Tax Breaks Lure Huge Investment In Alabama From German Steelmaker

by Leroy Baker, Tax-News.com, New York

15 May 2007

With a recently-approved package of tax breaks, Alabama has beaten competition from other US states to secure a $3.7 billion investment by German steelmaker ThyssenKrupp - the largest foreign investment ever undertaken by the company.

After studying 67 potential sites in 20 states, and narrowing down the search to three states - Alabama, Arkansas and Louisiana - ThyssenKrupp announced on Friday that it would build its new plant at a site about 25 miles north of the Alabama port of Mobile. The firm is expected to benefit from about $400 million worth of fiscal incentives.

According to the steelmaker, other decisive factors in favor of Alabama included logistical considerations of the company’s supply chain from Brazil; operating costs such as electricity and labor; and site specific capital expenditures.

The new plant complex, which is scheduled to begin operations in 2010, will be one of the largest private industrial development projects in the United States over the next decade. Approximately 29,000 jobs will be generated during the construction phase. When it is fully operational, the plant will employ 2,700 people. Over a 20-year period, the facility is also expected to yield tens of thousands of indirect jobs. Construction is expected to begin by the end of the year.

“This facility represents the largest investment in the history of ThyssenKrupp Stainless," announced Michael Rademacher, Vice Chairman and CFO of ThyssenKrupp Stainless. "While our direct entry to the US market is perhaps a bold step, it is also a logical and forward-looking one. The stainless steel market throughout the NAFTA region offers significant potential, and we are now poised to further strengthen our position," he added.

The new facility will process carbon steel and stainless steel for high-value applications by manufacturers in the United States and throughout North America. The plant will serve industries including automotive, construction, electrical and utility, in addition to serving manufacturers of appliances, precision machinery and engineered products.

However, one-off fiscal incentive packages such as those offered by Alabama have been the subject of much controversy in recent years with critics of these schemes arguing that they distort competition within the United States and disproportionately shift the tax burden to individuals and small business taxpayers.

In May 2006, the US Supreme Court rejected a legal bid by a taxpayer advocacy group to have a $280 million tax break offered to carmaker DaimlerChrysler by the state of Ohio overturned. The long-running dispute centred on a 10 year exemption from property taxes and investment tax credits offered to the auto manufacturer in order to encourage it to locate a Jeep assembly plant in the state.

The group of local taxpayers, headed by law professor Peter D. Enrich, argued that the tax breaks were unconstitutional, as they adversely affected interstate commerce.

Sending the matter back to Ohio's state courts, the unanimous Supreme Court panel ducked the constitutionality issue by arguing that the taxpayers were not directly affected by the tax incentive scheme, and that they did not therefore have the legal standing to bring the matter before the federal courts.

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