Tesla deal on the line at Nevada special session
RENO -- Nevada's Legislature is scheduled to convene Wednesday to consider a $1.25 billion tax package for Tesla Motors, the electric car maker that wants to build its battery "Gigafactory" near Reno.
Tesla agreed to officially designate Nevada as the site of its battery "Gigafactory" last week, but the deal hinges on $1.25 billion in tax breaks.
It's a big package for a state the size of Nevada, one that will likely suck up all the capacity for this program meaning other new companies won't be able to get a break on their power bills.
While it's indeed a complex deal, the four biggest components of the package used to lure the electric car manufacturer's battery gigafactory are not that difficult to grasp.
Here they are:
1. Abatements: $1.1 billion
By far, the biggest chunk of Tesla's tax break is in the form of an abatement. This means that Tesla won't be required to pay its sales tax on construction materials and factory equipment for 20 years or its property and modified business taxes for 10 years.
The value of the abatements is estimated to be $1.1 billion. The actual value will be completely dependent on how much equipment Tesla buys, how many people the factory employs and the value of its property over time.
To be eligible for the abatements the company must invest at least $3.5 billion in Nevada.
Abatements technically don't cost the state a thing. If Tesla didn't choose Nevada, it wouldn't be generating any taxes anyway. So this isn't money that's coming out of the existing revenue pool for state and local governments. However, a project this size will require expanded government services for such things as schools and roads. Because of the abatements, existing taxpayers will pick up the bill for those added services.
2. Transferable tax credits: $195 million
This is probably the most complicated part of the Tesla deal. The company will be given $195 million worth of tax credits that are good against specific general fund tax revenue streams. These generally include the gaming tax, the insurance premium tax, the modified business tax and others.
But why would Tesla need a gaming tax credit if it's not in the casino business, you might ask. That's where the "transferable" part comes in. Think of the tax credits as vouchers for purchase. Say a casino company has a $1 million tax bill. It can go to Tesla and buy a $1 million voucher for a discounted rate, say $750,000. The casino company gets a $250,000 tax break and Tesla gets $750,000 in cash.
These tax credit transfers are generally brokered by a third party, who also gets a cut of the cash involved.
3. Electricity: $8 million
In a little noticed bill, the Nevada Legislature created a new program allowing companies that expand or relocate in the state to be eligible for a discounted electricity rate.
Under the deal, Tesla will be eligible for eight years of discounted electricity, amounting to about $8 million.
Bad news for other incoming businesses: Tesla will likely suck up all the capacity for this program meaning other new companies won't be able to get a break on their power bills.
4. Roads: $103 million
Tesla's battery Gigafactory will no doubt generate a tremendous increase in motor vehicle traffic to and from the Tahoe Reno Industrial Center. Right now, the only way in and out of the park is from Interstate 80 east of Sparks.
Under the Tesla deal, the state has agreed to extend USA Parkway to U.S. Highway 50 in Lyon County. The extension will ease access to the park, but will also open up opportunities for rural counties that have been choked off from development by virtue of their isolation.
The state has agreed to buy the right of way for USA Parkway from the Tahoe Reno Industrial Center for $43 million. Lance Gilman, a partner in the park, said he and his partner will be making a sizable profit from the purchase.
Construction of the roadway will cost an estimated $60 million to $65 million, according to Nevada Department of Transportation spokeswoman Meg Ragonese.