Why don’t some big companies complain about Iowa’s highest-in-the-nation corporation tax rate? Because they are on the receiving end.
The Department of Revenue last week issued the 2012 list of recipients of of the Iowa Research Activities Tax Credit over $500,000. Like the Earned Income Tax Credit for the working poor, the Research credit is “refundable.” If a recipient doesn’t actually owe tax, the state will send a check for the amount of the credit anyway.
For the working poor, the EITC is unabashedly a welfare program. For the corporate recipients, the credit is touted as “economic development.” I’m sure EITC recipients feel the same way about their government checks.
The report shows that about $34.2 million of the $50.5 million claimed in research credits was refunded — about 2/3. The biggest recipient of the credit was Rockwell Collins, which received $13.8 million in credits. The report doesn’t say how much credit was refunded for each large recipient; If 2/3 of the Rockwell Collins credits were refunded, that means Iowa taxpayers gave the company $9.2 million
I don’t believe Rockwell Collins, or anyone else, should pay Iowa corporation income tax. It is a bad tax whose repeal would make life better for Iowans. But that’s a long way from saying that taxpayers should actually cut annual welfare checks to corporations doing business in Iowa. While I don’t blame them for taking the checks — who turns down free money? — don’t try to tell me that it’s good for me.
Repeal of giveaways like the refundable research credit and the “economic development” credits given to the big fertilizer companies would go a long way towards paying for repeal of the corporation income tax for businesses lacking the lobbyists and wire-pullers needed to hit the corporate welfare jackpot. Maybe some day we’ll demand the legislature replace the tax-some, pay-others Iowa tax system with something better, like The Quick and Dirty Iowa Tax Reform Plan.
Speaking of Iowa Tax Reform, I have posted my analysis of the proposed Iowa 4.5% optional flat tax.
Dislike. The left-wing high-tax advocacy group Citizens for Tax Justice is scandalized that Facebook isn’t paying income taxes on its 2012 income (via the TaxProf):
Earlier this month, the Facebook Inc. released its first “10-K” annual financial report since going public last year. Hidden in the report’s footnotes is an amazing admission: despite $1.1 billion in U.S. profits in 2012, Facebook did not pay even a dime in federal and state income taxes.
Instead, Facebook says it will receive net tax refunds totaling $429 million. Facebook’s income tax refunds stem from the company’s use of a single tax break, the tax deductibility of executive stock options. That tax break reduced Facebook’s federal and state income taxes by $1,033 million in 2012, including refunds of earlier years’ taxes of $451 million.
So why are “executive stock options” deductible? Because they are taxable to the recipients as W-2 income. They are reported as taxable income on the executives 1040s at the same 35% top rate that the corporation pays. In other words, CTJ is upset because the executives, rather than the corporation, write the checks to the IRS.
There is no actual tax reduction. In fact, the government actually gets more income from the options than if Facebook had not issued the options and just paid 35% tax. Because they are also subject to the 2.9% medicare tax (3.8% starting in 2013), the option exercises actually generate additional revenue for the IRS. Presumably CTJ would want the executives to pay tax with no deduction on the other side. That seems unjust.
Another victory for Citizens for Tax Justice! After Illinois Tax Increase, State Farm Reportedly Moving Operations to Texas (Joseph Henchman, Tax Policy Blog).
Kay Bell, Sign up now to pay your federal tax bill via EFTPS. With the ongoing disintegration of the postal service, it’s good to have a secure and sure way to get your taxes paid on time. I’m signed up.
Martin Sullivan, Taxation of Intangibles: Still Hazy After All These Years (Tax.com)
Roberton Williams, A New Marriage Penalty for High Earning Couples—and a Bonus for Some (TaxVox):
Our new Marriage Bonus and Penalty calculator, despite all its Valentine’s Day finery, ignores the new 0.9 percent Medicare payroll tax hike buried in the 2010 health law. The extra levy affects only a few high-income couples but in very different ways. Lucky couples will collect marriage bonuses of up to $450. But those less fortunate—if anyone making $250,000 can be considered less fortunate—will incur marriage penalties of as much as $1,350 in additional Medicare tax.
Just another example of the whimsical and poorly-conceived nature of the Obamacare Net Investment Income tax.
Jack Townsend, New Plea Agreement Involving Israeli Banks
Robert Goulder, Jack Lew, the Cayman Islands & FATCA (Tax.com)
Ben Harris, Five reasons Why the Sequester’s Automatic Spending Cuts are Bad Policy (TaxVox).
Yeah, that’ll work. Newtown Lawmaker Proposes ‘Sin Tax’ On Violent Video Games (TaxGrrrl).
Traverse City! I will be speaking at a Farm Income Tax, Estate and Business Planning Seminar in Traverse City, Michigan June 13-14. The seminar is co-sponsored by the Iowa State University Center for Agricultural Law and Taxation. Other speakers include Roger McEowen and Paul Neiffer. Register now!
Chicago! Jackson’s Fall Includes Tax Charge (Russ Fox):
The last three governors of Illinois all went to prison (and it’s equal opportunity corruption: both Republicans and Democrats). Joining them will be former Congressman Jesse Jackson, Jr. and his wife, Sandi (a former Alderman in Chicago).
Mr. Jackson resigned last November from Congress; Ms. Jackson resigned in January from the Chicago City Council. Both are pleading guilty: Mr. Jackson to conspiracy and Ms. Jackson to filing a false tax return. They pleaded guilty on Friday.
The scheme apparently had them using “business” credit cards (here, business is their re-election campaign) for personal expenses. As this blog has highlighted numerous times in the past (and will likely do numerous times in the future), you can’t put personal expenses on a business return. And we’re not talking nickel and dime purchases; the total is $582,772.58. Add in filing false campaign reports and you have problems.
When people complain about the need to turn power over to government instead of “greedy corporations,” there is an implied assertion that the government and its operatives are somehow less vulnerable to avarice and self-dealing. Against all evidence.
Tags: economic development, corporate welfare, tax crime, TaxProf, Kay Bell, Russ Fox, Roger McEowen, Facebook, TaxGrrrl, Paul Neiffer, Martin Sullivan, Jack Townsend, Quick and Dirty Iowa Tax Reform Plan, Branstad tax policy, Peter Reilly, Roberton Williams, Robert Goulder, Brian Mahany, Ben Harris, Iowa tax p, Citizens for Tax Justice, Tony Nitti