Archive for the ‘Single Sales Factor’ Category

Accountability Updates in Oregon

March 20, 2014

intel sign

Two new reports released this week by watchdog groups in Oregon show mixed results for accountability of the state’s economic development subsidies.

OSPIRG released Revealing Tax Subsidies 2014, an update to its previous evaluation of how well the state is complying with its three year old transparency law.  While the state has improved its disclosure since OSPIRG’s last assessment, especially for large controversial programs, the group found that the state is still failing to report key information for 14 of the 19 subsidies covered by the law.  In particular, many of these under-disclosed programs are missing information about the economic outcomes (e.g. jobs, wages, or investment) ostensibly generated by these subsidies.

Lacking such information, it is impossible to know whether the colossal corporate tax subsidies documented this week by the Institute on Taxation and Economic Policy and Citizens for Tax Justice are actually doing the state any good.  The Oregon Center for Public Policy announced yesterday that at least 24 (and probably many more) of the state’s most profitable corporations included in that report have paid no state income tax in recent years.  Oregon has a minimum corporate tax, but companies are able to dodge their tax responsibility with economic development subsidy tax credits.

Read the full OSPIRG report here and see OCPP’s reporting on corporate tax dodging here.  The ITEP/CTJ national study is available here.

Nike Runs Away with New Oregon Tax Giveaway

December 20, 2012

NikeTown, OR, USAOregon Gov. John Kitzhaber must have missed this month’s major New York Times investigative series on business subsidies.  Less than a week after the nation’s paper of record reported that such subsidies are a “zero sum game,” Gov. Kitzhaber called the Oregon legislature into a one-day special session to pass the Economic Impact Investment Act, a corporate tax giveaway custom-tailored for Beaverton-based sportswear retailer Nike, Inc.  The rushed deal and special session were announced last Monday, just four days before the legislature was to consider the bill, and a publicly available version of the proposed legislation was not made available until Tuesday.

HB 4200, which passed the legislature handily on Friday and was signed by Gov. Kitzhaber this week, allows Nike to determine its tax responsibility to the state through the controversial Single Sales Factor (SSF) apportionment method for the next 30 years, whether or not Oregon enacts tax reform during that period.  Nike had expressed interest in expanding in Oregon, but the company reportedly expressed to the Governor that it needed “tax certainty” to commit to growing in the state.  (Make sure to see the Oregon Center for Public Policy’s excellent take on what would constitute true “certainty” when it comes to taxes.)

In its original form, the legislation would have allowed the state to grant guaranteed SSF tax breaks through the Economic Impact Investment Act for a ten-year period, and those deals would have lasted for up to 40 years.  The few accountability amendments passed during the one-day session shortened the amount of time the governor has to strike these tax deals to one year, while also reducing the period during which the tax break lasts to 30 years.

While the bill requires that Nike and any other company vying for the special tax deal invest $150 million and create 500 new jobs, it is silent on wages and other job quality standards.  Significantly, the new law fails to set a meaningful term during which qualifying jobs must be retained by Nike or any other company approved for the sweetheart deal.  It appears that the last 20 years’ worth of basic accountability reforms – now standard practice for most states – are unknown to Oregon’s lawmakers.

The lack of accountability provisions are not the only controversial aspect of the new giveaway.  The Oregonian reported this week that despite the extraordinarily compressed period the legislature was given to consider the bill, the state has been secretly negotiating the deal, termed “Project Impact,” since last July.  You can read the state’s non-disclosure agreement with a company called EMK (presumably a site location consulting firm contracted by Nike to pressure the state) here.

Oregonians are not the only constituency to express concerns about the new law.  Intel, Oregon’s other major corporate employer, was reportedly involved in several heated exchanges with Nike over a particular provision of the original legislation that would have prohibited it from benefiting from the same deal based on the fact that it is already receiving considerable subsidies through Oregon’s Strategic Investment Program.  Unsurprisingly, that provision was removed from the bill.

Oregon, unfortunately, has no such guarantees that economic conditions and fiscal obligations will remain exactly the same in the decades to come.  There are no promises the state can make that protect its residents from change, and this new giveaway means that Oregon cannot rely equally on all businesses and individuals to contribute fairly in the future.

New Study: Massachusetts Business Tax Breaks Doubled

August 8, 2012

A new study released this week by the Massachusetts Budget and Policy Center reports that the annual cost of the state’s business tax breaks has doubled to $770 million this year from $342 million in 1996.  “Business Tax Breaks in Massachusetts” found that “sector specific tax breaks” (for particular industries) were largely to blame for the sizeable increase in cost.  Of the specific industry tax expenditures, two in particular demonstrated rapid and substantial growth over the study period: Single Sales Factor tax breaks for manufacturers and mutual funds companies and the state’s Film Production Tax Credit.  The authors further found that the spending through special business tax expenditures has increased by 60 percent, while during the same period total state budgetary spending has fallen by 5 percent.

The MBPC prudently concludes that the value of each of the state’s business tax breaks needs to be “weighed against other types of economic development investments the state might make using these dollars, including various on-budget expenditures, for things like public education and transportation infrastructure.”  Read the full report here.

Large, Profitable Corporations Get Huge Federal Tax Breaks

November 4, 2011

The most consistently profitable companies in the Fortune 500 only pay about half the statutory federal income tax rate—a fourth pay less than 10 percent. Some even get refunds from Uncle Sam—30 companies have enjoyed a negative income tax rate the past three years despite making $160 billion in pre-tax profits.

It’s the definitive study that punctures calls for a cut in the federal income tax rate on corporations, provided yesterday by Citizens for Tax Justice and the Institute on Taxation and Economic Policy (CTJ and ITEP) in “Corporate Taxpayers and Corporate Tax Dodgers, 2008-2010.”

Looking at shareholder filings for those Fortune 500 companies that reported profits in each of the three years, CTJ and ITEP found that 280 companies paid an average effective rate of just 18.5 percent and for the last two years only 17.3 percent, less than half the statutory rate of 35 percent.

The study catalogs the underlying causes, many of which have eroded progress in the federal tax code made in the 1986 reform act that plugged many loopholes: accelerated depreciation, stock options, industry-specific tax credits, and offshore tax sheltering.

Bottom line, it’s why federal corporate income taxes have plummeted as a share of GDP from almost 4 percent in the 1960s to just over 1 percent today. And a key reason, CTJ director Bob McIntyre argues, why any corporate tax reform should not be “revenue neutral” but should instead plug loopholes and restore balance.

For those of us who follow companies that aggressively seek state and local economic development subsidies, including avid users of Subsidy Tracker, there are familiar names among the low-tax rate/high-tax break crowd, like Boeing, Walmart, and Goldman Sachs.

Indeed, CTJ and ITEP will soon release a follow-on study looking at state taxes paid by the Fortune 500. Although publicly traded companies only report such taxes in one aggregate 50-state number, the finding will show how tax exemptions and credits cut the actual tax rate companies pay (along with loopholes like Passive Investment Companies and failed giveaways like Single Sales Factor).

For a primer on how companies dodge state income taxes, see chapter 4 of The Great American Jobs Scam, and for a summary of how corporate tax dodging has shifted the burden for public services onto working families, see chapter 8.

Finally, the study also punctures the argument that the U.S. has to lower its corporate tax rates because of lower rates offshore. Of those companies among the 280 with significant foreign profits, they paid foreign tax rates almost a third higher than their domestic rates. It argues that “closing the loopholes will have real benefits, including a fairer tax system, reduced federal budget deficits, and more resources to pay for improving our roads, bridges and schools — things that really are important for economic development here in the United States.”


Stung by Shutdowns, Massachusetts Debates Reforms

April 12, 2011

Recent job loss events in Massachusetts, though unfortunate for the state and its workers, may prompt passage of strong economic development accountability and clawback legislation that would apply to all economic development subsidies statewide.   Announcements by Evergreen Solar and Fidelity Investments – both major recipients of economic development subsidies – that the companies would be moving large numbers of jobs out of state have frustrated development officials, lawmakers and residents alike.

Evergreen Solar announced in January that it would shutter its Devens manufacturing facility and send over 800 jobs to China, despite the $58 million in job creation and development subsidies it received from the state.  Fidelity’s March announcement that it would be relocating approximately 1,100 jobs to two neighboring states from its Marlborough facility also came as an insult to the state; in the 1990s – at Fidelity’s urging and great cost to the state – Massachusetts altered its state tax code to apply single sales factor (SSF) corporate income tax calculation to mutual fund firms.  Weak accountability standards and a lack of safeguards in the state’s subsidy programs mean that Massachusetts will be able to recoup very little from Evergreen and nothing from Fidelity of the subsidies they received to create and maintain jobs in the state.

Executives from both companies were questioned by lawmakers last week about their acceptance of job subsidies and subsequent decisions to move jobs out of Massachusetts.  Evergreen Solar CEO, Michael El-Hillow, stated during the hearing that the company would not be repaying the $21 million it received as direct cash grants and tax credits from the state.  Fidelity’s major economic development subsidy, provided in the form of reduced corporate income tax responsibility through the SSF calculation, is impossible to recapture.  However, even some lawmakers who voted for the passage of SSF are now questioning its value to the state’s economic development efforts.  During the hearing Senator Mark Montigny, chairman of the Senate Post Audit and Oversight Committee, stated that he expected SSF “not to continue in perpetuity with no oversight” or accountability.

Prompted by these revelations,  the Massachusetts State Auditor issued a preliminary review of business tax expenditures this week.  She found that of 91 business tax expenditures, only 8 include a sunset clause, just 10 contain clawback provisions, and only 19 have public disclosure or accountability reporting requirements.  (Program sunsets, clawback provisions, and public disclosure are among the most basic and most critical aspects of key subsidy reforms supported by Good Jobs First.)   Massachusetts passed its first public disclosure law last year, which covers only the recipients of refundable or transferable tax credits.

This law, though a good first step towards strong public disclosure, is narrow and incomplete compared to other states’ disclosure practices.  It would be leapfrogged by S153/H2565: An Act to Promote Efficiency and Transparency in Economic Development, legislation currently being examined by the Joint Committee on Revenue.  Over 50 legislators, including primary sponsor Sen. Jamie Eldridge, are co-sponsoring the omnibus economic development reform bill.  Among its many provisions are the following major subsidy reforms:

  • Transparency, including spending transparency via a Unified Development Budget
  • Enhanced online disclosure of job creation and performance monitoring
  • Mandatory clawback provisions; and
  • Job quality standards

If enacted, the bill would protect Massachusetts’ future investments in economic development and ensure that companies can no longer take taxpayers’ money and run.

Starting Up Stalled State Economies: Experts Give Some Do’s and Don’ts

November 14, 2008

With the election of a new president, officials in many states are hoping a renewed federal/state partnership will jumpstart the troubled economy. Until the new president takes office, however, falling revenues have prompted some states to take actions that are counter-productive rather than counter-cyclical.

States are in a tough spot. For example, Illinois officials predict a revenue hole this fiscal year of $800 million or more. The Center for Budget and Policy Priorities (CBPP) projects state budget shortfalls across the nation will total $100 billion in fiscal year 2010.

Since every state but one must balance its budget, without federal support lawmakers must raise taxes, cut services, or both. (Outright fiscal irresponsibility—e.g., failing to pay Medicaid bills, underfunding state employee pension funds—is another option: Illinois’ unpaid bills could top $5 billion by early 2009.)

New York Governor David Paterson has just proposed school and health care funding cuts of $3.2 billion over two years, similar to those that have already occured in other states. But CBPP economist Nicholas Johnson argues cutting services and income supports makes the economy contract even more as the purchasing power of struggling families falls.

Johnson cites the work of noted economists Joseph Stiglitz and Peter Orzag. They argue tax increases, by reducing savings and not just consumption, are less harmful to a depressed economy, especially when they fall mainly on wealthier taxpayers.

While some states have enacted such tax increases or closed loopholes, others have instead considered tax cuts. Yet tax cuts are the least effective way to stimulate state economies in a recession. They can lead to further spending cuts while reducing the buying power of public employees. Fortunately, voters in several states have recently rejected the tax cut mantra.

States would be better off strengthening consumer demand by extending unemployment insurance, preserving healthcare coverage, preventing foreclosures, and speeding up already scheduled public works projects. The federal government could help by providing grants, paying a larger share of Medicaid costs, and rescinding (or actually funding) burdensome, federally-imposed unfunded mandates that cost states nearly $34 billion in the last fiscal year.

States can help themselves by better tracking, targeting or terminating largely unmonitored business incentives and tax giveaways like Single Sales Factor. They could adopt comprehensive unified economic development budgets (UDB), like the excellent UDB proposed for Kentucky. While more federal support is needed, states can use the recession to make their own economic development spending less wasteful and more productive.

Wisconsin Subsidizes Border Hopping, But Did It Need To?

February 20, 2008

Uline Shipping Supplies, a distributor of industrial packing materials, recently announced it will relocate its headquarters from Waukegan, Illinois to a new headquarters/distribution campus just 20 miles north in Wisconsin, for which it will receive up to $23 million in state and local business subsidies. The announcement has renewed debate in both states on the wisdom of providing such “incentives,” especially for companies taking a short step across state lines.

Uline will transfer 650 jobs based in Waukegan to Pleasant Prairie, Wisconsin, an affluent outlying suburb of both Chicago and Milwaukee. State and local officials have pledged $6 million in grants, credits and forgivable loans for the project, which is expected to create an additional 350 jobs in addition to the 650 transferred. Wisconsin has also designated the Uline campus an enterprise zone, providing up to $17 million in further tax breaks over 10 years.

The relocation is a blow to Waukegan, a small, economically depressed city in otherwise affluent Lake County. But, although Uline doubtless welcomes Wisconsin’s substantial public subsidies, it’s unlikely they are driving its relocation decision.

The key factor for Uline seems instead to have been finding a site big enough for both its headquarters and a new, much larger distribution center. Uline chief financial officer Frank Unick said the Pleasant Prairie site “gives us the opportunity to have significant space to accommodate future growth and to bring people together again who are currently located in a number of different Uline facilities.”

While Wisconsin’s subsidies might not have been a big factor in luring Uline across the border, Illinois’ own subsidies –whether in the form of tax benefits like Single Sales Factor adopted to attract headquarters and manufacturing (see February 6 blog below), or of the EDGE corporate income tax credits Uline has been awarded in recent years —were also ineffective in keeping the company from moving.

Costly Business Tax Break Fails to Check Illinois Manufacturing Job Loss– Again

February 6, 2008

In a move reminiscent of Maytag’s 2002 decision to close its Galesburg, Illinois plant and transfer jobs to Mexico, Methode Electronics has announced it will close one of its three Illinois plants and eliminate a product line at another. A total of 700 jobs at the three plants will be cut, with some positions transferred to Mexico or China.

Methode, a multinational supplier of auto components like turn signals, cited fewer orders from the Big 3 automakers and pressure to cut prices.

Job cuts like these underscore the ineffectiveness of the Single Sales Factor method of determining the income tax liability of companies that–like Methode–operate in several U.S. states. Illinois adopted in 1998,

By excluding in-state property and payroll from the formula that determines income taxable, SSF provides a tax windfall to large companies like Methode with substantial in-state presence and substantial out-of-state sales. Proponents claimed an economic development bonanza would offset the revenue loss, as SSF’s tax advantages would attract new companies and investment and create 155,000 new jobs in the manufacturing sector alone.

However, after eight years and an estimated cost to the Illinois treasury of nearly $750 million, SSF has proven ineffective in stemming the loss of manufacturing jobs in Illinois. In fact, manufacturing employment has fallen by nearly 219,000 jobs since the beginning
of 1999.