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: 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.

Regressive Taxation 101

The Daily Kos has this great article on regressive taxes - the same message TFT has been sharing for years, and will continue to share until our upside-down tax structure is turned rightside up and provides a level playing field for low- and middle-income families and enough revenue to adequately support our public structures we all need to grow and thrive in our state.
Some excerpts:

More than 80% of Americans are burdened more by state and local sales taxes alone than they are by income taxes. Only for the top 1% of earners do income taxes take a greater percent of their income than sales and property taxes.

Why is this? Because most Americans do something really interesting with the money that comes their way: they spend it. They buy food. They buy clothes. They buy toothpaste, toys, tool chests and toilet paper. Through that spending, they create demand. What doesn't get spent on consumables gets turned into the kind of long term assets that most people need to get by in the world. It turns into a roof over their heads and transportation to get to work. Which creates more demand. More jobs.

By spending their money, the majority of Americans fuel the health of the economy. They're the juice in the system. The churn. The fire in the boilers.

Meanwhile, up at the top end of the scale, those top 1% of earners don't neither spend their income or turn it into property. They don't consume it. They don't convert it. They just sit on it. This chart alone is enough to demonstrate that cutting the tax for those at the top is worse than pointless. The very rich are not turning their money into things / demand / jobs. They have so much more than they need that their money is simply stagnant. Sending them more cash would be no more effective than throwing it into a volcano.

Unfortunately, those spending and converting actions that most Americans engage in are attacked by regressive systems that hit from dollar one. These are not invisible taxes. They're all too visible. They're part of every transaction, large or small. They're the reason your dollar bag of pretzels can't be purchased with a dollar. They're the reason that new Chevy or Ford costs you extra both when you buy it and every year you own it.

The overall impact of eliminating sales tax and most income tax deductions is that over 80% of Americans would pay less tax and the tax directly eliminated would be the one they face every day in their transactions.


http://farm6.static.flickr.com/5028/5631100899_2403fd2af0_o.jpg

The Story in a Nutshell

John Hallinan at the Cap Times has the story straight: "The Crisis is our Unwillingness to Make Rich Pay Their Fair Share." That pretty much sums it up, but he hits the nail on the head so many times, you've got to read this great article.
An excerpt: "Now we are told that state workers making $40,000 to $60,000 per year are stealing the state blind. The same workers who for the last two years have taken over a 3 percent pay cut in the form of furloughs are now told they haven’t sacrificed enough. Now they must forfeit 7 percent or more of their pay, and give up their right to negotiate their future. What is appalling is the state workers were willing to give up the money to help out the state. All they asked was to keep their right to negotiate. Yet the wealthiest in our country aren’t willing to give up anything to help our country out of the financial mess they created.
"Now we are told that everyone must sacrifice to bring state and federal government budgets in line. But somehow the sacrifices once again all fall on those at the bottom of the economic ladder. Once again businesses are given tax cuts, money is found to increase spending on roads, but education, health care and help for the poorest in our society are cut.
There isn’t a financial crisis at either the state or the federal level. The crisis is our unwillingness to ask those who have gained the most from our society to pay a fair and equitable share from the wealth this society has allowed them to accumulate. It is the honest, Christian, and patriotic thing to do."
Amen!

The Upside-Down Economy

Watch An Upside-Down Economy for a great discussion on:
Idle resources and untapped revenues
The role of government spending in job creation
Governments are shooting themselves in the foot by cutting spending - denying economic growth through defunded public structures
Public goods and how we all benefit
The role of public investment in a globally competitive market
The structural problem of campaign financing
And more!
This Time article highlights the same underlying issues affecting the future strength of our communities, and while it addresses the federal budget, translates directly to investments at the state level, as well.

Rebuilding Prosperity for States and Families

This and more from the Progressive States Network:

Progressive Tax Reform and Revenue Generation
Context: Although the recession may have subsided at the national level, 2011 still finds states reeling from historic budget shortfalls, high unemployment, and significant revenue declines, and will continue to face fiscal challenges in the upcoming year. The lingering effects of the downturn and subsequent revenue shortfalls have forced state lawmakers to consider extreme fiscal measures to confront budgetary constraints. What’s more, states have already utilized a substantial portion of the federal funds available for state fiscal relief through the American Recovery and Reinvestment Act (ARRA).

Why this Matters: These dire circumstances merit progressive tax and budget policy as a means to provide essential services, make critical investments in public structures and long-term growth areas, support working and middle-class families who have been disproportionately hit by the impact of the downturn, alleviate the disturbing regressivity of state tax structures, and ensure that all taxpayers are contributing their fair share.

Some states and localities have unfortunately reverted to regressive proposals that will only exacerbate economic pain. For instance, conservative officials in some states are proposing providing large corporations with enormous tax breaks and reducing or even eliminating corporate, personal income, and estate taxes. In Michigan, lawmakers are attempting to push through over $1 billion in corporate tax breaks and considering cutting the state’s earned income tax credit (EITC), a tax credit that not only assists working families, but also has a direct positive impact on the economy. Similarly, Arizona Gov. Jan Brewer aims to balance her state’s budget on the backs of the vulnerable. Brewer has expressed her intent to cut health care for 280,000 Arizonans, while advocating for a slew of imprudent business tax cuts. These proposals would do little more than exacerbate fiscal pain, halt economic growth, and increase the burden on the middle class and working families.

While the right-wing continues on its anti-tax crusade, Colorado’s experience with the so-called Taxpayer Bill of Rights, or TABOR, exposes the fallacy of their manipulative rhetoric on the economic impact of tax cuts. In 1992, the state instituted TABOR, which places extremely strict limits on state and local revenue growth. Following implementation, TABOR resulted in: enormous declines in K-12 education funding and investments in students, increased tuition rates, the elimination of an affordable housing loan and grant program, an exponential rise in the number of children and adults who lacked health insurance, hindered essential services for vulnerable populations in the state, and limited the ability of the state to invest in infrastructure and other public structures that contribute to a healthy economy. Coloradans, including a range of elected officials and business leaders, were extremely dissatisfied with the insidious policy and, in 2005, voted to weaken TABOR rules.

Research and historical precedent demonstrate that raising revenue in a progressive manner is economically sound, politically feasible, and popular with the public - especially compared to massive cuts in investments in education, infrastructure, and health care that endanger a state's economic security and social vitality.

States should institute tax reforms that benefit the middle class. While the Right commonly argues that the tax onus falls squarely on the high-income families, the reality is that the richest have not been contributing their fair share for years. When you factor in sales and excise, property, and income taxes, states tax working families far more heavily than richer individuals, according to Who Pays?, a report from the Institute for Taxation and Economic Policy.

Moreover, corporate income tax revenue as a share of all taxes has fallen dramatically. In 1979, the corporate income tax accounted for 10.2 percent of total state tax revenue. In 2005, the figure fell to 6.5 percent. At the federal level, two thirds of American corporations and foreign corporations doing business in the United States pay absolutely no taxes, despite taking $2.5 trillion in sales.

The public also views the tax system as skewed to benefit the affluent. Sixty percent of voters say that “upper income people” are not paying their fair share, while 67 percent say that corporations are not.

Additionally, common-sense revenue solutions are needed to invest in the economy. As a report by the
Economic Opportunity Institute denotes, "every dollar of state spending generates $1.41 of economic activity. Much of that spending – 62%, or 88 cents – boosts the private sector. Cutting state spending means fewer purchases from suppliers, reduced contracts with service providers, less money from public and private employee paychecks circulating through local businesses – and of course, fewer public services."

Polling suggests strong public support to achieve these ends. In fact, a 2009 poll found that 79 percent of the public believes “government investments in education, infrastructure, and science are necessary to ensure America’s long-term economic growth.”

A joint statement released by the AFL-CIO and Chamber of Commerce -- two organizations that are usually on opposite ends of the ideological spectrum from one another -- expressed a similar sentiment on the need for investment and improvement in infrastructure. This illustrates that investment in economic growth is not a partisan issue -- it is a necessary step to prosperity that should garner support from both progressives and conservatives. As the statement reads, "whether it is building roads, bridges, high-speed broadband, energy systems and schools, these projects not only create jobs and demand for businesses, they are an investment in building the modern infrastructure our country needs to compete in a global economy... we hope that Democrats and Republicans in Congress will also join together to build America's infrastructure."