Home Depot in Line for $20 Million From New California Tax Deal

Home Depot Inc. could get as much as $20 million of a California city’s future sales-tax collections for locating a new warehouse distribution center there, in a deal cemented just weeks before the start of a state law requiring greater disclosure of such pacts.

The Tracy City Council unanimously approved an agreement Dec. 3 to give the home improvement giant half of the city’s share of tax revenue generated by sales from a new 725,000-square-foot warehouse, which is set to open in 2021 and employ 250 people.

Payments to Home Depot will be based on a 50% share of the tax on $175 million to $200 million in expected online sales annually to California customers. Tracy will split tax revenue with Home Depot for 20 years, giving the city and Home Depot each $875,000 to $1 million a year. Home Depot has the option to renew the deal for another 20 years.

The council and Home Depot won’t be subject to a state law taking effect Jan. 1, 2020, aimed at boosting disclosures about such agreements. California legislators acted after Bloomberg Tax found earlier this year that dozens of California cities have struck deals lasting decades with companies including Apple Inc., Staples Inc. and Cardinal Health Inc. to share millions of dollars in sales-tax collections, often with loose requirements about building new facilities or adding jobs.

Tracy officials have been negotiating the agreement with Home Depot for several months, and the council didn’t speed up its approval to avoid the law, City Attorney Leticia M. Ramirez said in an interview.

Increasing Accountability

Beginning Jan. 1, California cities will have to disclose the amount of other state and federal subsidies the company is applying for or has received, the number of permanent or temporary jobs, and whether workers will receive benefits or training. Cities also must describe how they would hold companies accountable if they don’t meet the terms of the agreements, and issue annual reports about progress.

Gov. Gavin Newsom signed the new disclosure law at the same time he vetoed a bill to ban future tax-sharing deals, saying they are an important economic development tool.

Home Depot selected the sales tax deal from a menu of incentives Tracy offers to attract businesses. Other options are direct payments for tenant improvements, rebate of building and planning fees, and payments of $1,000 per employee in new or relocated jobs with high wages.

“This is part of our investment strategy we previously announced to speed up delivery to customers and stores, eventually reaching 90% of our customers with same day/next day delivery,” Home Depot spokeswoman Margaret Smith said in an email. “However, because of competitive reasons, we’re not ready to discuss details.”

Luring More Companies

The city has similar tax sharing agreements with medical supply company Medline Inc., and lab equipment company Thermo Fisher Scientific Inc. But Tracy is home to some other e-commerce warehouses that don’t have tax-sharing deals, including an Amazon.com Inc. warehouse, Development Services Director Andrew Malik told the council. The high revenue projections made Home Depot’s warehouse a good candidate for an agreement, he said.

“The decision to locate in Tracy was largely due to the sales tax agreement,” Barbara Harb, an economic development management analyst for the city, told the council before the vote.

Tracy, on the western edge of California’s Central Valley 60 miles east of San Francisco, has increased its marketing efforts in recent months to lure retail, industrial, technology, and hospitality companies. The Home Depot warehouse will be part of an 1,800-acre industrial park near two interstate highways.

Tracy’s deal is typical of others that give companies about half of the 1 percentage point share of the 7.25% statewide sales tax rate they collect on their e-commerce sales in the state.