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Intel: Tax cuts not a factor

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PHOENIX -- Gov. Jan Brewer defended her newly signed package of tax cuts for business on Friday even though an Intel spokeswoman said the company made its decision to build a new $5 billion plant in Chandler without them being in play.

That tax-cut plan being phased in will result in companies like Intel likely paying no corporate income taxes at all to the state. That is because by 2018, the company will be able to elect to use a formula that bases its Arizona taxes on the share of its products sold within the state.

And Intel lobbyist Jason Bagley said everything manufactured by his company in Arizona is exported to other states or countries.

The plan also provides some new tax credits of up to $3,000 for each new job created. Brewer said she presumes the company will qualify for those, too, though state commerce chief Don Cardon said no one has yet asked his office about those.

But Bagley said the plans for a new computer chip manufacturing plant have been in the works for some time now, long before the new law was crafted, much less signed.

Bagley said that's the result of the ongoing necessity to upgrade the technology. He said most high-tech products like these have a marketable life of only 18 to 24 months before they need to be replaced -- and a new facility has to be built.

"We were not dangling that factory as leverage for them to pass that," Bagley said. But he said the company, which will benefit from several key provisions, has been "actively supporting" the new law.


Brewer, however, said that doesn't mean the plan which she championed -- and which eventually will reduce state revenues by $538 million a year -- gave away far more in incentives than necessary.

"The bottom line is that they're going to bring lots of good quality jobs," the governor said of Intel.

"And that is what big businesses do: they come, they create jobs," Brewer continued. "And, not to over-use the term tricke-down effect, but that's going to affect the other businesses in the community by those employees going to work, picking up a paycheck and spending it in the neighborhoods."

The tax cut law signed by Brewer on Thursday will reduce the corporate income tax rate from its current level of nearly 7 percent to 4.9 percent by 2018.


But another provision could make that irrelevant to companies like Intel.

Under current law, multi-state companies compute their Arizona income for tax purposes using a formula: 50 percent based on sales within the state, 25 percent on property value and 25 percent on payroll.

Existing law already permits export-oriented companies to elect to base their taxes 80 percent on sales within the state. That's the law that was in effect last October when Intel announced it planned to revamp another of its fabrication plants and spend up to $8 billion, at least part of that in Arizona.

Making corporate income subject to Arizona taxation based solely on sales within the state means the tax rate doesn't matter.

At the time of last fall's announcement, Bagley credited the state's business-friendly tax environment with the decision to expand in Chandler. That includes not only that 80 percent formula but also the fact that Intel has its manufacturing facilities in a foreign trade zone, providing a permanent 75 percent reduction in property taxes from what it otherwise would have to pay, a provision that remains unchanged under the new law.

That 80 percent factor was also at work when Intel decided to go ahead with the new $5 billion plant that was announced Friday, the plant Bagley said had to be planned far ahead of time.


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