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Wisconsin Denies Foxconn Tax Subsidies

Bob O'Brien, Co-Founder and President

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Austin, TX USA -

The state of Wisconsin has denied Foxconn’s application for tax subsidies related to the Gen 10.5 LCD fab project which was planned for that state. In a letter to Foxconn Technology Group Vice Chairman Dr. Jay Lee, the Wisconsin Economic Development Corporation (WEDC) told Foxconn that it is not eligible for credits under the agreement signed in November 2017.

Under the deal signed in 2017, Foxconn would be eligible for up to $19.1 million in job creation tax credits and another $192.9 million in capital investment tax credits for jobs and investments in 2019, a substantial portion of the $2.85 billion in total tax credits described in the deal. In order to get these maximum tax credits, Foxconn would have needed to employ 2080 workers in Wisconsin, and to invest $1.3 billion in the state. These lofty numbers have long been ruled out, though, as Foxconn’s project has diminished from a Gen 10.5 fab complex, to a Gen 6 fab, to an uncertain manufacturing site.

The original contract has minimum numbers, though, and Foxconn was required to have 520 employees in 2019 to get any tax credits. In April 2020, Foxconn submitted a report to the WEDC indicating that it had created 550 jobs in the state in 2019, and therefore was eligible for tax credits. Under the agreement, the tax credits amount to 17% of wages and salaries and 15% of capital investments. Although Foxconn’s application in April did not include a specific wage figure for the Wisconsin employees, if we estimate an average of $50,000 then Foxconn’s tax subsidy for wages could have been $4.7 million, and based on Foxconn’s investments in 2019 of $280 million the company could have received another $42 million in investment tax credits.

WEDC’s analysis of Foxconn’s 2019 report estimates that only 281 of the Foxconn employees would be eligible under the contract, at least in part because many of the employees were hired in the final weeks of the year. The shortcoming of labor was not the primary reason that the state denied Foxconn’s application, though. Instead the response from the WEDC cited the change in the project scope: Foxconn is not building the Gen 10.5 LCD plant on which the agreement was based:

• The fact that the Recipients (i.e. Foxconn) have neither built, nor started to build or operate, the required Generation 10.5 TFT-LCD Fabrication Facility (the “10.5 Fab”) is not in dispute. The Recipients have acknowledged that they have no formal or informal business plans to build a 10.5 Fab within the Zone, and WEDC and the State of Wisconsin have corroborated that fact from observation, evaluations, and from industry experts hired to provide consulting services.

As we have reported before in the DSCC Weekly Review, DSCC has been contracted by the state of Wisconsin for consulting with respect to the Foxconn project. In this capacity, we submitted a report earlier this year to the Wisconsin Department of Administration addressing several questions about the project, and the nature of a change from Gen 10.5 to Gen 6. With the latest developments this report may be released to the public, and if it is, we will be able to share highlights with our readers. I think that most of our readers will understand the big differences in scale and scope between a Gen 10.5 fab and a Gen 6 fab.

While the WEDC has denied Foxconn’s request for tax credits, the WEDC letter again offers to work with Foxconn to renegotiate the contract, “once Foxconn is able to provide more accurate details of the proposed project, such as its size, scope, anticipated capital investment, and job creation.” Such offers have been made repeatedly by the WEDC since the current Wisconsin Governor Tony Evers took office in January 2019.

Our contacts in Wisconsin indicate that Foxconn itself seems unclear in its plans for the Wisconsin site. The Foxconn representatives meeting with state officials often change from one meeting to the next, and the company has never described a coherent plan to do business at the Mount Pleasant site. Although Foxconn built a 1 million square foot (93,000 square meter) building at the Wisconn Valley site that was intended for a Gen 6 fab, the company got permission in June to use the Gen 6 building for storage.