Mesa Calls $14M Incentive for Auto Mall a Good Deal Article originally posted on HERE on April 24, 2024 Looking to increase tax revenue from car sales, Mesa is getting ready to sign off on a $14 million tax incentive for Berge Auto Group. City Council last week approved a notice of intent to enter into a retail development tax incentive with Berge to construct a 127-acre mixed-use development called Destination Gateway north of Signal Butte Road at State Route 24. The project is separate from the 88-acre Gateway Auto Mall by Horne Auto Group on the other side of SR 24, which was approved by the Planning and Zoning Board last month. By state law, retail tax incentive agreements must appear on two council agendas. The new tax incentive and development agreement with Berge is an expansion of a $6 million incentive approved in 2020 for the same location. Since then, the company has added over 30 acres to the site, which will host car dealerships, retail and multifamily housing on up to 40% of the project. The tax incentive works by reimbursing Berge for public improvements completed and deeded to the city by 2028. “They’re only eligible for reimbursement on the frontage of basically where the auto mall will be. It won’t be for any of the other additional commercial or residential that’s coming,” Economic Development Project Manager Nick Juszczak said. City staff told council members in a study session this month that Berge needed the larger tax rebate because the expanded site requires more infrastructure. Construction costs have also gone up since 2020. Councilman Mark Freeman asked City Manager Chris Brady to sell the public on the agreement. “When people hear the word ‘incentives,’ they get all wigged out,” Freeman said. “It’s important that you define what these incentives are and how they’re applied and that the city will own the infrastructure at the end of the day.” Brady told council members that the $14 million incentive would be a good return on investment because car dealerships generate a lot of sales tax revenue for the city. Mesa’s city sales tax is 2%. Berge would be reimbursed with 50% of the sales taxes collected on site, not including the public safety and streets components of the Mesa sales tax (totaling .8%). “Absent a primary property tax, the sales tax is king,” Brady said, “and the biggest generator – if I were to show you a heat map where sales tax is most likely collected – is going to be a car dealership.” City Attorney Jim Smith explained that as part of the state law allowing retail tax incentives, the city must conduct an analysis showing that it will collect more in sales tax than the reimbursements. Smith said that the city’s analysis also found that the dealerships would not be feasible at that location without the incentives. “There is this kind of competition to get the different dealerships into your communities,” Brady said. Because of various factors, like required spacing between dealers, Brady said the city believes it would be hard to put a new dealership anywhere else in Mesa. The intersection of Signal Butte Road and the SR 24 is also a strategic location, he said. “This is importing sales tax because you have a lot of traffic coming out of the San Tan Valley coming up from Queen Creek,” he said. “So getting the right dealerships here quickly, we’ll also be collecting sales tax from people outside Mesa.” City staff said the incentive is structured in a way to encourages Berge to build more dealerships in the auto mall. After the first dealership is built, they can begin collecting sales tax to reimburse the infrastructure, but they only have 12 years to do that – unless they build additional dealerships, which adds another three years. The development agreement with Berge also includes prohibited uses in Destination Gateway, including standalone auto repair shops, car washes and drive-thrus.