How Amazon, Apple, and Google Played the Tax-Break Game

Apple's existing office in Austin, Texas, a few miles from where the company announced plans to build a new campus.

It took about 30 minutes for Williamson County commissioners to unanimously approve a roughly $16 million incentive package for Apple Tuesday morning, bringing the total amount the tech giant is likely to receive in exchange for choosing Austin as the site for its newest campus to a cool $41 million. The new addition is set to be Apple’s second campus in the Austin, Texas area—located less than a mile from the company’s existing facility, established five years ago. It comes with the promise of a $1 billion dollar investment from Apple in the area and the addition of up to 15,000 new jobs.

But the details of the incentive package Williamson County whipped up to woo Apple tell a slightly different story. In the contract approved by county officials, Apple committed to spending at least $400 million on the new campus and creating 4,000 jobs over 12 years. The contract says the jobs don’t necessarily have to be on the new campus in order for Apple to receive the promised incentives, but rather anywhere within Williamson County.

“We want [Apple] to come here,” Williamson County Commissioner Valerie Covey told Austin’s Community Impact . “It’s a good thing for the county. What wouldn’t be good would be if it went across the county line and we had all the people [working there] and none of the tax revenue.”

The property tax abatement contract drawn up by Williamson County promises Apple a refund on 65 percent of its property taxes over the next 15 years—a complicated string of legalese that’s worth an estimated $16 million. There are no stipulations for what constitutes a full-time job beyond whatever Apple determines is a full-time job, and no salary or benefit requirements, unlike the previous incentives offered to Apple by neighboring Travis County, home to Apple’s first campus in the Austin area. The company is also set to receive another $25 million from the Texas Enterprise Fund, a controversial state-run “deal-closing” fund designed to make Texas more attractive to companies considering investing elsewhere. The enterprise fund incentives were contingent on the passage of the Williamson County package.

Over the past month, both Amazon and Google have announced their own domestic expansion plans, with price tags north of $1 billion. After a high-profile hunger-games-style search for a second headquarters, Amazon said it would create three new sites in New York, northern Virginia, and Nashville, Tennessee, for which the company expects to receive $2.2 billion in incentives. Google took a different route, proudly touting the lack of incentives offered in exchange for its $1 billion New York City expansion. “[Amazon is] running their own play and it’s a very different play than ours,” Google’s head of external affairs, William Floyd, told the New York Times last week .

Unlike Amazon, Apple’s quest for a new facility was relatively low-key. The company wasn’t looking for a flashy new headquarters—which would have brought with it the promise of thousands of high paying jobs, like executives or key engineers—but simply a fourth campus, which would bring more middle-skill jobs to the area by staffing departments such as customer support, engineering, finance, sales and operations.The company’s existing Austin campus already serves many of the same functions.

In January, Apple announced plans to bring back most of the $252 billion it had stashed overseas following a change in the tax code that allowed for a one-time repatriation of corporate funds at a much lower tax rate. The company said it would invest more than $30 billion of that in a US-based expansion, promising to create 20,000 new jobs and one shiny new domestic campus, located outside of Texas and California, which currently boast bulk of its operations. Yet, last week Apple decided to go to Austin anyway.

Williamson County officials say the about face was the result of their nearly a year-long effort to woo the tech giant to Texas. In an interview with Austin’s Community Impact newspaper, Williamson County Judge Bill Gravell, credited the success to the economic development teams and city officials that negotiated the incentives package. But Greg LeRoy, executive director of Good Jobs First, a research group that tracks government incentives, thinks otherwise.

“When companies decide where to expand, [tax incentives] are the least important part of those calculations,” said LeRoy. State and local taxes—which local entities often waive or reduce in an attempt to attract companies like Amazon or Apple—account for around 2 percent of a company’s cost structure, says LeRoy, making them a small factor in such decisions. What matters more to companies on the prowl for a new location, LeRoy says, is the cost of labor, occupancy, raw materials, logistics, technology, transportation and the like. Companies, and tech giants especially, want to make sure that there are enough potential employees in the area with the skills for the thousands of jobs they plan to create. By those standards, Austin was a no-brainer for Apple. The city already had every type of talent pool and infrastructure Apple could possibly need. Apple, Amazon, and Google did not respond to requests for comment.

Yet $41 million of incentives were offered anyway. LeRoy says that cities and politicians often offer incentives regardless of their dubious efficacy because it gives the appearance that officials are working to promote their jurisdictions. “The trouble is we've had this system created in America that allows companies to control the narrative, and get paid to do what they would have done anyway based on the business basics,” says LeRoy.

“As a rule, company expansions are generally more likely to have occurred without any incentive,” says Nathan Jensen, a University of Texas Austin professor and coauthor of Incentives to Pander: How Politicians Use Corporate Welfare for Political Gain. Jensen considers the incentives offered to Apple for this expansion problematic, because Apple likely would have expanded its operations around Austin in any case.

“Apple has grown by thousands in recent years,” Jensen said. “And now they are getting a new abatement to grow by a few thousand more.”

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