Apple-World’s Most Valuable Company-Scores Tax Break from Arizona School Board

| Editorial

Apple landed a tax break from Gilbert Public Schools governing board on Monday. According to AZCentral, the five-member board voted unanimously in favor of the deal, which Apple was seeking as an incentive to operate a major manufacturing plant in the area.

According to the report, the board was divided as recently as November 12th, when two members opposed the deal. With the support of local residents and businesses who want Apple to come to the area, those board members changed their mind and voted for it on Monday.

Apple Tax Squeeze

For the most part, I'm a fan of Apple. That's no surprise, of course, but I mention it here because I have grave concerns about the habit of state and local governments and school boards to give fabulously wealthy corporations—including Apple, the world's most valuable company—tax breaks.

We've seen it again and again, in part because those corporations have become adept at playing state and local governments against one another in order to get the best deal they can. That's a rational approach for the companies, and it's obvious that companies like Apple bring quality jobs and good salaries to an area, but it's a race to the bottom that needs to stop.

This is especially true with property taxes, which most U.S. states use to fund schools. All those quality jobs and high salaries bring with them more students for those schools, and when local districts give away the farm, the results are often fewer resources for the schools.

This is the case with the Manor School District outside of Austin, where Samsung won a great tax deal to bring a major manufacturing plant to the area. The results have been crowded classrooms and fewer resources, and this is all too common. Apple has also won significant tax breaks in Austin itself.

At a time when wealth is being concentrated into ever-fewer hands, rich companies like Apple should do the right thing and pay their fair share into the local tax base. That these deals are legal—that state and local governments are willing to cut their own feet out from under them—is irrelevant.

The reality is that it's not good for the families of the workers, and that makes it bad for the companies. Underfunded school districts will make it harder to recruit top workers, especially with high-skill jobs. No one wins, except the shareholders of the companies getting the deals.

But even there, local tax deals are little more than a line item—if that—on the balance sheets of companies as profitable as Apple.

So, Apple: do the right thing. Pay your fair share.

Note that I am a tiny AAPL shareholder.

Image made with help from Shutterstock.

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9 Comments Leave Your Own

Bosco (Brad Hutchings)

Thought experiment… Jurisdiction A property taxes for a new facility would cost Apple $2M/year. Jurisdiction B property taxes for a new facility would cost Apple $5M/year. Is it right for Apple to factor that difference in when deciding where to locate a new facility?

JustCause

This is the free market. It will go to the lowest bidder that can deliver a qualified product. In this case if the area didn’t cave the corporation would just go somewhere where they could get the tax break. And as a publicly traded company Apple has to do what’s right for the company & shareholders. If you don’t like it change the rules but don’t blame Apple. Just look how a single investor like Icahn can jerk around a highly profitable and successful company,  trying to force them to act in investors term interest but not in a way that’s best for the company’s long-term (and long term investors).  Blame the game not the player.

skipaq

It is a free market. Some states are business friendly. Other states do everything to discourage business development. The same can be said about counties and cities. The only way to change these rules would be to federalize the whole process which is likely unconstitutional and certainly scary. The system we have results in businesses locating where they are wanted. The restrictive locations get what they want: no business.

MacFrogger

OK - As a radical lib socialist (except when I’m not) who was probably also born in Kenya (except for the fact that I wasn’t), I’m on Bryan’s side on this one.  With all due respect to my fellow commenters, Apple has never played by the same “game” as others.  Yes, they are in biz to maximize profits, but one of the reasons why I buy Apple products is they don’t build crap (my 2005 MacBook Pro is still up upgradable to Mavericks, even though I haven’t done it yet), they’ve given me incredible service and done free repairs long after my extended warranty had expired, and criticize them for labor practices or environmental practices without comparing them to the “standard practices” of every other OEM and I’ll call you out on your hypocrisy.  They do have higher standards than others, and like Bryan, I’m not happy with stiffing the local school district.

I lived in the Bay Area for many many years, and I’ll just say it: the output of most Calif schools suck.  Why?  Because with the exception of some very wealthy school districts, Calif schools are starved for funding because of Prop 13.  In my experience, most of the workers in the Valley are imported from other states and other countries.  Apple, of all companies, should recognize, appreciate, indeed dare I say it - INVEST - in the education of the sons and daughters of the employees without hesitation.  Not only because its the right thing to do, but also because it is in their very best interest to do so.

Skipaq said: “The only way to change these rules would be to federalize the whole process which is likely unconstitutional and certainly scary.”  C’mon, that’s not the only option here. There are good corporate citizens and there are bad corporate citizens.  What’s next, Apple proudly holding food drives for their starving employees like Walmart?

http://www.thenation.com/blog/177241/cleveland-walmart-holds-food-drive-its-own-employees

Jak Keyser 1

  Whoa Nellie here, Bryan and posters. I live in Arizona and have read in depth articles by our largest newspaper in the State, the Arizona Republic - quotes follow. This is about the site designated as a Foreign Trade Zone by the Federal government.

  “Foreign-trade zones are federal entities designed to facilitate international trade. They support manufacturing, warehousing and distribution operations. Retail trade within such zones is not allowed.
  “The federal government offers several economic incentives to reduce the cost of merchandise manufactured or processed in such zones. Duties may be waived or deferred, and tariffs may be reduced.
  ” In addition, Arizona law allows properties in foreign trade zones to be classified differently from those not in trade zones for property tax purposes. In some cases, that can result in property-tax reductions of 75 to 80 percent.
  “Officials calculated, however, that the deal actually would bring an additional $2.5 million a year to the Gilbert district.
  “That’s because Apple plans to pour about $1 billion into the vacant 1.3 million-square-foot factory. (my note: and also because the factory has been sitting idle and would likely remain so for a long time, if not for this deal)
  “Thus, even though the tax assessment rate would be lower, that rate would be applied to a much higher valuation.”
. . .
  “Mayor Butler told The Republic that the Apple plant would not bring new students to the Gilbert district, but Teddy Dumlao, the district’s finance director, said the plant’s estimated 700 permanent jobs could bring new families to the area . . . with an average wage not less than $45,000. (taken from an earlier paragraph in article: ” Heavy retrofitting of the plant would require 1,300 construction workers.”
  “The overall impact of more homes in the area could produce a slight reduction in school property-tax bills for district residents, Dumlao said.”
. . .
  “Brady said there was a lot of misunderstanding about the foreign-trade zone and what its potential tax breaks mean.
  “It gets misconstrued that this is some kind of a subsidy program or whatever,” Brady said. “This is a federal program that helps achieve the goal that really is shared by the entire country, where we are trying to bring back manufacturing jobs into the United States. We’re trying to level the playing field with Southeast Asia, with China and Mexico and places like that where we’ve lost so many jobs.”
  “Responding to Smith’s comments on Tuesday that the FTZ designation may be unfair to “mom and pop” small businesses, Brady noted that even small companies can take advantage of such zones.
  “As long as you’re in the manufacturing import-export business, you can apply for this program. That’s the purpose of the program, to encourage that type of activity,” Brady said.”
. . .
  ““Additional revenue with the foreign-trade zone and with the major corporation that will come in means a decrease in property taxes for our businesses and residential areas,” Tram said. “This is really a win-win for everybody.”
. . .
  “Borrowing a phrase from Mesa Mayor Scott Smith, Somers said, “We are picking a winner. We’re picking Arizona. We’re picking the United States. We are creating manufacturing jobs in the United States that were overseas or potentially overseas. This is picking us as a winner.”
. . .
  “The Arizona Commerce Authority wooed Apple Inc. to Mesa with the assistance of a $10million grant, the largest sum ever distributed by the group’s business-development fund, according to documents released Tuesday.”

Back to my commenting:
  Arizona has a school funding equalization program. New revenues received by the Gilbert school district will be offset by not receiving that amount of revenues from the State of Arizona Equalization fund. That means all districts in the state will share a portion of the increased revenue, including the Gilbert district, a benefit for education for the whole state.

  This is much different than a give-away by a local entity. It’s actually quite a net gain. And the rest of the State will benefit. In fact the US will benefit by getting the GT factory operating in the US instead of the possibility that it could have gone overseas.
And that is a good deal more than you thought you’d know about this story.
  Credit goes to writers Karen Schmidt and Gary Nelson, and Peter Corbett who covered the story in-depth—all of The Republic Newspaper and azCentral.com (owned by The Republic).

skipaq

@MacFrogger, my point is valid. In order to change the rules so that incentives aren’t given to corporations to move to a location, it would need to be federally mandated. But even the federal government plays this game as in Solindra. That money wasted could have gone to education. Even with that taking place it is debatable as to education being improved.

I grew up a democrat and voted that way up to and including Carter. Almost voted for Clinton. Today I am more conservative with Libertarian leanings. That doesn’t make one opposed to education. It does make me opposed to greater government answers.

Terrin

State governments should not be treated as, “Free Markets.” The fact of matter is the federal government controls most of how a State can earn income (e.g. says a State cannot force retailers to collect sales tax), and often dictates what services must be provided (e.g. free health care to illegal immigrants). Like with internet sales tax, the federal government should put an end to this non-sense of forcing States to cut their own throats to compete for business. For businesses there should be a set property tax that applies nationwide. Forum shopping by doing away with property taxes hurts the country, it does not help it.

With all that said, it is not Apple’s fault it is taking advantage of a broken system to gain a tax break. It did not write the laws. If you can pay a dollar as opposed to two, why would you not do it?

jbruni

The problem with most school districts isn’t the lack of funding; it is in mismanaging the funding they receive. Instead of building multi-million dollar office suites for district-level employees, perhaps that funding should be routed to the schools where there are actual students.

Bosco (Brad Hutchings)

Speaking of mismanaged school districts, it sure would be fun to have a follow-up on the LAUSD iPad program. Talk about a complete cluster-frak! It almost ended with the superintendent resigning, but strangely got a contract extension to 2016. Oh, and still no iPads in student hands. I’m pretty sure someone predicted a mess in the comments and got savaged for the predictuon.

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