On 2018’s hiring pace, Foxconn could earn $500 million in tax credits by 2022

Company would need to invest $3.5 billion to claim incentives

Last updated on July 2nd, 2019 at 09:11 pm

Foxconn Technology Group could continue to fall short of job targets included in its contract with the state and still earn more than $500 million in capital expenditure tax credits by the end of 2022 if it continues its current hiring pace.

To reach that figure, the company would have to create 3,560 jobs and invest $3.5 billion on capital expenditures in Mount Pleasant, according to a BizTimes analysis of the Foxconn contract.

Foxconn originally pledged to create 13,000 jobs and invest $10 billion over 15 years in exchange for $1.5 billion in payroll tax credits, $1.35 billion in capital expenditure tax credits and $150 million in sales tax exemptions on construction materials.

Plans for the company’s investment, however have continued to evolve. Foxconn said in July 2017 it would build a Gen 10.5 LCD fabrication plant to make the largest display screens in the world. Then last year the company said it would build a Gen 6 plant to focus on smaller screens and provide more flexibility.

Last week the company said it was reconsidering plans for the Gen 6 facility in Mount Pleasant before eventually committing to build one following talks with the White House.

Throughout the changes, Foxconn has reiterated its commitment to creating 13,000 jobs and last week detailed a series of advanced manufacturing facilities it would build at the Mount Pleasant campus in the next 18 months.

But the company also told the Wisconsin Economic Development Corp. in January that it adjusted its recruitment and hiring timeline for the project. In 2018, the company created 178 jobs that qualified for payroll tax credits, falling short of the 260 required for any incentives, and a company source told Retuers that Foxconn would have around 1,000 employees by the end of 2020.

The contract requires at least 1,820 jobs for Foxconn to earn any job tax credits and 5,200 to earn the maximum in 2020.

Those figures and comments suggest the company will at least fall short of job creation targets for the next two years. The company cannot default on the contract for failing to hit job targets through 2022.

Falling short of the job minimums, however, cuts into the amount of capital expenditure tax credits Foxconn can earn. The company has to hit the contract’s minimum job targets to be eligible for the roughly $192.9 million in capital expenditure tax credits available each year from 2019 through 2025. Foxconn is eligible for a 15 cent credit for each dollar of spending, but unearned credits only carry forward if the contract’s job minimums are hit.

If the company falls short of the minimum, the amount of capital spending credits available drops in proportion to how many jobs the company actually creates.

Foxconn created 68.5 percent of the required jobs in 2018. If the company hit that proportion again in 2019, it would reach 356 jobs by the end of the year and would be eligible for $132 million in cap ex tax credits.

But to earn those credits, Foxconn would need to invest more than $880.2 million at its Mount Pleasant campus. Capital spending only counts for tax credits in the designated zone where the campus is being created. Foxconn says it has invested more than $200 million in the state, but that figure includes around $38.4 million spent on real estate purchases in Milwaukee, Green Bay, Eau Claire and Racine.

If the 68 percent hiring trend continues through 2022, Foxconn would be eligible for $528 million in cap ex tax credits.

In 2023, however, reaching 68.5 percent of the minimum would leave Foxconn nearly 1,000 jobs short of the threshold to avoid going into default on the contract and triggering clawback provisions. The company wouldn’t have to notify the state of its shortfall until its annual report is due in April of that year. WEDC could then give the company up to 180 days to bring on enough staff to avoid clawbacks.

The state would be able to recover all $528 million in tax credits, but the company would have at least four years to pay the money back and would do so at zero percent interest.

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Arthur covers banking and finance and the economy at BizTimes while also leading special projects as an associate editor. He also spent five years covering manufacturing at BizTimes. He previously was managing editor at The Waukesha Freeman. He is a graduate of Carroll University and did graduate coursework at Marquette. A native of southeastern Wisconsin, he is also a nationally certified gymnastics judge and enjoys golf on the weekends.

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