New Distribution Centers Raise Tax Revenue for their Communities

A recent U.S. Chamber of Commerce report shows that communities experience significant economic benefits from getting a new distribution center (DC) in their areas. Benefits from having a business build a new center include new jobs, increased incomes and substantial gains in local tax revenue, which can help to better fund government services, like schools, roads, and public safety, in those communities.

For workers, each year on average — over the 20-year lifespan of a new DC– a new DC in a particular metropolitan statistical area (MSA):

• Creates and sustains 5,100 new jobs;
• Expands the labor force by more than 3,500 workers;
• Increases incomes by $500 million; and
• Grows salaries and wages by $360 million, equivalent to raises of 1.8% for all workers in the region.

Adding to those benefits are tens of millions of dollars in new tax receipts each year.

There are many local taxes, but the main revenue raisers for local governments are sales and property taxes. A new DC results in more consumer spending in an MSA and leads to more residential and businesses investment in the area because of the increase in jobs and investment; hence higher revenues from these taxes. Importantly, the new DC results in higher tax receipts because of the growth in an area, not from higher taxes on residents.

To provide deeper insight to how tax revenues rise when a new DC opens, the U.S. Chamber examined how much sales and property tax revenue rise in seven MSAs over a 10-year period (a typical budget window) after a potential DC opens in the region.  Analysis started with the increase in consumer spending, residential investment, and business investment in structures and equipment in those places after the opening of a new DC as calculated by the REMI model used for the analysis of the economic impact of new DCs.  Analysis then applied the local sales and property tax rates to those increases. The sales tax revenue increase includes the revenue that comes from both state and local sales taxes.

The results can be seen below in Table 1. They show a substantial increase in revenues, from $131 million over 10 years in Bangor, ME, which is the smallest MSA in the sample, to over $300 million in St. Louis.

For example, Albuquerque is approximately in the middle and provides a representative example of how much tax revenues increase. It would see $182 million in new sales tax revenue, more than $6.3 million in new residential property tax receipts, and more than $7.2 million in new business property taxes for a total revenue increase of nearly $195 million over 10 years. That’s about $20 million each year to fund additional government services.

Any region with a new DC would see similar extra receipts because a business chose to open a new DC in its boundaries. This is a revenue windfall solely because of private industry investment.

Local governments can use these funds to improve schools, roads, transit, emergency response, fire and police, trash and snow removal, parks and recreation, water and sewers, and other vital services provided by local and city governments. This further improves the lives of residents above and beyond the new jobs and higher wages new DCs create and is yet another reason communities should welcome new DCs and the enhanced prosperity they bring.

Story by US Chamber