Tax incentive, political wrangling landed high-tech big fish - East Valley Tribune: Business

Tax incentive, political wrangling landed high-tech big fish

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Posted: Tuesday, July 26, 2005 11:13 am | Updated: 8:31 am, Fri Oct 7, 2011.

Intel had the land, the water and an educated work force in Chandler to build a new computer-chip manufacturing plant, but the global giant wanted something more.

With competitors from as far away as Oregon, Ireland and China, officials in Arizona would have to offer some type of tax incentive to ease the final cost of the $3 billion investment.

Some state lawmakers already had the answer — a proposal that would reduce corporate income taxes for multistate manufacturers by adjusting the "sales factor."

Supporters had argued the current method of calculating those taxes discourages high-tech manufacturers from expanding their operations and hiring more workers.

But after the proposal failed in the Legislature for four straight years, Intel started to apply public pressure in March as part of its search for a plant site.

"Passage of the sales factor was clearly one of the key reasons we picked the state of Arizona, absolutely," said Tom Franz, Intel’s vice president and general manager for fab/sort manufacturing, during Monday’s news conference in Phoenix to announce the new Fab 32 plant will be built in Chandler.

By the end of May, the Legislature delivered a plan that could benefit hundreds of businesses and eventually erase $90 million a year in tax revenue.

Rep. Steve Huffman, R-Tucson, chairman of the House Ways and Means Committee, said he believes the losses will be considered a bargain once Intel adds another 1,000 employees and other manufacturers hire up to 11,000 more people by 2010.

"I have every confidence that this legislation, and this announcement today is sending a message across the planet that Arizona is open for business," Huffman said, "That we’re doing everything we can to make sure Arizona is a place that respects people, entrepreneurs who invest in our state."

Huffman and his Senate counterpart, Dean Martin, R-Phoenix, promoted a change in sales factor at the request of business lobbying groups that say expansion of major manufacturers sends positive ripples throughout the economy.

But their efforts failed as a coalition of Republicans and Democrats objected to a tax break that would help a relatively small number of wealthy companies making parts or goods sent to other states and countries instead of being sold in Arizona.

Critics also pointed out Intel already gets a huge break on its property taxes, paying only 5 percent compared to 25 percent for most other businesses.

Gov. Janet Napolitano showed little interest as well, saying a change in the sales factor might be a good idea but should be considered only as part of a larger reform of the state tax code.

Napolitano was forced to take a new look last spring after Intel said it could get better deals elsewhere.

She eventually hashed out a plan with Republican leaders that included an olive branch for critics. The tax break couldn’t go into effect until Intel, or another manufacturer, spent at least $1 billion to expand its operations in the state.

Intel kept most people in the dark, including Chandler Mayor Boyd Dunn, until the company formally announced the winning site Monday.

But Napolitano said she was told Friday, just after she had finished a daylong series of meetings in Dublin, Ireland, to learn about that country’s rapidly growing high-tech industry.

"They have a smaller population than we have and a poorer economic base," Napolitano said. "What they have accomplished there, we can do here if we just get the consensus."

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