Facebook Ambushed
Published by Bob Foster
I periodically take exception to the laws and regulations the federal government throws up to thwart small businesses…but the real culprit today appears to be state and local government. Here’s just one example:
There is a small town in Central Oregon called Prineville. It is a nice little town in an idyllic setting, with a lot of nice people living there. Unfortunately, it also has an unemployment rate that hovers between 17% and 18%. So, the city and the county got together and developed an “enterprise zone” that offered industrial land with a 15-year moratorium on property taxes.
At the same time, Facebook was looking for a place to locate their new data center, and found that the Prineville location would fit their needs.
Facebook signed an agreement with the county and built the first of four large facilities—which became operational this past summer. The second building was also recently started.
Following Facebook’s lead, three other high tech companies are in the process of negotiating to build in Prineville’s “enterprise zone.” This is the way jobs are created, and it looked like Prineville was going to lick their unemployment problem.
That is…until the Oregon Dept. of Revenue decided that Facebook was a good source of money for the state. As a result, they recently declared Facebook’s data center a “utility,” and therefore it didn’t fall under the auspices of Prineville’s “enterprise zone” agreement (in Oregon the state assesses taxes on “utilities” without any involvement of cities or counties).
The annual minimum tax bill to Facebook will now be $390,000 per year. Sure, that amount is not going to break Facebook, but what does this whole scenario say to their mangagement about building the other three buildings and filling them with servers—and hiring people to run the operation. As Facebook management said in a recent email—”…the state has effectively rewritten the agreement between the county and Facebook.“
An Oregon state senator recently said, “It doesn’t make any sense to me, it’s like being ambushed.”
Worse yet, what about the other companies interested in building in the “enterprise zone?” According to an Oregon state representative; “It repels those other data centers that are circling right now.” Oregon’s reputation as a business partner is now totally shot at this point. Even written agreements cannot be trusted.
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Oregon lawmakers say that this move creates a much greater concern—the taxing of “intangibles,” such as brand loyalty and, what Facebook called in one of their emails, “world-wide goodwill.” Oregon does consider “intangibles” when they calculate the value of a property, and it is this value that taxes are assessed on.
This action in Oregon could certainly increase the “taxing frenzy” of other cities, counties, and states all across the U.S.
Do you think it is fair to tax brand loyalty and goodwill of Facebook? What would you think if your “intangibles” were taxed?
What is the attitude in your city, county, or state regarding support of new (or old) businesses? I would like to hear from anyone who has a comment about their local government’s attitude toward private business.
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4 Responses to “Facebook Ambushed”
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Bob – The problem with tech companies as Facebook getting such a tax break would be the number of jobs being created locally and the rebuilding needed for the city. It’s not like an industrial company that hires many local workers and brings foot track and other businesses to the area, if there is no outsourcing–of course. There is also a difference between small business and big business and how each should be taxed. Methinks it’s not a mere issue of private or public.
For example, Compuware (a tech company, but not a social networking one where fewer employees seem to be needed) got a big tax break when it moved its headquarters to downtown Detroit. The company not only hired locally, but built a beautiful building with thriving diverse businesses inside that help in the rebuilding of a crippling downtown. Facebook should only be given tax breaks if it employs a certain amount of local residents and rebuilds in an area that will be beneficial for the city. The Enterprise Zone sounds like Detroit’s Empowerment Zone. I suppose there are such zones all around the country.
Let me also say this. The way this deal was handled doesn’t seem altogether ethical. This is another issue entirely which also needs addressing on a local and national level–that is specifically, the ethical behavior of lawmakers, especially in the Congress where they govern and judge themselves. PLEASE don’t get me started there.
Anyway, thoughtful post, Bob. Thank you.
Judith – Thanks for your comment. Actually, the post was not so much about the small town of Prineville (pop. 9,253) and Facebook, as it was about the unethical behavior of the state’s lawmakers. Unfortunately, that seems to be a problem with lawmakers everywhere.
At the same time, Prineville’s unemployment problem was greatest in the construction trades, so the construction of 4 large buildings on the site is really helping unemployment in that segment for a period of several years. It’s true that data centers don’t employ a lot of people, but for a town the size of Prineville it doesn’t take a lot to bring employment back to its former level, especially when other tech firms are (were?) negotiating to set up more data centers.
Thanks again for your comment, Judith.
Bob – The post seems to cover more than a few important points, namely ethics, taxes, and the right to do business. It seems to me that allowing companies such as Facebook to come into a city and not pay taxes to do business is just as important as issues of ethics, especially if the deal is one-sided. Speaking of ethics, there may be something unethical in simply allowing a company whose founder is worth a few billions to come into a depressed city and simply make more money without contributing to the city in ways that will benefit it.
Judith – When I get my ire up at politics, I do tend to go off point—thank you for pointing that out on this post. To try and redeem myself, I will give a little more explanation on what an “Enterprise Zone” and Facebook means to the people of Prineville.
Prineville is located in the “High Desert” of Oregon, about 20 miles from the next town. They are surrounded by many square miles of vacant, and non-arable, land. The city and county officials joined forces and marked off large portions of land they owned, as an industrial park. They then set a portion of this land up as an “Enterprise Zone,” where they give any business moving into that area a 15-year moratorium on property taxes only.
Facebook was only one of several large tech firms looking at some of this property, primarily because of abundant power available (another point for another post). Facebook was the first to buy some of this land, and then planned out a large 4-building campus for their data center. The first building was just completed this past summer, and the second building has already been started.
The money and jobs Facebook brought into this small community of 9,253 souls has made all the difference in whether people stayed or had to move away. Now, Apple is looking strongly at doing the same thing, as are several other unnamed tech companies. Prineville could become a boom town once again. Also, all of these companies must still pay state income tax and personal property tax, which is shared with cities and counties. So, it is not a tax-free deal.
The two points I deem most important (but poorly presented) are:
Point no. 1: The city and county signed a long-term contract with Facebook, and the people in the state capital overrode that contract and appraised the first building at over $100 million dollars and declared that they—not the city or county—had jurisdiction over the money from the new property taxes. Of course they waited until the first building was completed before they played their hand. The state bureaucrats ambushed Facebook—and Prineville, and may have scared off other potential businesses. This is one of the most unethical and underhanded tricks imaginable.
Point no. 2: This is the point I should have devoted the post to, since it can affect every business in America. When the state appraised the value of Facebook’s property, they added a value for “intangibles.” This includes such things as brand loyalty and worldwide goodwill. It is not clear where the boundaries are for this concept, but they might have established a precedent that could feed the “taxing frenzy” that is sprouting up all around the country. We might all be surprised by what could be taxed in the future, including the “intangible” value of our businesses.
Thank you for your comment, Judith, I appreciate your keen eye and thoughtful commentary.