Blog Posts > Gestamp Property Tax Deal Worth $25 million
May 23, 2013

Gestamp Property Tax Deal Worth $25 million

Last week, the West Virginia Economic Development Authority authorized $150 million in bonds that will be used to purchase equipment for the Gestamp stamping plant in South Charleston over the next five years. The Development Authority will purchase the equipment needed for the stamping plant and lease it back to Gestamp, which allows Gestamp to avoid paying property taxes on that equipment. According to this State Journal article, the arrangement is similar to those currently being given to Quad Graphics in Martinsburg and Toyota Motor Manufacturing in Buffalo. While Gestamp will make regular lease payments to the Development Authority, the property tax savings will be significant.

When we first estimated the value of the package of incentives given to Gestamp, we calculated that the property tax savings would be $12.5 million, based on $100 million in equipment being leased for 13 years. Now that the Development Office has announced it will authorize up to $150 million with a 20-year lease, the potential savings have doubled.

The Development Office says it will purchase equipment over the next five years. Assuming that those purchases are in equal increments of $30 million per year for five years, and the leases are held by the Development Office for 20 years, Gestamp will save $25.7 million in property taxes, at today’s rates. That is an average of $1.3 million per year. That would bring its total tax savings from the package to $69.2 million, which in addition to the property tax savings, includes $4.2 million in B&O tax savings, $32.5 million in corporate net income tax savings, $82,000 in business franchise tax savings, and $6 million in sales tax savings.

The tax incentives will lower Gestamp’s overall state and local effective tax rate from 2.8% to 0.4%, while its employees will likely see a tax rate closer to 9%. Including the other incentives, Gestamp will receive at total of $98.3 million in state assistance.

And, as it was when we first looked at this incentive package, the state currently does 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.

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