WV Center on Budget and Policy > Blog > Economic Development > Gestamp Deal Worth Estimated $84.4 Million

Gestamp Deal Worth Estimated $84.4 Million

On Wednesday, the Daily Mail reported on the tax incentives offered to Gestamp, the auto parts company that is re-opening the stamping plant in South Charleston. Recently, we looked at the B&O tax incentive, but now with this memo of the agreement between the state and Gestamp, we can take a closer look.


The highlights of the agreement include that Gestamp’s corporate net income tax liability will be zero for at least 13 years, as will their business franchise tax liability. They will also pay no personal property taxes due to the WVEDA holding title on their equipment and the activation of the foreign trade zone. The also will pay no sales tax on the materials and equipment purchased to construct the facility.

Below are three tables, the first an estimate of what they would pay over the course of 13 years with no tax incentives, then an estimate of what they will actually pay, and finally an estimate of the tax savings.

Estimated Taxes Paid, No Incentives

B&O

$7,497,000

Real Property

$3,900,000

Personal Property

$12,539,910

Corporate Net Income

$32,501,460

Business Franchise

$82,000

Sales

$6,000,000

Unemployment

$2,049,300

Total

$64,569,670


Estimated Taxes Paid, With Incentives

B&O

$3,398,500

Real Property

$3,900,000

Personal Property

$0

Corporate Net Income

$0

Business Franchise

$0

Sales

$0

Unemployment

$2,049,300

Total

$9,247,800


Estimated Tax Savings

B&O

$4,198,500

Real Property

$0

Personal Property

$12,539,910

Corporate Net Income

$32,501,460

Business Franchise

$82,000

Sales

$6,000,000

Unemployment

$0

Total

$55,321,870


The total tax savings is estimated to be roughly $55.3 million over 13 years, or $4.3 million per year.

Over the 13 year period, Gestamp would have a total state and local effective tax rate of 0.4%. Without the incentives, the effective tax rate for Gestamp would be 2.6%.   For comparison, using a similar measure, we estimated the effective state and local tax rate on the coal and natural gas industries as a whole in 2008 to be 6.5% and 8.2% respectively. For further comparison, a Gestamp employee earning $50,000 would face a total state and local tax rate of 9.1%.

In addition to the tax incentives, Gestamp will receive $25 million in state loans for investments, plus an additional $2.5 million in forgivable loans for expenses. Gestamp will also receive $240,000 in recruiting assistance from Work Force WV, $800,000 ($2,000 per employee at 400) for training support from the Governor’s Guaranteed Workforce program (which isn’t required to drug test under the governor’s executive order), and up to $500,000 to design training initiatives from the Community & Technical College System of West Virginia. Not mentioned in the memo of agreement was a $15 million low-interest EDA loan given to the Park Corporation in 2007 to update the stamping plant facility with new equipment (see here).

While the B&O tax incentive continues beyond the 13 year time frame, it is unclear what other incentives do as well.

All together, the total value of the subsidies amount to an estimated $84.4 million (or $99.4 million if you include the 2007 EDA loan to Park Corporation that owns the South Charleston Stamping Plant) or $211,000 per job created (400 total jobs) over the 13 year period.  (Again, we welcome anyone with more accurate estimates or more information.) 

It is imperative that policymakers and the public know whether they are getting a strong return on their investment. Unfortunately, under the current system we will not have the ability to evaluate if these state and local tax incentives given to Gestamp are cost-effective or a good use of the public purse. 

It is also important that workers do not shoulder all of the financial risk and tax responsibilities, while corporations like Gestamp, that also place heavy demands on public services and programs, get off not paying their fair share. As Oliver Wendell Holmes said, taxes are what we pay for a civilized society. Everyone needs to pay their fair share, including the “job creators.” 


*Notes*
The time frame of 13 years was used because the memo of understanding estimated that the economic opportunity tax credit and manufacturing tax credit would zero out the tax liability for at least 13 years. 

I assumed that the minimum sales  requirements in the B&O tax incentive would be met in equal increments each year for the CNI, and BFT estimates. I applied the CNI to 20% of sales, the same ratio used in the recent estimates for manufacturing in the Tax Foundation report, “Location Matters”

I assumed the employment numbers in the memo would be met in equal increments each year, until reaching 700 in year 11.

I assumed real property taxes remained at $300,000 for the entire 13 years, the high end of the estimate in the memo.

For personal property, I assumed $45 million depreciated and assessed over the entire 13 years, and $55 million depreciated and assessed over the last 8 years.

For sales I assumed 6% on the $100 million in capital investments.

2 Responses to “Gestamp Deal Worth Estimated $84.4 Million”

  1. Jonathan says:

    Competition between states for subsidies? Wonder if Gestamp considered alternative sites?..Or was the site @ Charleston unique to G-stamps needs

  2. Ted Boettner Ted Boettner says:

    I believe the other site was in Ohio, but it wasn’t as nice at the stamping plant in so chas.

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