Leader Blues

Wednesday, March 30, 2005

EDITORIAL>> Stop giveaways to corporations

Another day at the legislature, another batch of special interests are relieved of having to pay taxes that the rest of us bear: One day last week it was Arkansas companies with payrolls greater than $50,000 and millionaires — no, make it billionaires — who want to set up their own private art museum in northwest Arkansas. They’ll get a break on sales or income taxes. It goes on and on, but someday someone is going to have to pick up the slack and pay for the government everyone wants.

We have a few candidates.

We nominate big multistate corporations that decided a few years ago they didn’t want to pay much, if any, taxes anymore on their profits in Arkansas. They’re too big to pay taxes to a rinky-dink place like Arkansas, so their accountants and tax lawyers set it up so they wouldn’t.

State Rep. Phil Jackson of Berryville, a Republican businessman, has introduced a bill (HB 2686) to make them pay once again. He thinks that if it becomes law it would net the state another $30 million a year to pay for schools, highways and all the other needs the legislature has at least recognized. His guess is probably very low.

But that is idle talk. HB 2686 will not become law; Jackson is not apt to even get it out of the House Revenue and Taxation Committee, although he is the chairman. The Arkansas State Chamber of Commerce and other corporate lobbyists will see to it that it doesn’t get a vote in the House.

Two years ago, when Jackson offered the same bill, the Arkansas Democrat-Gazette, a multilayered and multistate corporation itself, editorially denounced the bill as the worst of the entire legislative session. We think it may be the best. It certainly is the fairest.

The Council on State Taxation, a trade group of some 570 multistate corporations and their accounting firms and tax lawyers, is out to protect state tax loopholes they created in the 1990s. State chambers do their lobbying on the ground.

Jackson’s bill, which has become law in 17 other states, would require corporations operating in many states to file unitary tax returns. They would have to combine income and losses from all their subsidiaries and the state would tax it proportionately. It is called combined reporting.

Corporations like the major oil companies, General Electric, big multistate banks, SBC Communications and Kmart maneuver their profits from a state like Arkansas to special subsidiaries set up in states that do not have corporate income taxes or else have low tax rates or give companies special treatment.

Oil companies, for example, will have an exploration subsidiary in one state and assess their distribution operations in a state like Arkansas with very high wholesale prices for gasoline. Thus profits in Arkansas are almost nonexistent. All the profits are in the state where they will not be taxed.

Or take the now famous example of the national chain Toys R Us. A Delaware subsidiary owns the rights to the logo with the backward “R” and the trademark giraffe Geoffrey. Operating stores in Arkansas and other states are charged exorbitant royalties for using the logo and the giraffe and thus show few taxable profits. The Delaware subsidiary that owns Geoffrey and the logo has all the profits and pays no state tax. One postoffice box in Delaware may be the tax home of 90 corporations. A small office in Las Vegas or Reno, Nev., may be the tax home of hundreds of companies.

Most of the giant companies compete in some way with Arkansas businesses — independent gasoline stations, clothing stores, hardware stores, grocers — that pay their state income taxes. It is simple fairness that the big boys pay, too. The top rate is 6.5 percent and they get to deduct the state tax from their federal taxes.

Since the early 1990s, when Price Waterhouse and the other big accounting companies began developing these schemes, the state corporate income tax has plummeted as a share of state taxes even while corporate profits have soared. You’ve picked up the slack for them, most recently by another 7/8ths of a percent of sales taxes and a 3 percent income tax surcharge.

Legislators won’t get that message. They’ll hear the chamber lobbyists say that if Jackson’s bill passes it will make Arkansas antibusiness and dry up industrial development. What an outrage. But it works.