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Daily Tax Report: State

Foxconn Tax Credits Under Scrutiny by Wisconsin Democrats

Dec. 21, 2018, 7:17 PM

Democratic lawmakers want to place new limits on the Wisconsin Economic Development Corporation after an audit revealed the agency had adopted procedures that could grant Foxconn tax benefits for out-of-state employees.

Sen. Dave Hansen (D) said he would introduce legislation prohibiting the state from granting tax credits to electronics giant Foxconn Technology Group for any jobs done by out-of-state workers as it develops a $10 billion technology campus in Southeast Wisconsin.

Foxconn, the operating arm of Taiwan-based Hon Hai Precision Industry Co., broke ground in June together with President Donald Trump on a 20-million-square-foot manufacturing campus for the production of liquid crystal display panels for televisions and electronic devices. The company has said the project would create up to 13,000 jobs.

In response to news stories suggesting Foxconn plans to partially staff the facility with engineers from China, Hansen said Dec. 20 his bill would also bar any state subsidies for jobs done by non-U.S. citizens.

“Not one cent of our tax dollars should be paid for any jobs that are not done by American citizens living here in Wisconsin,” Hansen said in a statement. “We shouldn’t be paying to subsidize jobs being done in China or even any other state in the U.S.”

Hansen’s comments responded to an audit published Dec. 19 by the state’s nonpartisan Legislative Audit Bureau (LAB), which examined the state’s plan to provide Foxconn with $2.85 billion in tax credits over 15 years through the newly created Electronics and Information Technology Manufacturing Zone program.

Out-Of-State Hiring

LAB noted state statute requires WEDC to award program tax credits for the wages of employees performing services in Wisconsin. The bureau nonetheless determined WEDC had established written procedures that allow it to award benefits for employees who don’t perform services in Wisconsin. The report didn’t describe the scale of out-of-state hiring, but emphasized WEDC plans to provide benefits for workers who perform no duties in Wisconsin.

“In this way, these written procedures do not comply with statutes or WEDC’s contract,” state auditor Joe Chrisman wrote.

Chrisman made several recommendations, including revisions to WEDC’s written procedures to ensure tax credits are awarded, “only for the wages of employees who perform services in Wisconsin.”

While Democrats have savaged the Foxconn deal as a massive tax “giveaway” for more than a year, the LAB report also raised concerns among Republicans, who have trained a keener eye on the project in recent months.

Possible Remedies

Republicans on the state’s Joint Audit Committee issued a statement applauding the LAB for uncovering “a discrepancy that had the potential to cost Wisconsin taxpayers money.” The committee members noted, however, no actual tax benefits had yet flowed to Foxconn, and WEDC wouldn’t begin verifying tax credits until next year.

“This audit has given the Legislature and WEDC the ability to identify this issue and correct it prior to any tax credits being awarded,” said audit committee member Sen. Robert Cowles (R).

Mark Hogan, CEO of WEDC, said he would review the LAB audit and provide a report to the state Legislature before the end of January.

“It should be noted WEDC has yet to verify any tax credits for Foxconn and will not do so until 2019,” Hogan told Bloomberg Tax in an email. “This provides WEDC with ample opportunity to consider LAB’s recommendations and modify our procedures, if necessary, well before any tax credits are verified. WEDC also will report to the Joint Legislative Audit Committee on the status of our efforts in this matter by Jan. 31.”

To contact the reporter on this story: Michael J. Bologna in Chicago at mbologna@bloomberglaw.com

To contact the editors responsible for this story: Jeff Harrington at jharrington@bloombergtax.com; Megan Pannone at mpannone@bloombergtax.com