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Arizona vs. U.S. state tax incentives for clean energy companies
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Arizona State House where corporate tax incentive bills debated (flickr.com).
An Arizona Senate committee passed a bill Tuesday that offers solar and other renewable-energy equipment makers tax breaks for building new manufacturing plants in Arizona. The Greater Phoenix Economic Council is pushing SB 1403 in its attempt to attract new industry to the state, namely solar-equipment makers, that have historically overlooked Arizona for neighboring states, which offer more competitive industry tax incentives.
The bill would offer factories producing renewable-energy equipment a 10 percent income-tax credit on capital investment. In addition, companies that spend at least $25 million would be able to reclassify their property taxes, which may account for as much as an 80 percent discount of that tax. Furthermore, the companies must pay at least 25 percent more than the state median wage, with a graduated ladder of higher wages eligible for higher tax breaks. One major requirement for these companies is that they would have to offer health-care coverage and other standard employee benefits in the industry.
Opponents in the Arizona Senate are concerned with the lack of specificity in the bill regarding the companies’ financial performance and longevity in the state after receiving the tax incentives, which is always the risk for legislation of this nature. In general, manufacturing plants for all major industries have largely avoided Arizona, because its corporate tax structure is less competitive than its neighbors such as New Mexico and California. Thus, much of the legislative discussion has illuminated the preferential treatment for renewable energy equipment manufacturers, stating these vary same incentives should be applied to other sectors. However, much of the debate is fueled by the fact Arizona has one of the leading solar business potentials across the country and severely lacks in solar capacity and state mandates and incentives, falling behind states such as Connecticut with significantly less sunshine.
Paradise Valley Republican Barbara Leff is sponsoring a bill, SB 1324, that would reduce the corporate income-tax rate from 6.968 percent to 4.54 percent incrementally during the next five years. It is possible that if both bills are passed then many of the critics for SB 1403 will be satisfied. Arizona has lost a significant portion of its technical manufacturing in recent years, losing its title as the Silicon Desert, since it formerly ranked second to only Silicon Valley in microelectronic and semiconductor manufacturing in the U.S. Many of the companies in this sector such as Motorola, Freescale, On Semiconductor, and Microchip have dramatically downsized their operations in the Phoenix area and announced plans for closing fabrication facilities. The state has been unable to attract large corporations to replace these job losses and facility closures with emerging industries having greater long-term potential such as renewable energy.
Other states already have landed factories with generous incentives and threaten to leave Arizona in the dark regarding solar-industry job creation, which would ultimately turn Arizona into an importer of solar products, lacking a sufficient supply chain. In comparison, Arizona has set a mild standard for utility power generation of only 15 percent by renewable sources versus nearly 25 percent for the state of Pennsylvania. Northeast states and California tend to have more aggressive targets partially based on the higher population density and energy demand than Arizona, which minimizes the higher cost concern for renewables, as power rates are typically higher there too.
See my next article for an overview of state mandates and incentives across the U.S. as well as foreign countries.
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7/14/09 UPDATE: Arizona Governor Jan Brewer signed the bill SB 1403 into law on 7/11/09.
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