1 Business Cost Comparison LaGrange, Georgia vs. Auburn, Alabama TABLE OF CONTENTS PROJECT MANAGER CONTACT INFORMATION: Lonnie Smallwood Business Development Associate ECG - Economic & Community Development Phone: Mobile:
2 TABLE OF CONTENTS Georgia Business Climate Rankings Page 1 Summary of Notable State Corporate Income Tax Methods & Incentives Page 2 Corporate Income Tax Calculation Example Page 3 Corporate Income Tax Calculation Example Overview Graph Page 4 Southeastern U.S. Corporate Taxation Index Rankings Graph Page 4 Detailed Comparison of Corporate Income Tax Methods Page 5 Georgia Business Incentives Brochure Link Page 6 Comparison of State & Local Sales & Use Tax Rates Page 7 Overview of Labor Force Statistics Page 8 Georgia s Work Force Training & Hiring Assistance Programs Page 9 Comparison of Unemployment Insurance & Worker s Compensation Taxation Page 10 Comparison of Health Care Costs Page 11 Comparison of Industrial Electricity Prices Page 12 Comparison of Industrial Property Costs Page 13 Cost of Living Comparison Page 14
3 USA Business Climate Rankings Georgia vs. Alabama Georgia s Business Climate was named number 1 in the nation by Site Selection Magazine (Site Selection Magazine, November 2013). According to CNBC s 2013 Top States for Business Rankings, Georgia was ranked 8 th in the U.S ranked better than Alabama (ranked 33 rd ). Georgia was ranked 1 st in the U.S. for having the Best Workforce ranked better than Alabama (ranked 25 th ). According to Forbes 2013 Best States for Business & Careers Rankings, Georgia was ranked 4 th in the U.S. for having the Best Business Friendly Regulatory Environment ranked better than Alabama (ranked 24 th ). According to the Tax Foundation s 2013 State Business Tax Climate Index Rankings, Georgia is ranked 1 st in the Southeastern U.S. and 8 th in the nation for the Lowest Corporate Taxation - better than Alabama which is ranked 19 th in the nation. The Corporate Taxation Index is a measurement of all the standard taxes corporations are typically required to pay in a given state relative to another state.
4 Overview Comparison of Corporate Income Tax Methods
5 Corporate Income Tax Calculation Example In the example below, Georgia's corporate income tax method can, on average, result in 189% lower state corporate income tax payments when compared with corporate income tax payments for Alabama! Calculation Assumptions: The apportionment calculation assumes that a company has $100 Million in gross receipts (sales), $63 Million in cost of goods sold (expenses), $36 Million for other operating expenses, and 30% of the company s sales are accounted for as in-state for Georgia and 60%* for Alabama. The throw-back rule* has been applied to the sales factor for Alabama. For Alabama, all property and payroll are assumed to be (located) in-state and the standard payroll factor and property factor weights have been applied due to the "Three Factor Apportionment Formula with Double-Weighted Sales". This calculation does not take into consideration the various corporate income (job) tax credits that may be offered by each state. Please note that the estimated state corporate income tax obligation would be lower if job tax credits were factored into the analysis. Note: Calculation consultation was provided by Bennett Thrasher CPA Firm, 2010.
6 Comparison of Corporate Income Tax Calculations Corporate Income Tax Calculation Comparison Source: The Tax Foundation, Federation of Tax Administrators, Bennett Thrasher CPA Firm, 2010, $60,000 $50,000 $40,000 $52,000 Georgia's corporate income taxes are, on average, 189% lower than the state corporate income taxes in Alabama! $30,000 $20,000 $18,000 $10,000 $- Alabama Georgia 0 Southeastern U.S. Corporate Taxation Index Rankings Note: Smaller Number = Better Ranking / Source: The Tax Foundation, Georgia South Carolina Mississippi Florida Tennessee Alabama North Carolina According to the Tax Foundation s 2013 State Business Tax Climate Index rankings, Georgia is ranked 1 st in the Southeastern U.S. and 8 th in the nation for the Lowest Corporate Taxation - better than Alabama which is ranked 19 th in the nation! The Corporate Taxation Index is a measurement of all the standard taxes corporations are typically required to pay in a given state relative to another state
7 Comparison of Corporate Income Tax Methods When calculating corporate income taxes, states have the option to decide what a company s tax base (e.g. net income, gross receipts, gross profits, etc.) should be and how much of a company s tax base will be subject to the state s corporate income tax rate(s) using state corporate income tax apportionment formulas. Please note that the tax base and state corporate income tax apportionment formulas have a greater impact, than state corporate income tax rates, with regard to the total amount of taxes that a company ultimately pays to the state. Determining a Company s Tax Base Net Income Tax vs. Gross Receipts Tax: Georgia and Alabama both impose a Net Income Tax which only taxes the net income of a company (i.e. a company s gross receipts after all operating expenses AND cost of goods sold have been deducted). Side Note Net Income Tax vs. Gross Receipts Tax: In contrast to the Net Income Tax, some states impose a Gross Receipts Tax which taxes gross receipts essentially taxing gross profits (i.e. revenue or sales). This means that more income is subject to taxation in Gross Receipts Tax states when compared with Net Income Tax states since the gross receipts of a company represents a larger tax base that typically does not deduct operating expenses. This means that a company that isn t profitable, in a given year, would have to pay taxes in the Gross Receipts Tax states but would not be required to pay any taxes in the Net Income Tax states like Georgia and Alabama. Therefore companies with low profit margins will benefit more from being subject to a net income tax (in states like Georgia and Alabama) versus a gross receipts/gross profits tax. Comparison of State Income Tax Rates: Georgia levies a flat 6% corporate income tax rate while Alabama levies a higher, flat 6.5% corporate income tax rate. Accounting for High Expenses/Costs Net Operating Loss (NOL) Benefit: Net Operating Loss (NOL) carry-back and carry-forward provisions allow businesses to carry their losses forward or back to reduce their tax base/taxable income in a given year. Georgia gives businesses 20 years to carry-forward an unlimited amount of losses while Alabama only gives businesses 15 years to carry-forward an unlimited amount of losses. Georgia gives businesses the option to carry-back an unlimited amount of losses while Alabama does not give businesses the option to carry-back losses. Accounting for Out-of-State Gross Receipts Enforcement of the Throwback Rule: States also have the option to enforce the throwback rule meaning that if a corporation earns income that is not taxed by a state in which it has facilities then that income is "thrown back" and taxed in the state where the company has facilities and corporate taxation is enforced. Alabama enforces the throwback rule while Georgia does not enforce the throwback rule and therefore do not tax out-of-state gross receipts. Determining How Much of a Company s Tax Base Will Be Subject to State Corporate Income Taxes State Tax Apportionment Formula: In the U.S., states use a method called apportionment to determine how much of a company s tax base (i.e. federal taxable income) will be subject to their state corporate income tax rate(s). There are three apportionment factors of the traditional state corporate income tax formula : 1.) sales factor (net income or gross profits/receipts), 2.) property factor, and 3.) payroll factor. Single Factor Apportionment Formula: Georgia uses the single factor apportionment formula which only taxes the sales factor. The sales factor is equal to the net income tax base (i.e. gross receipts after operating expenses AND costs of goods sold have been deducted). Three Factor Apportionment Formula: Some states use a basic three factor apportionment corporate income tax formula which taxes the 1.) net income (i.e. gross receipts after operating expenses and costs of goods sold have been deducted), 2.) property, and 3.) payroll of a company giving each factor approximate equal weight. Sources: The Tax Foundation, The Federation of Tax Administrators, 2013.
8 Comparison of Corporate Income Tax Methods continued Determining How Much of a Company s Tax Base Will Be Subject to State Corporate Income Taxes State Tax Apportionment Formula continued: Three Factor Apportionment Formula with Double-Weighted Sales Factor: Alabama uses the three factor apportionment corporate income tax formula with a double-weighted sales factor ; as the name indicates, with the double-weighted sales factor, net income will be given twice the weight as the other two factors in this calculation. All else being equal, this means that a company that has significant amounts of property or payroll in states like Alabama is going to have more of its tax base apportioned and subject to state corporate income taxes because of the three factor apportionment formula which includes property and payroll factors in its apportionment formula when compared with taxation in states like Georgia which apply the single factor apportionment formula that does not include property and payroll factors. Side Note Net Income Tax vs. Gross Receipts Tax: As stated before, some states levy a special type of corporate income tax called a Gross Receipts Tax which taxes a company s gross receipts figure (i.e. revenue or sales) as opposed to the Net Income Tax levied in the Southeastern U.S. states. The Gross Receipts Tax is comparable to a single factor apportionment formula but gross receipts (i.e. a larger tax base) is used for the sales factor as opposed to net income (i.e. a smaller tax base). Even though the Gross Receipts Tax is comparable to a single factor apportionment formula, taxation is typically higher in Gross Receipts Tax states due to the use of the larger gross receipts tax base as opposed to the smaller net income tax base. Sources: The Tax Foundation, The Federation of Tax Administrators, Summary of Notable State Corporate Income Tax Incentives State Tax Credits, Exemptions, & Deductions: Georgia offers a performance-based package of business assistance designed to foster success for companies and the Georgia communities they call home. Please review the Georgia Department of Economic Development s 2013 Georgia Business Incentives (PDF) for details regarding current Georgia business incentives.
9 Comparison of State & Local Sales & Use Tax Rates 9.0% 8.0% 7.0% 6.0% Comparison of State & Local Sales & Use Tax Rates Source: The Tax Foundation, Data As of First Quarter % 8.5% 5.0% 4.0% 3.0% 3.0% 4.5% 4.0% 4.0% 2.0% 1.0% 0.0% Average Local Rate State Sales Tax Rate Total Sales Tax Rate Georgia Alabama
10 Overview of Labor Force Statistics LaGrange, GA Labor Force Advantage: The LaGrange, Georgia s manufacturing Industry labor force is 66% larger than the respective labor force in Auburn, Alabama (as of November 2013). LaGrange, Georgia s average weekly manufacturing wage is higher than the average weekly manufacturing wage in the Auburn, Alabama (as of November 2013). Source: U.S. Bureau of Labor, 2014 Statistics. Georgia Department of Labor, November Alabama Department of Labor, November ,000 10,000 8,000 6,000 Average Monthly Manufacturing Employment Source: U.S. Bureau of Labor Statistics, Georgia Department of Labor, November Alabama Department of Labor, November ,894 9,760 4,000 2,000 - Auburn, AL (Lee County) LaGrange, GA (Troup County)
11 Georgia s Work Force Training & Hiring Assistance Programs Georgia s Quick Start Workforce Training Program Ranked 1 St in the Nation: Georgia s "Quick Start" employee training program has been ranked 1st in the nation for the last 10 years. For more than 40 years, Quick Start has provided customized workforce training free-of-charge to qualified Georgia businesses in a broad range of industry sectors. Quick Start delivers training in classrooms, mobile labs or directly on the plant floor, wherever it works best for a company. The program also provides instructors and all needed materials related to the customized training program, potentially saving companies millions of dollars in training costs. The customized training program is also given to the company for its future use. Quick Start works independently but primarily through Georgia's ~99 technical colleges and satellite campuses to provide training to Georgia companies. Please visit the Quick Start website for more information: For a more detailed overview of the program, please see the Quick Start Program Overview Presentation: Quick Start Program Overview Presentation Link Retraining Tax Credit A company s direct investment in training can be claimed as a tax credit. The credit is available to all Georgia businesses that file a Georgia income tax return. Fifty percent of the employer s direct cost, up to $500 per full-time employee, per approved training program, may be claimed as a credit. The total amount of credit cannot exceed $1,250 per employee per year. Training programs must be approved by the Technical College System of Georgia. The retraining program must be for quality and productivity enhancements and certain software technologies. This tax credit can be used to offset up to 50 percent of a company s state corporate income tax liability. Unused credits can be carried forward for 10 years. These credits can be combined with other tax credits. Hiring Assistance Georgia s Department of Labor (GDOL) assists companies in recruitment by posting job notices, collecting and screening applications and/or résumés, providing interview space, scheduling interviews and hosting job fairs. GDOL will work with private employment agencies that list jobs with the state. Georgia Work Ready Georgia Work Ready is available for companies meeting minimum hiring requirements and is easy to access through the state s network of technical colleges. Georgia companies can implement Work Ready two ways - through job profiling and Work Ready Certificates. Work Ready job profiles identify the job tasks and skill levels necessary to be successful in any job. Companies match those profiles to employees Work Ready Certificates, which measure core skills, to ensure the right person is placed in the right job. Source: 2013 Georgia Business Incentives Brochure, Georgia Department of Economic Development, 2013.
12 Comparison of Unemployment Insurance & Worker s Compensation Taxation Workers Compensation Taxation Note: Please review the Georgia's Workers Compensation Provisions Summary Report for detailed information regarding specific historical workers compensation provisions between 1999 and 2007: Georgia's Workers Compensation Provisions Summary Report Link. 3.00% 2.90% Unemployment Insurance Coverage Source: Comparison of Workers' Compensation Systems - Texas Department of Insurance Workers' Compensation Research Group, 2003; U.S. Department of Labor, % 2.80% 2.70% 2.60% 2.62% 2.70% 2.58% 2.50% 2.40% New Employer Rate (As of July 2013) New Employer Rate (As of Third Quarter 2013) Georgia Alabama
13 Comparison of Health Care Costs $6,400 $6,200 $6,000 $6, Health Care Expenditures per Capita Source: Kaiser Family Foundation, Georgia s Healthcare Costs per Capita are, on average, 13% lower than the Healthcare Costs per Capita in Alabama! $5,800 $5,600 $5,400 $5,467 $5,200 $5,000 Alabama Georgia
14 Comparison of Industrial Electricity Prices Georgia s Electricity Cost Advantage: Georgia s industrial price of electricity is, on average, 1% higher than Alabama industrial price of electricity. Georgia s electricity prices have been consistently lower than the national average since 1997! Source: U.S. Energy Information Administration, Data Released October 2013 YTD Industrial Price of Electricity As of October 2013 (Cents per Kilowatt-hour) Source: U.S. Enery Information Administration, Data Released October Georgia s industrial price of electricity is, on average, 1% higher than Alabama industrial price of electricity. Georgia s electricity prices have been consistently lower than the national average since 1997! Alabama Georgia U.S. Average Note: The electricity prices quoted above do not reflect potential incentive rates.
15 Comparison of Metro Area Industrial Property Costs Lower Property Cost Advantage: The City of LaGrange, GA is in close proximity to the Columbus, GA metro area. The Montgomery, AL metro area is close proximity to the Auburn, AL metro area. The Columbus, GA Metro Area (Proxy for LaGrange, GA) industrial property rental rates are, on average, 12% lower than the industrial property rental rates in the Montgomery, AL (Proxy for Auburn, AL)! Source: CoStar, Third Quarter $3.10 $3.00 $2.90 $2.80 $2.70 $2.60 $2.50 Industrial Property Rental Rates As of Third Quarter 2013 Source: CoStar, The Columbus, GA metro area (Proxy for LaGrange, GA ) industrial property rental rates are, on average, 12% lower than the industrial property rental rates in the Montgomery, AL metro area (Proxy for Auburn, AL)! $2.66 $3.03 $2.40 Columbus, GA (Proxy for LaGrange, GA) Montgomery, AL (Proxy for Auburn, AL)
16 Cost of Living Comparison LaGrange, Georgia s Lower Cost of Living Advantage: According to Sperling s Best Places to Live, the LaGrange, Georgia's cost of living is 12.8% lower than the U.S. average and is 16% lower than the average cost of living for Auburn, Alabama. Source: Sperling s Best Places to Live, Data AS of First Quarter 2014.
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