As Nevada lawmakers prepare to debate the creation of Innovation Zones, we look back to a precursor economic development law enacted during the 2014 Special Session of the Nevada Legislature that enabled a suite of incentives to attract the Tesla Gigafactory to northern Nevada and the Tahoe/Reno Industrial Center.
Senate Bill 1 passed the 2014 Special Session of the Nevada Legislature and empowered the Governor’s Office of Economic Development (GOED) to issue transferable tax credits and abate employer excise taxes. Acting in concert with GOED, local governments would abate property taxes and local sales taxes as an economic development incentive as well.
To qualify, a business enterprise had to agree to collectively invest at least $3.5 billion in the state within the 10-year period immediately following the approval of the application.
The Tesla Gigafactory qualified, and as part of the deal, Tesla and it’s manufacturing partners Panasonic and H&T Battery Components will not pay property tax to Storey County until 2024. The sales and use tax abatement lasts until 2034.
The Storey County annual budget has grown in recent years, but the county’s ratio of expenses to revenue has remained roughly the same.
If Storey County begins collecting abated Gigafactory property tax in 2024, the county’s revenue would effectively double overnight based on the 2020 property tax abatement.
On top of local tax breaks, Tesla has received transferable state tax credits in the amount of $173,087,499 based on job creation and capital investment, according to the GOED.
The thinking behind offering local and state tax breaks is that the entire region benefits from the new businesses, including the host county. In a report published in December of 2018, the Governor’s Office of Economic Development reported that Tesla was ahead of schedule on all aspects of development and that the tax incentives resulted in an overall gain for the region.
From the report:
“Tesla’s major investment in Nevada has permanently changed the economic landscape of the area. Although Tesla does not generate sales, property or MBT taxes in the short term, the project has resulted in significant new transportation and utility infrastructure, as well as employee spending that generates sales and property taxes at the full unabated rate. Furthermore, investing in attracting this high-profile company to Northern Nevada has successfully seeded significant additional economic development activity locally and throughout the region.”
To Tesla’s credit, the company has worked with Storey County to fund the construction and staffing of a new fire station. Tesla also helped fund the purchase of equipment capable of putting out fires at the massive Gigafactory, should they occur.
In the 2018 report, the GOED argues that Tesla has served as a catalyst for additional development in the region based on Tesla’s worldwide brand. Other major technology companies have opened in the Tahoe/Reno Industrial Center to include Switch, jet.com, and Blockchains.
Small businesses have also sprouted around the Gigafactory and its operation, from food trucks to shuttle services, and a growing number of retail businesses around the USA Parkway.
Tesla more than met the equipment investment benchmark for tax abatements, which the GOED report estimates to be in excess of $6 billion as of June 2018.
Regarding job creation, Tesla has exceeded expectations, according to the report.
Tesla was originally projected to create 6,500 jobs by 2018. This projection included Tesla employees as well as employees of Panasonic and H&T Battery Components working at the Gigafactory. Actual data provided by Tesla for June 30, 2018 shows 7,059 employees, which is 9 percent above projected employment levels for 2018.
Note that the 7,059 tally represents all employees, as opposed to just qualified employees. The count of qualified employees, as at June 30, 2018 was 4,247.
Some of the Gigafactory’s economic coattails have undoubtedly impacted Storey County, though some question the veracity of the multiplier effect the state used to gauge regional impact.
In other states, large companies have renegotiated deals with state and local governments when it came time to start paying tax, but if Storey County actually begins collecting currently abated property tax from the Gigafactory in 2024, the impact on the county government and its school district would be significant.
Looking farther into the future, the sales and use tax abatement ends in 2034, at which point, according to GOED, Tesla and its on-site partners will begin to generate significant new revenues to state and local governments on an on-going basis, ideally.
Brian Bahouth is a career public media producer and editor of the Sierra Nevada Ally. Support his work.