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Chrysler, General Motors And Kimberly-Clark Supported the Elimination Of Corporate Tax Loopholes In Their Home States Yet Today, They Are Fighting Efforts To Close The Loophole In California
August 6, 2012
Californians to Close the Out of State Corporate Tax Loophole
Summary The corporate tax loophole in California, which was created in the dead of the night in a backroom Sacramento deal with no debate or disclosure in 2009, is specifically designed so that out-of-state companies can dodge taxes, putting them at a competitive advantage over California companies. The loophole, which gives companies an option of calculating their income based on a mixture of payroll, property, and sales, gives multistate corporations an incentive to keep jobs and investment in other states so that they can reduce their taxes in California. Basically, the fewer Californians out-of-state-companies employ, the less they pay in taxes. To fix the loophole, which is costing California $1 billion in revenue and tens of thousands of jobs, many in California want to require out-of-state companies to pay taxes based on one factor -- their sales in California -- instead of giving them a choice between sales, property, and payroll. The “Mandatory Single Sales Factor” would prohibit multistate companies from reaping profits on their sales in California while dodging their fair share of California state taxes – and it would force out-of-state companies to pay the same as in state corporations. By reducing the incentive to locate new jobs out of state, the Legislative Analyst’s Office predicts that the mandatory single sales factor will add $1 billion in revenues and create tens of thousands of jobs in California. The states of Colorado, Georgia, Illinois, Indiana, Iowa, Maine, Michigan, Nebraska, New York, Oregon, South Carolina, Texas and Wisconsin have all adopted a mandatory single sales factor approach – without a loophole – to provide an incentive to companies to invest in their states. Only California and one other state – Missouri – have this glaring loophole that allows big corporations to pick and choose the way they pay their taxes. In California, four companies have taken the lead to lobby successfully to keep the corporate tax loophole alive: Chrysler, General Motors, Kimberly-Clark and International Paper. These companies, which sell tens of millions of dollars in products to the state, are dodging millions in taxes and putting California companies at a competitive disadvantage. Ironically, many of these same companies lobbied heavily to close the tax loophole in other states where they have the bulk of their business operations. What this report reveals is that the words used and positions taken by the Tax Dodgers in other states support the argument for implementing a Single Sales Factor in California. Here are the key findings detailed in the following pages: • In 2003, Kimberly-Clark supported changing Wisconsin corporate tax law to a single sales factor method, and was even a member of The Single Sales Factor Coalition, a group of Wisconsin corporations that lobbied for the passage of the bill.
Businesses supporting Single Sales Factor in Wisconsin said, that Single Sales Factor gives “as much advantage as possible to in-state companies and shift as much tax burden as possible to out-of-state companies.” Kimberly-Clark spent 66 hours and $6,781 lobbying members of the Wisconsin State Senate in support of the single sales factor bill, second amongst the 16 Coalition members who in total spent 440 hours lobbying in just the first half of the year on the bill. Kimberly-Clark lobbyist Fred Shaffer appeared before the Wisconsin state Senate Committee on Economic Development, Job Creation and Housing in support of SB 197 at a June 13, 2003 public hearing on the bill. In Indiana, General Motors was a member of the Indiana Singles Sales Coalition group that successfully lobbied hard for a single sales factor bill in 2006. In 1995 Chrysler, General Motors, and a myriad of other business associations formed the Good Jobs Coalition, a group that endorsed single sales apportionment in Michigan in order to “send a powerful message to job providers to locate and expand in Michigan.”
Yet today in California, where these companies are profiting off of the State while holding a huge competitive advantage over California businesses, the Tax Dodgers are lobbying heavily against a Single Sales Factor here in California. Why? So far, they have not provided a good answer.
Kimberly-Clark Supported Single Sales Factor in Wisconsin
LOBBIED FOR SINGLE SALES FACTOR IN WISCONSIN IN 2003
In 2003, Kimberly-Clark supported changing Wisconsin corporate tax law to a single sales factor method, and was even a member of The Single Sales Factor Coalition, a group of Wisconsin corporations that lobbied for the passage of the bill.
The setting was Menasha Corp.'s Promo Edge plant on Breezewood Lane. The audience was a sizable contingent of plant employees as well as an impressive assortment of local business heavyweights such as auto dealer John Bergstrom, Kimberly-Clark Corp. Executive Vice President Kathi Seifert and Menasha Corp. President and CEO Harold Smethills. "All right," said Gov. Jim Doyle. "It's law." Repeating a ceremony that had taken place earlier in the day at HarleyDavidson in Milwaukee, Doyle signed legislation in Neenah that eventually will reduce corporate taxes by $45 million in Wisconsin. Supporters say the change will create 67,000 new jobs. "It's been many years in coming," Doyle said. "It's a new day in Wisconsin." "The entire business community owes you a debt of gratitude," said Jim Haney, president of Wisconsin Manufacturers and Commerce. For more than 10 years, Wisconsin businesses have been pushing to alter the corporate income tax formula to what's called the single sales factor method. In the past, taxes paid by Wisconsin businesses were based on a company's sales, payroll and property. The system increased tax bills when manufacturers expanded in Wisconsin, and critics contended it taxed out-ofstate businesses with no state employees or property at a competitively lower rate. Under the new plan coming into effect in 2006, in-state sales will be the only factor used in determining corporate taxes, regardless of where a business is headquartered… Menasha Corp. and Kimberly-Clark were members of The Single Sales Factor Coalition, a group of Wisconsin corporations that lobbied for passage of the bill earlier this summer. (The Post-Crescent [Appleton, WI] August 1, 2003)
69 HOURS, $6,781 SPENT
According to the Wisconsin Government Accountability Board, Kimberly-Clark lobbyist Fred Shaffer spent 69 hours and at least $6,781 lobbying members of the state legislature on SB 197, the state Senate’s single sales factor bill, in 2003.
K-C LOBBYIST SPOKE IN SUPPORT AT SENATE HEARING
Kimberly-Clark lobbyist Fred Shaffer appeared before the Wisconsin state Senate Committee on Economic Development, Job Creation and Housing in support on SB 197 at a June 13, 2003 public hearing on the issue (Record of Committee Proceedings, Senate Committee on Economic Development, Job Creation and Housing, June 13, 2003). We have not been able to locate a transcript of the proceedings.
Businesses in Wisconsin Supported Single Sales Factor
Business boosters in Wisconsin pushed hard for Single Sales Factor in Wisconsin. The rhetoric they used to support Single Sales Factor in Wisconsin also applies to the Single Sales Factor in California.
SINGLE SALES TOP PRIORITY OF BUSINESS GROUP
Lobbying for the adoption of a single sales factor method was the top priority of Wisconsin Manufacturers & Commerce, the state’s largest business group, in 2002. Without single sales factor, “a company that has a big physical presence primarily in Wisconsin, but sells nationwide really gets penalized,” said WMC President Jim Haney (WMC was founded by Kimberly Clark’s CEO in the early 20th Century: http://www.wmc.org/about/history/).
Groups employing lobbyists spent more than $24.8 million attempting to influence state lawmakers and the governor last year, with big business and the teachers union spending the most. Wisconsin Manufacturers & Commerce, the state's largest business group, spent $707,214, while the Wisconsin Education Association Council's lobbying efforts cost $465,515, according to reports on file Monday with the state Ethics Board… Taxes a top WMC priority WMC President Jim Haney said the group's priority for the current legislative session has been to limit state and local spending in hopes of providing tax relief. He said the bulk of WMC's lobbying time and money was spent on the state budget. "That's about the only thing that passed," Haney said of the legislative activity last year. The remainder of the year, WMC kept track of issues critical to members, such as worker's compensation and unemployment compensation, and continued to press for tax relief, primarily the so-called single sales factor, which would tax business on sales only. Haney said most states tax corporations within their borders only on a percentage of total sales in that state. Under Wisconsin's system, corporations are taxed on sales, payroll and their plants and equipment. "A company that has a big physical presence primarily in Wisconsin, but sells nationwide really gets penalized," Haney said. "We've already seen an exodus of a lot of manufacturing jobs out of Wisconsin, and if you're making rational decisions, especially during an economic downturn, you start looking at stuff like that." (Milwaukee Journal Sentinel, February 5, 2002)
Wisconsin Manufacturers & Commerce director Joan Hansen said Wisconsin’s threefactor method “penalized” Wisconsin-based businesses “for keeping and creating jobs in Wisconsin.”
Wisconsin currently determines how much of the income of multistate corporations is subject to tax using a three-factor formula, considering their sales, property and payroll within the state. The changes passed by the Assembly would shift the formula to use only a single factor, sales, for making the determination… Wisconsin Manufacturers & Commerce, the state's largest business group, has made the changes a top priority.
"Our current tax system gives companies a tax break when they create jobs in the state," said Joan Hansen, WMC director of tax and corporate policy. "Under (the bill), Wisconsin-based businesses would not be penalized for keeping and creating jobs in Wisconsin." (Milwaukee Journal-Sentinel, March 15, 2000)
WISCONSIN PAPER COUNCIL SUPPORTED SINGLE SALES
The Wisconsin Paper Council supported adopting a single sales factor method, and its chairman said it was something that “has to be done.”
The Wisconsin paper industry has laid out its road map for making the state an attractive place to do business, now it's going to see if it can direct traffic. "It has to be done," said Russ McCollister, chairman of the Wisconsin Paper Council and manager of Georgia-Pacific's West Mill in Green Bay. "Our plan is just to keep working together with all the parties, particularly legislators, rule makers and manufacturers, and keep finding ground we can agree on." The Paper Council today released the second of its reports on the State of Wisconsin's Paper Industry. The first, released in February, outlined the issues. The new report sets an action plan for addressing them… Specific proposals are:… * Adopt a single sales-factor corporate income tax formula. Wisconsin includes business property, payroll and sales when determining a company's corporate income tax. The council said that puts Wisconsin at a competitive disadvantage with other states, most of which use a single-factor formula. (Green Bay Press-Gazette, June 3, 2003)
The chief lobbyist for the Wisconsin Paper Council sent a memo to lawmakers in 2000 urging them to adopt a single sales factor formula, saying that other states employing single sales gave “as much advantage as possible to in-state companies and shift as much tax burden as possible to out-of-state companies.”
Wisconsin currently determines how much of the income of multistate corporations is subject to tax using a three-factor formula, considering their sales, property and payroll within the state. The changes passed by the Assembly would shift the formula to use only a single factor, sales, for making the determination… The trend in recent years has been for states to shift to the single sales factor tax. "These states give as much advantage as possible to in-state companies and shift as much tax burden as possible to out-of-state companies," Edward Wilusz, director of government relations for the Wisconsin Paper Council, said in a memo to lawmakers. Wisconsin's existing tax code puts state businesses at a disadvantage, Wilusz said. " Corporations that are headquartered or have the majority of their facilities in a single-factor state will have a lower effective tax rate than businesses located in three-factor states, giving those corporations a competitive advantage," Wilusz said. (Milwaukee Journal-Sentinel, March 15, 2000)
Wisconsin Paper Council President Pay Schillinger wrote in a column for the PostCrescent that the passage of the single sales factor bill was “good news.”
In the past year, I've written about the state of Wisconsin's paper industry and the many severe challenges it faces. The Wisconsin Paper Council issued two reports about the paper industry. One detailed the challenges we face, and the other offered specific recommendations for action by Wisconsin's policy makers that would help this vital industry continue to flourish. We reported that we needed to see changes in our tax laws, our regulatory process and in our energy policy. I am happy to report that we are beginning to see serious action on these recommendations… Another key issue for us is tax reform. Recently, the Legislature passed the single sales factor bill on a bipartisan basis and Doyle has said publicly that he will sign the bill. That's good news. (Business Columnist Patrick Schillinger, The Post-Crescent, August 10, 2003) The Wisconsin Paper Council announced today that President Pat Schillinger has resigned effective April 13, 2007, to take a position in the energy industry. Schillinger has led the Paper Council for five years. (Wisconsin Paper Council Press Release, March 12, 2007)
General Motors Supported Single Sales Factor in Indiana
In 2006, General Motors was a member of the Indiana Singles Sales Coalition, a group of businesses that lobbied the state’s legislature to adopt a single sales factor method.
When Monaco Coach shuttered one of its RV plants in Oregon last year, it pondered moving at least part of the 500-person facility to its campus in northern Indiana. Instead, it sent all of the plant's assembly lines to its headquarters in Coburg, Ore. Indiana lost out, Monaco officials said, in large part because of an obscure difference in how the two states calculate corporate income taxes. That difference gives Oregon's larger manufacturers a break by basing corporate tax bills solely on how much the companies sell in the state without considering their property or work forces there. Oregon will fully phase in its law by 2008. Now, two dozen of Indiana's largest companies -- including Eli Lilly, Roche and Hillenbrand -- want the state to calculate its corporate income tax only on sales. Such a method goes by the clunky name "single factor sales apportionment formula." The companies argue the formula not only would help them, but also would create more jobs in Indiana. Dream on, said Michael Mazerov, a state and local tax expert at the Center on Budget and Policy Priorities in Washington. In a lengthy report, he argued that the 17 states with single factor sales formulas have done no better in attracting or retaining jobs than states without them. "Large corporations are likely to obtain a disproportionate share of the tax savings that flow from the switch to a single sales factor formula," Mazerov wrote. Nevertheless, Republican leaders in Indiana's House of Representatives placed the single factor sales formula at the top of their "job creation" agenda this year. Gov. Mitch Daniels, a Republican, supports the idea but wants to wait a year because of budget constraints… Adopting a single factor sales formula could sap as much as $64 million each year from the state's $12 billion in annual revenues, according to a fiscal analysis done by Indiana's Legislative Services Agency.
House Bill 1007, which was approved by a committee last week, would try to cushion the blow by phasing in the new formula over five years… These companies have joined the Indiana Single Factor Sales Coalition to lobby for a change in the state's corporate income tax code:… General Motors Corp. (The Indianapolis Star, January 23, 2006)
General Motors and other big businesses that were members of the Indiana Single Sales Factor Coalition lauded the bill’s passage in March 2006.
State and business officials are lauding a fundamental change in Indiana corporate tax law that was tucked into a property tax bill and largely overlooked during the legislative session. Gov. Mitch Daniels called it the third of the "big three jobs items" the legislature passed this year behind the Major Moves road plan and telecommunications overhaul… Nearly all of Indiana's surrounding states have already moved to the system, except Kentucky. Michigan weights sales at 95 percent. Under House Bill 1001, Indiana will join the parade, using a five-year phase-in until Indiana becomes a single sales factor state in 2011… The move to change Indiana's system was pushed this year by several major business groups and the Indiana Single Sales Factor Coalition a group of about two dozen major Indiana companies including Biomet, DePuy, General Motors, Steel Dynamics and Zimmer Inc. Calls left at those businesses seeking comment Thursday were not returned. (Fort Wayne Journal-Gazette, March 17, 2006)
PASSED IN 2006
Indiana’s single sales factor bill phased in over five years, going into full effect in 2011.
Under House Bill 1001, Indiana will join the parade, using a five-year phase-in until Indiana becomes a single sales factor state in 2011. (Fort Wayne Journal-Gazette, March 17, 2006) Among other provisions, HB 1001, Laws 2006, provided for a transition to a single-factor formula for tax years beginning after 2010. The sales factor will be weighted at 60% for 2007; 70% for 2008; 80% for 2009; 90% for 2010; and 100% starting in 2011. (The Tax Adviser, April 2007)
Business Supported Single Sales Factor in Indiana
SINGLE FACTOR SALES COALITION MEMBERSHIP
At least 24 businesses joined the Indiana Single Factor Sales Coalition, including General Motors.
These companies have joined the Indiana Single Factor Sales Coalition to lobby for a change in the state's corporate income tax code: AK Steel Alcoa Biomet Caterpillar Cook Group CTB Delphi Corp. DePuy Eli Lilly and Co. General Motors Corp. Godfrey Marine Hillenbrand Industries Jasper Engine Exchange Kimball International Monaco Coach Corp. NIBCO Roche Diagnostics Steel Dynamics Styline Industries Tate & Lyle Toyota Motor Corp. U.S. Steel Corp. Whirlpool Corp. Zimmer (The Indianapolis Star, January 23, 2006)
LACK OF SINGLE SALES COST INDIANA 500-PERSON FACTORY
In January 2006 the tax director for Monaco Coach said Indiana’s lack of a single sales factor method “was a big factor” in the company’s decision to not move a 500-person facility to the state.
When Monaco Coach shuttered one of its RV plants in Oregon last year, it pondered moving at least part of the 500-person facility to its campus in northern Indiana. Instead, it sent all of the plant's assembly lines to its headquarters in Coburg, Ore. Indiana lost out, Monaco officials said, in large part because of an obscure difference in how the two states calculate corporate income taxes. That difference gives Oregon's larger manufacturers a break by basing corporate tax bills solely on how much the companies sell in the state without considering their property or work forces there. Oregon will fully phase in its law by 2008… Don Lance, Monaco's tax director, expects most states to eventually adopt single factor sales formulas.
Why? Monaco, Lilly, Roche and others lobbying for the tax change provide well-paid manufacturing jobs that are becoming harder to keep. In the end, Oregon kept Monaco's jobs because of its tax laws, Lance said. "Both states gave very comprehensive and well-thought-out proposals," Lance said of Indiana and Oregon. "(The single factor sales formula) was a big factor." (The Indianapolis Star, January 23, 2006)
ROCHE DIRECTOR: SINGLE SALES WOULD “LEVEL THE PLAYING FIELD”
In January 2006 the tax director for Roche Diagnostics appeared before the House Ways and Means Committee to lobby for a single sales method, asking “what’s Indiana going to do to level the playing field” with states that had adopted the method.
Indiana's largest employers began to quietly lobby in late summer for a single factor sales formula as more and more states adopted it. The firms' tax bills in those other states have risen sharply as the single factor sales formula shifts more tax burden to out-of-state companies. "I continue to see my (tax) liability in states double," Scott Wilson, Roche's tax director, told the House Ways and Means Committee last week. "It does beg the question, 'What's Indiana going to do to level the playing field?' " (The Indianapolis Star, January 23, 2006)
SINGLE SALES WOULD BRING NEW PLANTS, HOOSIER JOBS
The vice president for economic development at the Indiana Manufacturers Association said “Indiana has a window of advantage if it moves early” and adopts single sales factor, and suggested the change would allow Eli Lilly or Roche to build “big new plants in Indiana and hire many Hoosier workers.”
Indiana could both level the playing field and boost its economy if it adopted the single factor sales formula, said Mark Cahoon, vice president for economic development at the Indiana Manufacturers Association. The change would allow Lilly or Roche or even an out-of-state firm to build big new plants in Indiana and hire many Hoosier workers -- and the company's corporate income tax would not go up. "Most other states are considering single sales factor," Cahoon said. "Indiana has a window of advantage if it moves early." (The Indianapolis Star, January 23, 2006)
RECORD ECONOMIC DEVELOPMENT YEAR SINGLE SALES PASSED
According to an op-ed by Indiana Secretary of Commerce Nathan Feltman, Indiana had a record year for economic development in 2006, the year single sales was passed. According to Feltman, 188 companies committed to invest $8.3 billion in 2006 and create 22,500 new jobs in Indiana. Feltman cited the passage of single factor sales as a main reason for Indiana’s improved business climate.
Indiana had a record year for economic development in 2006. The Indiana Economic Development Corporation closed 188 competitive projects with companies that chose Indiana over another state or country to bring their job creating investments. These 188 companies committed to invest $8.3 billion and create 22,500 new jobs in our state -- and these commitments come on the heels of a record breaking 2005. Companies are creating jobs across Indiana and in diverse industries. Yes, we are still a manufacturing-intensive state -- but that is not bad.
As the manufacturing sector has adopted new technologies and increased productivity, the number of jobs requiring skilled workers continues to rise. According to a recent study, Indiana's workforce is a leader in the Midwest in terms of its productivity. And the pay and benefits in the manufacturing sector are much higher than the state average. Indiana is the only state in the nation that can claim it landed three new automotive manufacturing facilities in 2006: Cummins in Columbus (600 new jobs); Honda in Greensburg (2,000 new jobs) and Toyota in Lafayette (1,000 new jobs). With those wins will come numerous opportunities for suppliers to those companies. Other big wins last year include: *American Commercial Lines --1,200 new jobs in Jeffersonville; *Nestle -- 450 new jobs in Anderson; *Pfizer -- 450 new jobs in Terre Haute; *Rolls Royce -- 600 new jobs in Indianapolis; *Salle Mae -- 750 new jobs in Muncie; *Shoe Carnival -- 280 new jobs in Evansville; *Sysco -- 560 new jobs in Hamlet; *WellPoint -- 900 new jobs in Indianapolis; *IBM -- 1,000 new jobs in a location to be determined. While these big job announcements grab the headlines, two-thirds of the new jobs committed to Indiana this year will come from companies creating 10 to 250 new jobs… The governor and our general assembly have continued to improve Indiana's competitiveness by enacting legislation that promotes investment and job creation, including: An improved research and development tax credit; modern telecom laws that promote investment; massive new investments in our roads, bridges and airports as a result of the Major Moves infrastructure investment program; single factor sales tax phase-in; and the passage of daylight-saving time. (Op-Ed by Nathan Feltman, Indiana Secretary of Commerce and President of the Indiana Economic Development Corporation, Journal and Courier, January 4, 2007)
Chrysler, GM Endorsed SSF in Michigan
In 1995 Chrysler, General Motors, and a myriad of other business associations and large corporations were members of a group that endorsed single sales apportionment in Michigan. The senior vice president of the Michigan Chamber of Commerce said adopting a single sales method would “send a powerful message to job providers to locate and expand in Michigan.”
The following was released by the Good Jobs Coalition: Following strong bipartisan approval in the Senate, a major revision of the Single Business Tax (SBT) to encourage economic development will soon be taken up in the state House. The pair of bills would encourage companies to build new plants and create more jobs in Michigan by ending current tax policies that mean lower taxes for Michigan businesses creating jobs in other states. The package of bills is endorsed by the Good Jobs Coalition. The Coalition is comprised of associations, businesses and economic developers around the state. "Both of the Senate bills will support businesses that create good jobs in the state of Michigan," said Elaine Tycocki, Chairperson of Economic
Development Policy Committee for the Michigan Economic Developers Association. LANSING, Mich., June 12 SB 342, introduced by Sen. William Van Regenmorter, would change the SBT to 100% sales apportionment over a five year phase-in period beginning in 1996. The tax is currently based on a formula of 25% property/25% payroll/50% sales, penalizing companies that build facilities and pay workers in Michigan and benefiting companies that locate outside of the state. SB 545 would restrict the use of the Capital Acquisition Deduction (CAD) to projects built in Michigan. Under current law, the deduction from the CAD is applicable for all property across the country. "The combination of these two changes to the SBT would send a powerful message to job providers to locate and expand in Michigan," said Rich Studley, senior vice president of the Michigan Chamber of Commerce. "We are optimistic that the state House will soon take up these measures." "These bills will help create jobs here in Michigan, increasing our economic base and providing long-term growth in jobs and investment in plants and equipment," said Sen. William Van Regenmorter. "Business leaders and economic development officials I've talked to say this is a critical tool to making Michigan a better place in which to live and work." The Good Jobs Coalition includes the Grand Rapids Area Chamber of Commerce, Greater Detroit Chamber of Commerce, Midland Chamber of Commerce, Small Business Association of Michigan, Michigan Chamber of Commerce, Michigan Economic Developers Association, Michigan Manufacturers Association and the Right Place Program. It also counts as members a number of companies that have their primary operations in Michigan, including: Amway, ANR, Autocam, Chrysler, Copper and Brass Sales, Dow, Ford, General Motors, Hayworth, Herman Miller, Indiana Michigan Power Co., Kellogg, Mead, Meijer, Perrigo, Rouge Steel, Upjohn and Whirlpool. (PR Newswire, June 12, 1995)
Paid for by Yes on 39 - Californians to Close the Out-of-State Corporate Tax Loophole. Major funding by Thomas F. Steyer and Californians for Clean Energy and Jobs, sponsored by environmental organizations and business for clean energy and jobs - Yes on 39.
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