Taxing Issues: Out-of-State Sales Tax

TAXING ISSUES: A SIX PART LOOK AT ISSUES THAT HINDER TENNESSEE’S ABILITY TO BE A JUST AND PROGRESSIVE STATE.

Part VI: Out-of-State Sales Tax (finally, something that lawmakers on both sides of the aisle agree on!)

The out-of-state sales tax laws, written at a time that mail-order catalogues were beginning to see some success, specify that companies are not required to collect sales tax unless they have nexus (a physical presence) in that state. Therefore, a mom-and-pop all-American record shop can sell a CD and be required to collect the sales tax, or an online realtor can sell the same CD and collect no sales tax, just profit for his or her company. In this agreement, the winner is the internet corporation, and the losers are the small business and people of the state.

Fortunately for the current losers, powerful voices are on their side. In July of 2012, Gov. Haslam testified before congress in favor of federal legislation to require internet realtors comply with state sales tax laws. Congressional action is ultimately what will make a difference to this corporate loophole.

States may enact their own laws (as Gov. Haslam signed in 2011 – internet realtors will begin collecting sales tax in 2014, pending federal legislation) but if congress acts, state lawmakers will no longer live in fear of a corporation relocating because they acted on behalf of their people.

In Tennessee, the pardon of internet companies selling product without collecting taxes is costing the state around $400 million. The Tennessee delegates know this and are willing to raise their concerns to congress. As Tennesseans for Fair Taxation, we could reach out to our allies in other states and encourage them to contact their delegates as well, ultimately ensuring that all Americans play by the same rules in regard to tax collection, and putting more money in vital state services as opposed to the pocketbooks of shareholders.

What do you think? Is this an issue you feel passionately about? What do you think about the ideas for TFT’s action? 

Taxing Issues: Single Article Cap

TAXING ISSUES: A SIX PART LOOK AT ISSUES THAT HINDER TENNESSEE’S ABILITY TO BE A JUST And PROGRESSIVE STATE.

Part V: What's a Single Article Cap?

In Tennessee, you pay less tax on this

Did you know that if you were to purchase a luxury yacht you would pay less in sales tax than someone who could only afford a dinky canoe? The same applies to someone who buys a $100 thousand dollars Maserati and someone who buys a $2,500 used car. Weird huh?

than this. 

The reason for this is something called the single article cap, which is a cap on local taxes. In Tennessee, depending on where you live, your sales tax is 9.25 to 9.75%. Now sales tax is comprised of two parts: the state portion which is 7% and the local option (also known as the single article) which is what goes to your local city or county and is the extra 2.25% to 2.75%  (depending on what county you live in).

Now, the local option has some quirks. The first $3,200 of any purchase is taxed at the normal rate, which is the state portion, 7% plus the local option 2.75% = 9.75% sales tax. After $3,200 the local option goes away and sales tax falls to just the state portion of 7%.

This is taxed LESS

than This! Whaaaaaaat?!

TFT doesn’t think that’s very fair (because it's not). Why should someone who can afford a fur coat pay less in sales tax than someone who can't? It isn’t fair and it doesn’t make sense.

These coats are taxed LESS

than this. Oy.  

TFT estimates that the state would generate an extra $100 million dollars a year just by eliminating the cap on the single article. TFT also advocates for a uniform rate except for the purchase of a vehicle priced under $10,000 and a mobile home that is used as a primary residence. We think that this would be so much fairer, rational, progressive and just the right thing to do.

What do you think? 

Taxing Issues: Estate Tax

TAXING ISSUES: A SIX PART LOOK AT ISSUES THAT HINDER TENNESSEE’S ABILITY TO BE A JUST A PROGRESSIVE STATE.

Part IV: The Truth about Estate Taxes

What’s the estate tax, and why did Governor Haslam work so hard to repeal it last year in Tennessee? Last year, the estate tax was a subject that inspired lots of emotion-based language, designed to tug on the heartstrings of hardworking Tennesseans. Today, we’ll break down this language, dissect it, and discover the root of the argument against one of Tennessee’s most progressive taxes.

MYTH #1: "This is just another way we're looking at reducing taxes in the state of Tennessee,'' Rep. Sargent said. "Republicans just believe this is the way to go. It brings in more business, which in turn brings in more revenue.” – Rep. Charles Michael Sargent, R-Franklin

BUSTED: The Congressional Research Service recently analyzed six decades of data and found that top tax rates "have had little association with saving, investment, or productivity growth." Furthermore, the study found that cuts to top marginal rates led to greater income inequality. Rep.’s Sargent’s claim may sound appealing, but the evidence would point to a much different scenario.

Myth #2: "The governor doesn't consider living anywhere else but Tennessee, so the elimination of the gift tax here won't impact his planning decisions.'' – Alexia Poe, Gov. Haslam’s spokeswoman.

BUSTED: The governor may not be looking to relocate, but he can certainly turn Tennessee into a desolate state devoid of solid social services in order to serve himself. According to an interview with his CPA in 2010, Haslam, a super-rich heir to the Pilot Flying J corporation chain stores, transfers stock to his children by selling it as opposed to giving it away. J. Todd Ellis, CPA, says that the governor avoids paying some taxes this way, generating about $1.1 million dollars per year for himself, and effectively kicking the vulnerable while they’re down.

Myth #3: “Tennessee charges you to die.” (Colloquial)

BUSTED: We’re still surprised by the need to say this, but there is no charge for dying. According to existing policy, estate taxes are to be paid on household valued at $1 million or more, and are to be paid for the privilege of transferring significant wealth. The tax is paid by the descendant’s estate.

In conclusion, the estate tax is one of the most progressive taxes Tennessee has: it ensures that America is still recognizable in 50 years as a place where upward mobility is possible, where wealth does not concentrate among the very top families like a 15^th century European aristocratic society and everyone has opportunities for self-improvement. Between 2010 and 2011, Tennessee collected $97,875,967 from the estate tax. With that kind of money, we could make concrete improvements in everyday people’s lives, from better education for our kids to safer streets to cleaner water to more effective health services.

Or it could be used to further stuff the pockets of Tennessee’s already bloated wealthy class. Your choice. 

Taxing Issues: Fighting a Ban on Income Tax

TAXING ISSUES: A SIX PART LOOK AT ISSUES THAT HINDER TENNESSEE’S ABILITY TO BE A JUST A PROGRESSIVE STATE.

Part III: Fighting a Ban on Income Tax 

It’s the truth: In Tennessee the poor pay more of their income in state taxes than the rich. In the midst of difficult conversations about the haves and have-nots, however, you may find yourself yearning for a simple solution to the grave injustices of our state tax system. The good news is that there is one, an income tax. The bad news is that the “haves” in our state are working – hard – to ensure that the solution is off the table forever.

Third-party economists and researchers have agreed for years that the solution to our revenue problem is a progressive, broad-based state income tax. It’s the only way to guarantee that everyone pays taxes according to their means. Otherwise, we’re stuck with the system we have now; sales and business taxes have no where to go but up, leaving the poor and middle class to shoulder most of the burden while the rich cut their state services, such as health services, police and fire protection, and education.  

Glen Casada (R-Thompson Station) has introduced a constitutional amendment in the state legislature that would forever ban this type of protection for the poor and middle class. Even worse, he himself seems to be dangerously ignorant of the repercussions. Tennessee could see a $3 billion potential loss in revenue, and in January 2012, when challenged on the house floor regarding the bill’s regressive nature, he stated that an income tax was regressive, thus displaying a disturbing lack of basic knowledge or a blatant disregard of tax structure and history.

A progressive tax is defined as a tax that increases in rate as the payer's income increases. An income tax, for example, is a progressive tax.

A regressive tax, on the other hand, is one whose rate increases as the payer's income decreases. Sales tax , for example, is a regressive tax.

 Senator Borah said in 1909, “the income tax is the fairest and most equitable of the taxes. It is the one tax which approaches us in the hour of prosperity and departs in the hour of adversity. Certainly, it will be conceded by all that the great expense of government is in the protection of property and wealth. There is no possible argument founded in law or in morals why these protected interests should not bear their proportionate burden of government.” But, don’t just listen to Senator Borah, listen to Adam Smith, the father capitalism, who said in hos book, the Wealth of Nations  "The subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the state.” Smith also says "It is not very unreasonable that the rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion."

For years, TFT has been supporting this as a solution to Tennessee’s revenue problem and dependency on federal funding. Now, however, despite overwhelming evidence in support of an income tax, Casada and many others in the legislature are threatening to take away this option for Tennessee’s future just to score cheap political points

The bill must receive a 2/3 majority in the house and senate in 2013, then, if it passes, will go on the 2014 general ballot for a vote.

TFT could fight this terrible idea before it goes to the ballot. We, the people of the poor, middle, and upper classes aren’t the only ones who have an interest in keeping our sales taxes low and removing our food taxes entirely: in a state without an income tax option, taxes on small businesses are bound to swell as the need for revenue increases. The strong faith communities of Tennessee have also voiced opposition to this unethical, unjust ban for reasons tied to their belief that opportunities for improvement should not be stacked against the poor. Even legislators who take their roles as civil servants seriously, such as Mike Kernell and Douglas Henry, are opposed to this horrendous bill.

The time to act is now. What do you think? Tell us in the comments below if you think this is an issue for TFT’s 2013 agenda.

Taxing Issues: Corporate Welfare

TAXING ISSUES: A SIX PART LOOK AT ISSUES THAT HINDER TENNESSEE’S ABILITY TO BE A JUST A PROGRESSIVE STATE.

Part II: Corporate Welfare

You’ve heard the stories. The country is hemorrhaging money because of welfare, specifically welfare that goes to some lazy, drug-addicted woman of color who has more children than she has teeth. Sometimes in the stories this fertile woman enjoys state funded amenities such as I-phones and Cadillacs.  She’s so undeserving, so lazy and so deliriously happy with her free riches! I’ve heard about her for years; she is the ultimate welfare strawman (strawwoman) and doesn’t really exist. The story is a cheap parlor trick designed to force attention away from the real culprits and to place blame elsewhere. It is an insidious trick that fosters bigotry, misogyny, distrust of the government, distrust of the poor while promoting the false assumption that if you have nothing you are lazy and stupid and if you have something then you are smart and hard working. Personally, I’ve known a lot of folks on public assistance. Most of them were in college trying to earn a degree to become a working, tax-paying citizen. No one was wealthy by any stretch of the imagination and none of them had more than one kid. The kids, by the way, were valued members of their families and not part of some scheme to score more groceries. I digress.

I could go on and on, but the title of this post is called Corporate Welfare so I’d better get to it. The thing that blows my mind is the reality of welfare. See, in the U.S. a full 2/3rds of the welfare budget goes to corporations. It goes to subsidize oil companies despite the fact that they are making record breaking profits each and every year, or welfare is being dispersed to giant agri-farms who are forcing mom and pop farms to close, employing factory style farming that inhumanly treats animals and don’t need the money. More digression. My point is that if your beef is with a wasteful welfare system, then at least start with the big potatoes. Personally, I’d rather give free breakfast to a needy kid than wallpaper a CEO’s private office bathroom. That’s just me though.

Yes, that's a solid gold toilet. 

Anywho, in Tennessee we have a very similar situation. There is lots of corporate welfare being handed out hand-over-fist all under the guise of attracting businesses to Tennessee. Ha! It’s laughable, really.

The thing that our political leaders try to tell us is that the only way to get businesses to come to Tennessee is to offer them incentives (which we’ll get to in a minute), but that’s not really the case at all. I mean, look at why people move to one area or another. They move for a host of reasons: the climate, to be close to family, good school systems, affordability, jobs, sufficient entertainment and infrastructure.  Corporations are the same. Lots of politicians will tell you that companies move to Tennessee because we don’t have an income tax. That is complete bunk. If that were the case then Tennessee would host more headquarters than California and New York combined. We don’t. Next. Companies are actually less likely to move their headquarters to Tennessee because we have very low rankings in terms of education, healthcare and social services. We have great interstates though, so that helps.

So, what do political leaders do then? If not having an income tax isn’t that big of a deal to corporations how do they get them to come live in Tennessee? CORPORATE WELFARE! This means Tennessee tax dollars (generated by the highest sales taxes in the country) help line the pockets of companies all across Tennessee.

One of these welfare items is giving companies free use of land for a time. This is called a PILOT or Payments in Lieu of Taxes. Basically it is free property taxes. Property taxes, by the way, are one of the main ways that schools are funded in Tennessee.  So, for instance, take a look at the Tennessee Comptroller’s IDB/H&ED Report for 2011 (the most recent). This is a list of the companies that have received a PILOT in 2011, how much the property is valued, how much they have actually paid, and how long they have this PILOT for.

So here are a few examples of PILOTS in action:

1. Centennial Village Apartments in Oak Ridge Tennessee, received a PILOT until 2029 or for the next 17 years. The property is valued at $11,110,194 dollars, the owners pay $1 a year in rent for the property and have graciously been paying $55,623 a year in payments in lieu of property taxes. However if there were no PILOT these landlords would have to pay about $605,505 in taxes a year. That’s $556,253 a year for the next 17 years that citizens of Tennessee and Oak Ridge will never see. Not to mention what will be going on in 17 years. Will these landlords simply sell the building and over to another state? Will the buildings fall into disrepair and have to be demolished? How many people will this apartment building employ? When do the citizens of Oak Ridge get to reap the benefits of this investment?

Centianial Apartments Clubhouse complete with "vacation style salt water pool."

1. Parr Industries in Pulaski, TN ; one of 6 locations in Tennessee with PILOTS. One property is worth $907,000 they pay nothing, nada, zip til 2030. Will they be around in 2030? How many people do they employ? They are less 30 miles from Alabama, so how many Alabama residents do they employ? Pulaski is missing out on $33,468 a year for 18 years. Will they break even on this deal?


2. Wrigley Manufacturing Group in Chattanooga, TN with an estimated property value of $13,352,267 pays nothing until 2018. This is a savings to Wrigley of $715,147 a year. How many people from Georgia (which is minutes away) are employed there? Is this company new to the area or did they get an extension or a new PILOT to stay?


3. Oreck Manufacturing Group in Cookeville, TN has an estimated property value of $19,643,519 and they pay $100 a year in rent and nothing else until 2032. That’s a savings of  $ 711,095 a year. Wow! What a deal! I want that deal too! How many people do they employ? Does the city of Cookeville essentially pay for the salaries of all of the employees this way? Will the company relocate to another state in 2031?

I only ask because it seems no one else has. Try and find these answers through any Tennessee agency. I have and no one is responsible for following up. Maybe these things work to the benefit of Tennessee sometimes, maybe they don’t. Who knows? I’d at least like to see some sort of cost benefit analysis in addition to some claw back legislation. TACIR, the Tennessee Advisory Commission on Intergovernmental Relations published a study on the negative impacts of PILOTS on schools and the lack of governmental oversight in the give-away process. It’s a good read. Albeit frustrating that this thing was written 8 years ago and not much has changed.

I’d like to tell you how much money the state would save or make if PILOTS were stopped or mitigated, but the data is hard to calculate. As you can see by the four examples above that calculating this stuff is difficult and time consuming… and there are so many of them too.

In addition to PILOTs, there are a whole host of other corporate freebies too, like REITs (Real Estate Investment Trust) which sole purpose is, according to Wikipedia, to reduce or eliminate corporate tax. What about Amazon’s 2 year deal to not collect sales taxes in Tennessee, giving them 10% discount advantage over everybody else in the state? Yep, that too was a corporate give away and the state lost out on around $200 million in revenue.

There’s no doubt that Tennessee needs to grow and be competitive, but are all of these corporate giveaways helping or hindering? What we do know is that Tennessee needs corporate welfare oversight and accountability, or in other words, CORPORATE WELFARE REFORM. Perhaps then we wouldn’t have to literally give away the farm just to get 14 blue collar jobs in this state if the citizen’s tax dollars were better spent on education, environment, safety and other vital infrastructure.  If Tennessee spent it’s citizen’s tax dollars on building a better Tennessee for all of us, then maybe the businesses wouldn’t require us to pay them for the privilege of locating in one of the most beautiful and friendly states in the nation.  Then businesses would come because we would offer, for example, some of the best schools and not just the best interstates.  You might say it’s a just a dream, but I say it’s a reality that we’ve not yet realized.

Stand with TFT and let’s get our tax dollars working for the people not the corporations!

Taxing Issues: Combined Reporting

Taxing Issues: A Six part look at issues that hinder Tennessee’s ability to be a just a progressive state.
 

Part I: Combined Reporting

Combined reporting? What’s that? We’ll don’t worry, it’s not quite as boring or complicated as it sounds. It’s actually a loophole that large, multi-state corporations take advantage of to avoid paying all of their taxes.

See, in Tennessee, corporations are not required to show all of their earnings to the state (the loophole). So companies with clever accountants set up subsidiaries (which is basically a P.O. box) in Delaware (A.K.A. Delaware Holding Companies) and these corporations pay themselves rent on property the Delaware subsidiary own in Tennessee, or they pay themselves for the use of the store logo. You get the picture. So come tax-payin' time in Tennessee the corporations only have to show the state of Tennessee what they made in Tennessee and the state has no idea about Delaware. This means that while the corporation could be making huge bucks off of Tennessee, they don’t end up paying all the taxes they owe because they’ve reported all these extra expenses (incurred by paying themselves through the Delaware holding company).

It’s just a fancy shell game that only huge, multi-state corporations can play. A mom and pop shop who only has a couple of stores in Tennessee can’t play this game because they are not multi-state and therefore can’t shift money form one state to another. It’s a tax avoidance scheme that puts all other honest, by –the –rules businesses at a disadvantage. In addition it costs the state about $200 to $300 million dollars a year. How many teachers could TN employee with that kind of dough? How many fire departments could be upgraded? See what we mean?

The good news is that we already know the answer to this problem and it’s really simple. It’s called: COMBINED REPORTING! What that does it make the corporation give a complete picture of their tax accounting for all states which prevents the corporation from hiding a share of their profits (made in Tennessee) in Delaware.  It’s that simple.

So why isn’t this being done already? Well, that’s a great question. A lot of lawmakers don’t see any need to rock the boat with these companies. We can only imagine why. But, the real reason is that the people of Tennessee haven’t given them any reason to close this loophole.  This is where you come in. We need to let our lawmakers know and to put pressure on them that we know about this loophole, we think it’s unfair and we want it closed! How many more windows at the DMV could be open with that money? That’s real hours of your life wasted because the state of Tennessee doesn’t have enough money to hire more staff?  

Let’s force this change and make Tennessee that much better.

Three Things TFT Members can Learn from Mitt Romney's Leaked Videos

Unless you live under a rock, you've probably seen Mother Jones' article exposing Mitt Romney's remarks at a private fundraiser for millionaire donors.

The remarks about taxes is particularly upsetting. Here's what he said to his wealthy donors, most (if not all) of whom pay a much lower rate in taxes than their employees thanks to a lower capitol gains tax or fancy-footed accountants:

"There are 47 percent of the people who will vote for the president no matter what. All right, there are 47 percent who are with him, who are dependent upon government, who believe that they are victims, who believe the government has a responsibility to care for them, who believe that they are entitled to health care, to food, to housing, to you-name-it. That that's an entitlement. And the government should give it to them. And they will vote for this president no matter what…These are people who pay no income tax."

This shouldn't be surprising to those who follow the national conversation on taxes: conservatives often try to paint a pitiful picture of victimized millionaires while demonizing the people they take advantage of.

But with these comments on the national stage, what does this mean for TFT, our mission, our members, and the way we think about taxes both statewide and nationally? Here are three things we can take from Mitt Romney's public comments against progressive taxation:

1.) In an election year, support from members is needed more than ever in order to combat the harsher-than-usual rhetoric from the right.

Op-eds, Letters to the editor, donations, volunteer work, calls to state lawmakers calling for progressive taxation are all necessary steps on the path to providing well-funded programs to lift others out of poverty, but in 2012, with the 1% on high alert, your support is needed more than ever.  We live in a very conservative state, so it's crucial that your senators and representatives know your stance on the poor paying a higher percentage of state taxes than the wealthy.

2.) Health Care, Food, and Housing are not seen as human rights to the right.

Romney specifically mentioned these three things as "entitlements." These three are also specifically mentioned in the Universal Declaration of Human Rights. If the wealthy are eager to deny Americans even the most essential services, we must realize that the moral fabric of the nation is in need of repair and serve as an example to remedy it. This includes working harder than ever to take the tax off food in Tennessee.

3.) We must be on alert for more of these kinds of attacks on the common man.

Again, it's an election year, and that means issues are polarized and attacks against the poor and middle class are nastier than usual. Tennessee lawmakers say things like this all the time. If you see something that shocks you, speak up! Tell us, tell your local newspaper, post on your Facebook page and ours, and help us rally our members against these unfair attacks.

Our Annual Meeting for Members is coming up on September 29. We need your support in order to fight these attacks and more in Tennessee. Register today by clicking the link on our homepage or email megan@fairtaxation.org to inquire about other ways to help.