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9/4/2009
Who next will WI tax laws chase out?
Last Friday, Harley-Davidson Inc. announced it had ruled out Wauwatosa as a possible site for more motorcycle assembly, in the case they decide to close their plant in York, PA. The Business Journal article repeated the sites remaining under consideration – Missouri, Kentucky, Indiana and Tennessee, saying Harley saw these sites as more central to the country’s transportation corridor. Hmmm. Wonder what other variables might be a factor…
This Monday, Harley announced that Kansas City (MO) was out of the running.
Let’s compare each of the six state’s we’ve mentioned so far with this map (Figure 1) showing the states in the U.S. that require Combined Reporting.
- Wauwatosa, Wisconsin – no expansion considered
- York, PA – contemplating expansion
- Kansas City, MO – until this Monday, was in the running for a new plant
- Shelbyville, IN – in the running for a new plant
- Murfreesboro, TN – in the running for a new plant
- Shelbyville, KY – in the running for a new plant
Just for the heck of it, let’s add a 7th:
7. Stillwater, OK – welcoming Mercury Marine with open arms On the same web site as the map, The Center on Budget and Policy Priorities has a good (though a bit anti-corporation) succinct explanation of the combined reporting tax methodology that many corporations view as ominous.
Most large multistate corporations are composed of a “parent” corporation and a number of “subsidiary” corporations owned by the parent. Combined reporting essentially treats the parent and most subsidiaries as one corporation for state income tax purposes. Their nationwide profits are combined — that is, added together — and the state then taxes a share of that combined income. The share is calculated by a formula that takes into account the corporate group’s level of activity in the state as compared to its activity in other states.
By requiring corporate parents and subsidiaries to add their profits together, combined reporting states are able to nullify a variety of tax-avoidance strategies large multistate corporations have devised to artificially move profits out of the states in which they are earned and into states in which they will be taxed at lower rates — or not at all. Note that of the 45 states with corporate income and similar business taxes, only 23 of them impose combined reporting.
Next, here’s a quick review of Harley’s 1Q earnings announcement April 16, 2009:
Harley's net income fell to $117.3 million, or 50 cents a share, from $187.6 million, or 79 cents, in the year-ago period. Revenue slipped to $1.29 billion from $1.31 billion.
A change in Wisconsin's tax law resulted in Harley-Davidson taking a $22.5 million charge against this quarter's earnings. Well, can you guess what that new Wisconsin tax law was, effective for taxable years beginning on or after January 1, 2009? Yup. Combined reporting cost Harley-Davidson $22.5 million. Not chump change.
Ok, back to those 7 states. Wisconsin is a brand new combined reporting state and in Pennsylvania, it’s very likely coming. Perhaps combined reporting is the decision Harley is waiting for in making its decision whether or not to move from York - ??
And the other 5? Every single one – no combined reporting. Imagine that.
Given the mess in Fond du Lac, I thought perhaps as important a variable might be which of the states were Right to Work states. We know by way of Mercury Marine news that Oklahoma is a Right to Work state. But of the six “Harley” states, only Tennessee is a non-union, Right to Work haven.
Interesting. Unionization seems not to be a factor. Surely nothing scientific here, but combined reporting may well continue to chase business from Wisconsin. Imagine that. The legislature cutting off the state’s nose to spite its face. Great.
Jo Egelhoff, FoxPolitics.net
COMMENTS
Umnnnhhh....maybe.
Note that 'combined' is for headquarters locations. IOW, since Harley's HQ remains in Wisconsin, it is STILL subject to combined reporting, no matter what other States in which it has plants.
BTW, look hard at Southern Indiana; Whirlpool just closed its operations there and Mitch Daniels is VERY business-friendly.
dad29 (Fri Sep 04 09:44:23 2009)
Shelbyville - interesting. The Whirlpool plant. Dad, what do you think it would take for Harley to move its HQ from Wisconsin?
Jo (Fri Sep 04 09:44:23 2009)
And Jo: Let's not forget the "Historical" Tax structure and attitude to Corporations. Kimberly Clark left Wisconsin for a number of reasons, not least of which was the overall high level of taxation (including Income tax, that its Executives were subjected to), as well as the overall Labor Relations attitude in its relationships with its major Unions. Those attitudes prevail today, ie Mercury Marine, Thomas Industries, New Page, as well as most of the paper industry firms that have closed or substantially reduced manufacturing operations in Wisconsin. In Paper alone, we have [permanently lost over 40,000 high paying jobs in the last twenty years. How Sad!GLS
Glenn L Schilling (Fri Sep 04 10:56:12 2009)
Was this combined reporting voted on or was it part of a governor's budget?
emily matthews (Sat Sep 05 16:52:01 2009)
Passed as part of the "budget adjustment bill" early this year, put together behind closed doors and voted on 8 hours (or something like that) after it was made available to read. All Dem votes. No GOP votes.
Jo (Sun Sep 06 07:35:35 2009)
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