This article first appeared at The McAlvany Intelligence Advisor on Friday, January 9, 2015:
On Tuesday, when Mercedes-Benz’s North American Chairman Stephen Cannon finally confirmed the rumors swirling around his company’s headquarters in Montvale, New Jersey, that he was going to move it to Atlanta, Georgia, he didn’t tell the whole truth:
New Jersey has been a wonderful home to our U.S. operations for our first 50 years, and still is today. The state has worked tirelessly with us as we evaluated our options.
Ultimately, however, it became apparent that to achieve the sustained, profitable growth and efficiencies we require for the decades ahead, our headquarters would have to be located elsewhere.
That brought us to Atlanta.
It was the location that sealed the deal, according to Cannon:
Atlanta offers a strong quality of life, terrific schools, and wonderful cultural and recreational opportunities.
Uh-huh. Not for nothing is Atlanta nick-named “Hotlanta.” Hot and humid, average high temperatures there in July exceed 80 degrees, with temps reaching 90 an average of 44 days every year.
What Cannon also failed to note is that New Jersey has ranked dead last in the Tax Foundation’s study “Ranking the Best and Worst States for Business Taxes” three out of the last four years, and 49th in 2013.
Every year, the foundation ranks states based on their analysis of more than 100 “tax variables” in five different categories, including corporate taxes, individual taxes, sales taxes, property taxes, and unemployment insurance taxes. Regarding New Jersey, the foundation said:
New Jersey, for example, suffers from some of the highest property tax burdens in the country, is one of just two states to levy both an inheritance and an estate tax, and maintains some of the worst-structured individual income taxes in the country.
While New Jersey ranks 50th, Georgia ranks 36th. A closer look, however, reveals that in “corporate taxes,” New Jersey is ranked in 41st place among all states, while Georgia is 8th. And not only will Mercedes-Benz enjoy a much lower tax burden after it completes its move to Atlanta in 2017, so will those employees it brings with it, or hires locally. According to the foundation’s report, the average tax burden for New Jersey’s citizens is $6,675 while for Georgia it’s half as much: $3,237.
Other companies are leaving New Jersey as well for more favorable tax climates like Florida, North Carolina, and Texas and for the same reasons. Florida, for example, ranks 5th overall, while North Carolina comes in at 16th. When it comes to individual taxes, Florida is ranked 1st in the nation and North Carolina is 15th. Texas is ranked 10th overall and 6th in individual income taxes.
In 2013, Hertz – the rental-car company – moved its headquarters and its 550 jobs from Park Ridge, New Jersey to Estero, Florida, while last summer the Sealed Air Corporation – the Bubble Wrap maker – announced its plans to move from Elmwood Park, New Jersey to Charlotte, North Carolina. In 2012, pharmaceutical giant Roche closed its huge New Jersey campus in Clifton and Nutley altogether.
Mercedes-Benz is following right behind Porsche, which is currently building its new US headquarters near Atlanta’s Hartsfield-Jackson Airport. Kia just put the finishing touches on its brand new manufacturing facility – the first in the US – 75 miles southwest of Atlanta. Toyota said it would relocate its US headquarters from Torrance, California to Plano, Texas. Authors of the Tax Foundation’s report explained why:
Taxes matter to businesses, and those places with the most competitive tax systems will reap the benefits of business-friendly tax climates….
When a state imposes higher taxes than a neighboring state, businesses will cross [that] border….
It isn’t that New Jersey Governor Chris Christie didn’t try to keep Mercedes-Benz in Montvale. After all, the company and its employees were paying almost a million dollars in taxes every year, not to mention the economic ripple effect of those businesses that have sprung up around it to serve them. He and his chief development officer made several trips to see Cannon, and even tried to hammer Cannon into staying by bribing him with various incentives, tax deferrals, and outright subsidies. Said Cannon of those conversations:
[Christie] brought his Economic Development head with him. He said: “What’s it going to take?”
I said, “Look, this isn’t about us trying to chase the biggest pile of incentives, because that [is] not the driver [behind the decision].” In fact, incentives, when you look at the whole picture, it’s just a small piece. We’re making a 50-year decision, and a pile of incentives in Year One, Two, or Three over a 50-year decision doesn’t make a gigantic impact.
The final offer from Christie to Cannon was made on Saturday before the company made its announcement, amounting to between $40 and $50 million. But compared to annual revenues of Mercedes-Benz’ parent, Daimler AG – estimated at $150 billion – it was just small change when balanced against the potential savings. Besides, offering tax incentives instead of real long-term tax relief through a more competitive tax structure is, according to the Tax Foundation, often a “cover”:
Lawmakers create these deals under the banner of job creation and economic development, but the truth is that if a state needs to offer such packages, it is most likely covering for a woeful business tax climate.
A far more effective approach is to systematically improve the business tax climate for the long term to improve the state’s competitiveness.
Apparently, New Jersey lawmakers have little interest in making the state more competitive, as it has remained at or near the bottom of the Tax Foundation’s rankings for years.
After all is said and done, and after Mercedes-Benz completes its new $93 million headquarters in 2017, it will reduce its overhead by a breathtaking 20 percent a year according to John Boyd, an adviser on corporate relocations. He added: “This move to Atlanta is far bigger than any incentive program” that Christie could offer.
Although taxes aren’t the only consideration in such a massive move, they played a key factor. Working in Georgia’s favor is its airport with direct flights to Frankfurt, Germany, close by Daimler AG’s world headquarters in Stuttgart. There are also those “terrific schools,” its “strong quality of life,” and its “wonderful cultural and recreational opportunities.”
And half the taxes.
NorthJersey.com: Mercedes-Benz is latest to leave NJ, moving from Montvale to Atlanta
NorthJersey.com: N.J.’s incentives to Mercedes couldn’t offset cost of doing business
The Tax Foundation’s study: Ranking the Best and Worst States for Business Taxes