s low-tax status, that competition meant the state had to offer even further tax incentives.

After the tax breaks offered to Apple, Nevada had the second lowest tax burden, behind only Prineville, according to the analysis the state commissioned from Applied Economics, an Arizona economic research firm.

Apple will pay state and local governments in Nevada about $17 million over 10 years. Salt Lake City would have the next lowest tax burden, at an estimated $56 million. Denver’s would be $74 million. Boise would have $95 million and Phoenix would be $96 million.

The tax burden, though, isn’t the only factor in a company’s decision. In electricity costs — an important factor for the high energy-consuming data farms — Nevada comes in at the second highest over a five-year period, just behind Denver.

Still, Sandoval’s economic development czar Steve Hill said Wednesday he negotiated the best deal for the state. Any higher taxes, and Apple would have chosen another location.

From Prineville’s perspective, City Manager Steven Forrester said the server centers pay tax on the land they bought, if not the value of improvements. The server centers also negotiated payments to the community of about $100,000 — “so the community could make improvements to a park, its swimming pool, its fair ground.”

For Nevada, it might seem like a provincial place with which to compete. But economic development officials say it’s where we need to start.

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