In what’s a clear cost-cutting move, Toyota is moving its North American operations from Torrance, California to a compound in Plano, Texas, which is close to Dallas. During the next three years, Toyota’s three separate North American headquarters for manufacturing, sales and marketing, and corporate operations will relocate to Plano. Toyota’s North American finance operation also plans to move its headquarters to the new location. Altogether, these moves will affect approximately 4,000 employees in what is the biggest change in Toyota’s 50-year history in the U.S.
This mirrors a similar cost-cutting move by Nissan when it left California for Tennessee in 2006 with the help of huge taxpayer subsidies – almost $200 from the then Democratic Governor. It also begs the question how long Honda and Mazda will keep their headquarters in California. My favorite road sign in the U.S. – Texas’s “Drive Friendly” could be edited to say “tax friendly.”
With an 8.84% corporate tax rate in California, in addition to the highest income tax rates in the U.S. on personal income, there is an economic rationale behind the move. In November of 2012 after the passage of Proposition 30, California’s income tax rates have reached a breathtaking maximum rate of 13.3%. Individuals start with a 6% rate at $27,898 and an 8% rate at $38,727 leading to 10.3% on taxable income between $250,001 and 300,000, then 1.3% on taxable income between $300,001 and $500,000. It climbs to 12.3% on taxable income between $500,001 and $1,000,000 and 13.3% on taxable income of $1,000,001 and above.
In a statement, Toyota said that the majority of affected employees would not move until construction of the new headquarters is completed in late 2016 or early 2017. Toyota Financial Services (TFS) is not expected to transition to Plano from its current headquarters in Torrance, Calif., until 2017, which affects about 1,000 employees.
Jim Lentz, named as Toyota’s first chief executive officer for the North America Region in 2013, said: “With our major North American business affiliates and leaders together in one location for the first time, we will be better equipped to speed decision making, share best practices, and leverage the combined strength of our employees.”
After moving from its existing headquarters, Toyota will continue to have approximately 2,300 employees in California and 8,200 employees in Kentucky. This includes 750 new jobs being added in Kentucky for production of the Lexus ES, which begins in 2015. Toyota will also continue to maintain offices in the New York City area and Washington, DC.
