When one of the nation’s biggest auto companies decided to move from sunny California to deep in the heart of Texas, what factors are considered?
Some might say the differences between doing business in Texas, with its low tax rate, and the more expensive California are obvious. But Toyota’s recent decision to move its headquarters to the Dallas area after 57 years in Los Angeles County is bound to leave one wondering what pushed Toyota over the edge in its decision to head to the Lone Star State.
When Toyota announced in April its plan to move the bulk of its U.S. headquarters – including its finance unit and bank – from Torrance, CA, to Plano, TX, by 2017, the economic incentives from Texas were, of course, a huge part of the headlines. In addition to $40 million from the Texas Enterprise Fund, the company got a $6.75 million cash grant from the city, the largest in its history.
But there were a host of other motivations, some financial, some not.
“The decision was based on a very broad range of criteria, including geographic location, availability of a suitable building site, direct flight connections, quality of life and cost of living for our associates, time zones and proximity to our manufacturing base,” says Carly Schaffner, business communications manager at Toyota Motor Sales USA.
“For Toyota, bringing our North American business affiliates and leaders together for the first time in Plano will better equip the company to speed decision-making, share best practices and leverage the combined strength of our employees,” she said. “We needed a site that was closer to our manufacturing operations, in a neutral location, [meaning] one without an existing Toyota presence, where we can build on our new vision and culture from the ground up, based on our core values.”
“This was particularly important so no one affiliate felt ‘taken over’ by another,” Schaffner said.
The $300 million that Toyota is spending calls for building a single headquarters location in a suburban office park in Plano, a suburb of Dallas but by itself the ninth biggest city in Texas, with a population of 270,000. The city is home to many corporate HQs, including Alliance Data Systems, Frito-Lay and J. C. Penney, to name a few.
Besides the cash incentives, there are other financial reasons why Toyota is making the move. One big reason is the cost of doing business in Texas compared to California, not just for the corporation but its employees as well. Toyota is expected to realize huge savings in taxes, real estate costs, and employee cost of living.
According to the Tax Foundation, Texas had the fourth lowest tax burden among the 50 states at 7.5%, well below the national average of 9.8%, as of 2011. Texas’s taxpayers pay $3,088 per capita in state and local taxes. The state ranked 11th in the foundation’s State Business Tax Climate Index, which compares states in five areas of taxation that impact business.
By comparison, California had the fourth highest tax burden among the states, at 11.4%. The state’s taxpayers pay $5,136 per capita in state and local taxes, or about two-thirds more than Texans pay. California ranks 48th in the Tax Foundation’s tax climate index.
Of course, the main reason for that is the states’ respective income taxes: 0% in Texas, up to 12.3% in California. The corporate income tax in California is 8.8%. Texas does not have a corporate income tax but does levy a 1% gross receipts tax, 0.5% for retailers.
It’s also a lot cheaper to buy a home in Plano than it is in Torrance, a city about half the size of Plano.
According to Zillow, the online real estate database company, the median home value in Plano currently is about $220,900, less than a third that of Torrance, where the median home value is $692,100. The median price of homes currently listed in Plano is $299,000 while the median price of homes that sold is $244,993. The median price of homes currently listed in Torrance is $624,900 while the median price of homes that sold is $632,900.
It’s also less expensive to rent in Plano. The median rent price in Plano is $1,325, according to Zillow, compared to $2,400 in Torrance.
About 1,000 TFS employees “in good standing” will be offered relocation and retention packages for the move to Plano. Employees will also receive pre-relocation assistance for visiting the Dallas area to check out schools and other amenities.