Property Taxes: "Why do we pay so much?"

Let's talk about one of the main reasons - besides sprawled, center-less conditions and resultant costs to communities like Franklin - that property taxes are so high and getting higher.

First, an interesting progression -

Share of total state tax contributed by corporations in Wisconsin:

1979: 10%

1989: 7.0%

2000: 4.6%

2006: 3.5%

The Dairy state is bad for business? Wisconsin was recently ranked 41 out of 50 states in businesses’ share of state and local taxes. A study found that 26 of the largest 35 companies based here paid no tax at all and further reported that 62 percent of companies that make over $100 million in revenue pay no state tax.

And as that corporate number goes down, the slack is taken up by property tax payers. This is a nationwide phenomena.

How do large corporations lower their tax burden? Well, they certainly have friends in high places. Republicans traditionally propose and enact legislation friendly to big business on the theory that what's good for them will trickle down to us eventually. The Bush administration has a long history of easing tax burdens for the top earners - corporate and individual - on the theory that this will stimulate the economy. Mike Moneybags will buy TWO houseboats instead of one, so the company building the boats gets more business and more workers are hired.

But politicians also know who butters their bread: Running for office is expensive, and those bucks come from corporations. And they want something in return.

Huge companies like Wal-Mart used their leverage and influence to lobby for seemingly inconsequential - and numbingly complex - procedural changes that have allowed for very aggressive, very "creative" tax avoidance of the sort that a typical home owner could never attempt. Wal-Mart was so comfortable with their position, in fact, that they sued North Carolina last year to obtain a $33 million tax refund. (Hold your nose and read Wal-Mart: The Low Tax Leader, Always.)

Amazing.

Let's not forget that Wal-Mart and the other big corporations and chains routinely demand and receive

• colossal tax abatements
• TIF funding
• land grants
• public service freebies
• interest-free loans
• condition-free grants, etc.

... from the very municipalities and states to whom, in return, they pay little or no tax.

Another bonus for big corporations: They are not required to report what they pay in state taxes on a state-by-state basis, which effectively obscures their deceptions.

On an estimated $852 million in Wisconsin profits between 2000 and 2003, Wal-Mart paid only $3 million in Wisconsin taxes. In theory, corporations in Wisconsin pay 7.5% income tax. Wal-Mart pays about 0.35%.   

You pay what they don't.

But the hubris of companies like Wal-Mart might cost them.

The evasions of giant corporations and big box chains are being looked at closely in the courts, and about twenty states have already taken a vital step toward making the tax system more fair to property tax payers and small businesses.

What are some ways that huge corporations avoid taxes?

The main tool of corporate tax avoidance is a scheme called SEPARATE ACCOUNTING. It's basically a way for multi-state corporations (i.e. big corporations that contribute to political campaigns) and businesses to cherry-pick where they will pay taxes (i.e. they will pay in the low-to-no tax state) while locating elements of their business  - - which use public utilities in each state - - all over the country.

Here's how Home Depot does it:

Home Depot has Delaware-based subsidiary called Homer TLC Inc - little more than an address. This is called a "passive investment company ("PIC"). Homer TLC Inc "owns" the company's trademark. Home Depot stores across the country pay the paper subsidiary a huge - and completely self imposed -  fee for the right to use the trademark, effectively shifting profits out of other states and into the Delaware subsidiary. Delaware does not levy corporate income taxes on earnings from intangible assets such as trademarks - - Magic time! Profits transferred in this manner are free of state corporate income taxes.

And that paper subsidiary will also lend money to the rest of the corporation, creating another stream of profit transfer via payment of interest on the loan.

Kmart shifted $1.25 billion into its Michigan subsidiary, Kmart Properties, Inc., from 1991 to 1995. Between 1992 and 1994, Limited Brands transferred more than $1.2 billion from its retail chains into Delaware subsidiaries.

Shady? Yes - - it's an utter sham, practically money laundering on an epic scale. But there are companies eager to package this dodge as a service. Arthur Anderson will get you set up with a Delaware trademark-holding company for $100,000. PriceWaterhouseCoopers sells a comprehensive plan it titles "Utilization of an Investment Holding Company to Minimize State and Local Income Taxes."

Is it any wonder a giant like BP Oil can pay pennies in state taxes? From the Milwaukee Journal Sentinel:

Scott Dean, a spokesman for BP, said the company "pays its fair share of taxes, no matter how you approach the numbers."

Revenue Department reports say BP companies paid $27,037 in corporate income taxes from 2003 through 2005, while the company reported worldwide profits of $48.3 billion. Dean said those taxes were paid by one subsidiary, BP Products North America, which has a company-owned gas station in Pleasant Prairie.

A gas station pays $27k in three years? Find me a locally-owned gas station - or hardware store, or craft shop, or plumber - which uses public utilities and has somehow paid less than $27,037 in business income tax any three year period.

That's right --- locally-owned businesses (the ones that pay full-time workers a living wage) do not have these dodges available to them. They pay full-boat taxes, and thus are dying off at a stunning rate, replaced by big-box chains that pay minimum wage, low-to-no benefits, and then pay negligible taxes.

NO contribution to the local school district, for instance. You pick up that cost.

Where's the good in that?

Companies known to engage in the "PIC" sham include

• Circuit City
• The
  Gap
• Home Depot
• Ikea
• Kmart
• Kohl's
• Limited Brands (which owns Bath
  & Body Works, Victoria's Secret, The Limited, and several other
  chains)
• Payless Shoes
• Sherwin Williams
• Staples
• Toys "R" Us

(source: The New Rules Project).

Let's make this clear: What these companies don't pay has to be picked up elsewhere.

So, your PROPERTY TAX is going up? Sure, scrutinize the school district's spending (all government spending should be looked at), but also hold business to their side of the social contract.

Solution: Make it FAIR with Combined Reporting

About twenty states have begun to turn things around by instituting COMBINED REPORTING requirements.

Combined reporting requires that companies combine profits from all related subsidiaries before determining what portion of their profits are taxable in that state. (To determine how much of their total earnings are taxable in each state in which they operate, multi-state companies must apportion their profits according to formulas which consider how much of the firm's property, payroll, and sales are in each state.)

States with combined reporting are effectively able to tax the percentage of an out-of-state subsidiary's profits that can legitimately be attributed to a firm's in-state operations. Combined reporting has been upheld by the U.S. Supreme Court.

This is not a "leftist agenda" idea. When Republican candidate for president Mitt Romney was governor of Massachusetts, he took a long, hard look at their fiscal inequities and proposed Combined Reporting for the state - - before he was "taken aside" by the entities that he needed for re-election and/or a presidential run; he withdrew his proposal once he woke up to political reality (hint: $$). However, the wheels were already in motion; with the option on the table, several Massachusetts think-tanks and government committees agreed that Combined Reporting would be good for the state's economy and lessen individual tax burdens. Now Governor Deval L. Patrick - a Democrat - has footing to institute the change.

Elsewhere: The Pennsylvania Department of Revenue's commission recommended that "the state adopt mandatory unitary combined reporting as a means of broadening the corporate tax base and lowering the tax rate."

Combined Reporting is part of the Wisconsin Senate-passed state budget. Assembly Republicans are opposing that budget. The Republican spin is that requiring Combined Reporting is a "tax increase" for business and will therefor drive business away. Sample that vibe here; Republican state senator Neal Kedzie assures us that big businesses - tax-paying or not -  are so very good for us:

They create jobs, provide health insurance for their workers, stabilize and grow local economies, provide a wealth of goods and services to improve our own way of life, and from time to time, engage in charitable causes for the good of their community.

A rosy picture of our friend, the Big Business.

"Provide health insurance"? Sometimes, and only begrudgingly. And if they let you work enough hours per week to qualify.

"Stabilize and grow local economies"? Make no mistake - even after a city or town provides tax breaks and incentives, they pull out as quick as they go in.

"Provide a wealth of goods and services to improve our own way of life"? Not provide - sell. 

"And from time to time, engage in charitable causes for the good of their community"? With the exception of a few truly community-minded businesses (and they are out there, make no mistake), that's small consolation when the alternative is that they merely pay their fair share - and be a true part of the community.

Why are your property taxes so high? Because someone has to pay for the way communities like Franklin sprawl without regard to sustainability or integrated planning - - and it sure isn't going to be the corporations who pay to get lawmakers in office.

And, of course, they love it when the finger is pointed at the local school district's "greed," effectively distracting us from the fact that Wal-Mart CEO Lee Scott makes $8,434.49 per hour while his stores avoid paying school district-sustaining taxes and his workers flood the social services of every state in the country.

We need to watch what our property tax money is spent on, but we also have to make sure everyone pays their fair share.

Comments

[Jeff]

But, that's not what the WMC told me. Boom - thesis rebuffed.

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-James

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