SouthWest Organizing Project

what is an IRB?

The Legislative intent of the Industrial Revenue Bond (IRB) Act is to allow local governments to "acquire, own, lease, or sell projects for the purpose of promoting industry and trade other than retail trade, by inducing manufacturing, industrial and commercial enterprises to locate or expand in this state. . ." As IRB supporters are quick to point out, the act specifically prohibits the local city or county from becoming liable for the bond payments.

Briefly, IRBs are structured as follows:

The town or county becomes the owner of the project
The project is then leased back to company
The lease transfers back to the company all of the rights of ownership with the government retaining title
The government appoints the company to act as its agent
The IRB is issued to develop the project and is purchased by a company related entity as in the case of Intel and Phillips or a bank--Coke, Rose Paper
The lease payments obligate the company to pay off the bonds

The company gets:

Property Tax Abatement for real estate and the equipment
Compensating tax abatement (gross receipts taxes) on equipment purchases for the project

Under the law, the term of the lease and, hence, the property tax abatement can be for up to 30 years as is the case with Intel. In fact, in 1993 Intel broke out its leasehold into two separate parcels and extended the IRB shelter on the FAB 11 project for an additional 30 years. This property had been covered by an IRB since 1980, when the first Intel deal was done. The City of Albuquerque has restricted the term of an IRB to 20 years. Rio Rancho will issue the bonds for 25 years.

The NM Investment Tax Credit (ITC) and the IRB

The ITC was designed as a credit for business, which was charged 5% on manufacturing equipment brought into New Mexico for plant expansion. Companies who want to start up a plant, or expand an existing one, have to pay the 5% state compensating tax on equipment for the plant. Prior to 1990, the ITC was limited to companies that had to pay the compensating tax and the maximum tax credit was limited to $4750 per new job created. General Mills and Intel lobbied for and obtained a change in the ITC law so that companies who have Industrial Revenue Bonds (IRBs) and, thus, do not pay the compensating tax can still receive the ITC. The change also raised the limit on the credit per job from $4750 to $50,000 per job. For an IRB user, the credit is a "double dip," a tax abatement for a tax it does not pay. How does the company collect the ITC? Partly, the credit is used to offset gross receipts taxes on building construction, which is not exempted under the IRB law. In addition, however, the company can use the ITC to offset its obligations to pay the individual state income tax obligations of employees. It seems like tortured logic to SWOP, but the argument goes that the company collects the withholding obligation, which then becomes a "tax payment" obligation of the company.