MGM Resorts Bought $131 Million in Tax Credits from Tesla
Tesla Inc., the electric car manufacturer, is expected to sell transferable tax credits for the third consecutive year to become profitable again. Elon Musk’s world-famous car manufacturer has reported multi-billion dollar losses in recent years.
Tesla is one of two major electric car manufacturers in the United States. Led by the charismatic South African technologist, Elon Musk, the company often makes lists of the NASDAQ-listed companies with the brightest future.
Designing revolutionary technology is costly, though, so Tesla still runs at a loss many years.
In reports published by The Las Vegas Review Journal and the ThisIsReno online news site, Tesla has sold transferable tax credits to MGM Resorts for the past three years. These help Tesla either offset losses or remain profitable during a time when the costs of research remain high.
Sold $131m Tax Credits to MGM Resorts
The Los Angeles Times reported on June 24 that Tesla Inc. has sold $131 million in tax credits to MGM Resorts so far. The sale of such credits amounted to $20 million, while the company has accumulated $163 million in more credits in anticipation of a new sale.
According to the various reports, MGM Resorts is the only casino company to have bought such tax credits to date. Despite the practice being used for 3 years, Tesla has not publicized such sales. The information is publicly available, through Nevada state records.
How Transferable Tax Credits Work
The transferable tax credits were a part of an incentive package given to Tesla by the state of Nevada to convince the company to locate a giant lithium-ion battery plant (Gigafactory) in Reno. The package included a total of $1.3 billion in tax exemptions over a 10 to 20 year period, along with another $195 million in transferable tax credits.
That leaves $32 million in tax credits to be transferred. The plan (“likely”) is to transfer $10 million in the Q2 of 2018, then sell another $17 million in credits throughout Q3 and Q4. In such a way, Tesla could report profits for each quarter.
$3.5 Billion Investment in Nevada
In return, Tesla promised to spend a minimum of $3.5 billion in Nevada. The company promised to create of thousands of jobs in the Reno area, and delivered by hiring 6,000 people to work on the manufacturing line.
The deal is typical for a company with billions to spend in an area — especially a company many believe is the wave of the future. In fact, Nevada’s promises were nothing like the gaudy concessions offered to Amazon when it planned to build a new regional headquarters and warehouse complex which would create 50,000 jobs.
Dan Schwartz Criticizes Tax Credits
Not every official is happy with the arrangement. Dan Schwartz, Nevada State Treasurer, criticized the tax credits, saying it is “money the citizens have to make up for if they want to build roads, hospitals, and schools.”
“Reno right now is undergoing a real growth spurt. People are complaining. Housing prices are up. They don’t have enough money for the infrastructure. I am just kind of opposed to these kind of incentives. Especially if they are selling credits to casinos. That’s real money.”
Proponents would argue that the benefits outweigh the costs, including the added state income taxes, sales taxes, and property taxes collected from those with the 6,000 new jobs at Tesla’s Reno plant.
Tesla Defends Tax Credits
Because Tesla recorded $2.2 billion in losses on $11.8 billion in sales during fiscal year 2017, the transfer of $17 million or so is considered a minor part of the equation. That is why a Tesla Inc. spokesman said, “Tesla only receives these incentives if it performs, as they are tied to Tesla spending a minimum of $3.5 billion and creating thousands of jobs, which is precisely what we are doing.”
“If Tesla executes, both Nevada and Tesla share the upside, and if it does not, only Tesla suffers the downside.”
Dan Schwartz pointed out that he is no enemy of Tesla’s. In fact, he qualified his remarks by saying, “Tesla has done nothing wrong.”