Last week’s announcement that Mercedes-Benz will relocate its corporate offices was a major coup for metro Atlanta and an especially hard blow in New Jersey, headquarters of the firm’s U.S. operations for 50-plus years.
Despite reports of a hail-Mary incentive effort by New Jersey lawmakers, Gov. Chris Christie’s spokesman said the state could not effectively compete.
"Mercedes USA made one thing very clear about its decision to leave: the cost of doing business and the tax environment is just too high here to be competitive with a state like Georgia," Michael Drewniak told The (Bergen County, N.J.) Record on Jan. 6.
PolitiFact Georgia has often heard political leaders toss around tax rates to explain business decisions.
But are tax rates, and those "costs of business" so different that they explain Mercedes’ decision to uproot and pledge $93 million in capital costs to build a new headquarters in Georgia? We decided to check.
Paying the tax man
Let’s look first at how the two states stack up on the tax front.
The nonpartisan Tax Foundation rates New Jersey as the state with the worst overall business tax climate -- literally 50th out of 50 states. Ratings are based on the states’ property taxes, sales taxes, unemployment insurance and corporate and individual income taxes.
Georgia ranked 36th overall, besting New Jersey in every category but unemployment insurance. For instance, Georgia’s corporate rate of 6 percent ranked 8th, while New Jersey’s 9 percent corporate tax was 41st.
Some of the other taxes are structured in such a way to make apples-to-apples comparisons difficult. But it is clear the move could pay off for Mercedes in lower property taxes.
The borough of Montvale charges Mercedes $21.81 per $1,000 of assessed value for local, county and school taxes, according to Bergen County Tax Administrator Robert Layton.
The rate in Sandy Springs -- expected to be Mercedes’ temporary, if not permanent, home -- would be $35.38 per thousand of assessed value.
But Mercedes pays on a full assessment in New Jersey. Its taxes on its 37-acre campus last year, valued at about $37 million, were $916,700.
In Georgia, residential and commercial property is assessed at 40 percent, not the full value. That difference translates into big money. For every $1 million in property value in New Jersey, Mercedes pays $21,810 in taxes. In Georgia, it would pay $14,154.
Widening the gap: Expected exemptions from the Fulton development authority would cut Mercedes’ Georgia tax bill in half for the first year and increase it just 5 percent for a decade.
"What looks like a higher rate in Georgia is actually 60 percent off, right off the bat, and then even more after exemptions," said Fulton County Tax Administrator Matt Buff.
Savings beyond taxes
To assess the company’s other potential savings from the move, we reached out to John Boyd, principal of the Boyd Company Inc., a New Jersey-based site selection consultant.
Boyd predicted the move to Fulton County will reduce Mercedes-Benz’s costs, including labor and property taxes, by about 20 percent.
Boyd’s forecasts appear in line with company expectations. Donna Boland, corporate communications manager for Mercedes, said company research shows a cost of living differential from the move in the 20 percent to 30 percent range.
This does not include incentives, something Mercedes CEO Steve Cannon has downplayed as having a role in the decision. Neither state has made public what it offered, but Georgia’s incentive package could be valued at $23 million, not including local incentives.
Other savings come from the labor costs saved in a right-to-work state like Georgia, lower housing costs in the Southeast and a push by Mercedes to find employees and buyers alike in millennials – the younger generation that auto executives see as key to avoiding the appearance of being outdated, said Karl Brauer, a senior analyst with Kelley Blue Book (which like the Atlanta Journal-Constitution, is owned by Cox Enterprises).
Also a factor, Brauer said: A likely new manufacturing plant for Mercedes in the near future, somewhere in the Southeast. The new plant would benefit from all those "business cost" perks and also follow Kia, Toyota and other carmakers to the region.
"I’m sure they’ve mapped it out for expansion and I’m betting they know what they can build 50, 100, 250 miles from an Atlanta headquarters," Brauer said. "You look at the tax elements and put it together with a lower cost of the living, and it just makes sense."
The Southeast is becoming the "center of gravity" for the auto industry, Boyd said.
What is also interesting is that Georgia, like New Jersey, has had a tepid post-recession job recovery, said Joe Seneca, a professor at the Edward J. Bloustein School of Planning and Public Policy at Rutgers University in New Brunswick, N.J.
"This type of intense economic development warfare among the states indicates the Darwinian nature of the competition for investment and new jobs," Seneca said. "More is to be expected."
Our conclusion. We don’t begin to know all the costs that were taken into consideration, given both states staying mum on incentives and all the costs associated with running a major corporation. But we know that the move will save Mercedes on its tax bill, and expert analysis show cost savings of about 20 percent on factors such as labor expenses. In the end, Georgia comes out on top in both categories.
We rate the statement as True.