Tesla's Nevada tax 'clerical error' rankles subsidy critics

Benjamin Spillman Reno Gazette Journal

Published 5:28 PM EDT Oct 15, 2018

When a recent court filing showed Tesla Inc. was delinquent on more than $650,000 in state taxes, the company quickly paid the bill and blamed a “clerical error” for falling behind.

The payment satisfied the debt, but critics said the episode highlights problems with Nevada’s system of using taxpayer subsidies to lure businesses to the state.

For example, although the Department of Employment, Training and Rehabilitation considered Tesla delinquent on tax payments, the company continued to reap benefits of a $1.3 billion subsidy package lawmakers and Gov. Brian Sandoval approved in 2014.

“As far as we're aware, there is no provision in state law, or within the specific bill authorizing Tesla's incentive package, to withhold incentives in the case of tax delinquency,” said Michael Schaus, communications director for the Nevada Policy Research Institute, a conservative think tank that advocates for smaller government and against taxpayer subsidies for private business.

Schaus added that even though DETR considered Tesla delinquent, the company had money available for other, state-related purposes.

“By the way, it's worth remembering that Tesla recently made a $1 million investment in education as is required by the incentive deal,” Schaus said. “It's telling that they managed to pull together enough capital to remain in compliance with their incentive package, but not enough to meet their tax liability.”

A Tesla spokesperson said the actual amount invested in education was $1.5 million, with another $6 million to come by mid-2019.

MORE: Nevada seeks judgment against Tesla for unpaid taxes

Conservative opponents of selective tax breaks weren’t the only critics. Former Sen. Sheila Leslie, D-Reno, also took issue with the company’s late payment.

“For them not to pay their unemployment taxes, their payroll taxes, so disrespectful after all they’ve been given,” said Leslie, who was among the more liberal members of the Democratic caucus during her time in office. “It is just proof of that adage, it is never enough, they are always going to want more.”

Paul Anderson, director of the Governor’s Office of Economic Development, did not respond to a request for comment about whether late tax payments would affect Tesla’s eligibility for incentives.

The agreement governing the incentives requires Tesla to remain engaged in “common purpose” of the project. It also calls for compliance audits to ensure Tesla is fulfilling its end of the deal.

The agreement also states if the company is out of compliance, it could be required to repay incentives.

Tesla’s late tax payment came to light on Oct. 9 when DETR filed a certificate of judgment against the company in District Court in Las Vegas.

According to the document, Tesla paid more than $123 million in wages in Nevada during the first half of 2018.

MORE: Tesla Gigafactory surges past Nevada tax break benchmarks despite bumpy ride

During the same time frame, the company was supposed to pay about $2.8 million in unemployment taxes, money that’s used to pay unemployment benefits.

However, the document stated Tesla’s payments fell short of the amount owed by $650,464. With interest, the state claimed Tesla owed $654,504.

A Tesla spokesperson said the company’s $2 billion acquisition of Solar City in late 2016 contributed to uncertainty over how much was due and blamed a clerical error for the late payment.

“Since Tesla acquired SolarCity and incorporated all of its employees, we’ve been in discussions with states over new unemployment insurance contribution rates, which is typical in acquisitions like this,” the spokesperson wrote. “This judgment is the result of a clerical error, and we have processed this payment today to reflect the latest unemployment insurance contribution rates.”

Although Tesla characterized it as a singular error, the discrepancy had been known for months.

A document filed with the judgment said the company had been delinquent beginning April 30.

DETR officials said they can’t disclose information about individual taxpayers. But they said, in general, the department goes to great lengths to alert employers when their payments fall short.

Jeff Frischmann, deputy director of DETR, said companies receive billing notices every 30 days. Department examiners will also contact companies by phone. Before filing a judgment, the department will also send a demand letter for the amount.

“Our main thing is to work with employers, we don’t want to drive them out of business or make it any harder than it already is,” he said.

MORE: Nevada will help Tesla and other tech firms finance pipeline

Although Tesla settled the debt shortly after it was disclosed to the public, Leslie said it put the downside of state subsidies for business in the spotlight.

Leslie said subsidies to attract specific businesses, even if those businesses create jobs, do more harm than good.

She called her 2003 support for the creation of Sales Tax Anticipation Revenue, or STAR, bonds her most regrettable vote.

STAR bonds directed funding to projects that attracted major retailers to Reno-Sparks. But they also resulted in the unintended consequence of existing retailers moving their operations to STAR-supported projects which redirected sales tax away from schools and other public services.

Since the creation of STAR bonds, Nevada’s system of subsidies has only grown larger.

In 2015, the legislature and governor approved a $335 million subsidy package for Faraday Future to develop an electric car factory in Southern Nevada. The factory never got built.

In 2016, the legislature and governor approved a $750 million subsidy package to build a stadium for the NFL’s Oakland Raiders. The team is planning a move to Las Vegas.

“Every deal is just bigger and bigger and bigger until you get to Tesla and the Raiders stadium,” Leslie said.

Others disagree with the critics of such deals.

During a public event at the Gigafactory, Sandoval showered Tesla CEO Elon Musk with praise.

“And to have you be part of this Nevada family and to bring your vision to a reality to this state, I know I’m appreciative,” Sandoval said. “And there are 7,000 other people who work here that are appreciative, and we look forward to the opportunity to continue to work with you.”

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