Category Archives: Taxation

Want a lower tax bill? So do Apple and Genentech

Source: Catherine Ho, San Francisco Chronicle, August 12, 2018

For-profit companies don’t typically downplay the value of their assets.

But when it comes to paying property taxes, some of Silicon Valley’s largest companies are going head to head with officials to try to prove that some of the equipment and machinery they used to become global titans are actually worth a lot less than what county tax assessors say.

In the Bay Area, Genentech and Apple are particularly aggressive in opposing tax assessors — elected officials who determine the value of property for tax purposes. Both companies are leading years-long efforts to recoup tens of millions of dollars they say they’ve overpaid in taxes on buildings, land, lab equipment, computers and other items….

…. There is nothing illegal or unethical about appealing assessments. Companies are entitled to contest property assessments they believe are done improperly or inaccurately. But the tactics taken by Genentech, Apple and other large corporations, county assessors say, border on abusing the system.

The practice, they say, forces local governments to hold millions of dollars in limbo that would otherwise go to taxpayer-funded programs like schools, roads and special districts, in case they have to issue refunds to the companies. ….

Related:
Apple argued building was worth $200 not $1B to lower tax bill
Source: Ali Breland, The Hill, August 14, 2018

Amid Legal and Political Uncertainty, DACA Remains More Important Than Ever

Source: Tom K. Wong, Sanaa Abrar, Tom Jawetz, Ignacia Rodriguez Kmec, Patrick O’Shea, Greisa Martinez Rosas, and Philip E. Wolgin, Center for American Progress, August 15, 2018

Note: The survey results can be found here. For more information on the survey, please contact Tom K. Wong.

Since it was first announced on June 15, 2012, the Deferred Action for Childhood Arrivals (DACA) policy has provided work authorization as well as temporary relief from deportation to approximately 822,000 undocumented young people across the United States.

From July 16 to August 7, 2018, Tom K. Wong of the University of California, San Diego; United We Dream; the National Immigration Law Center; and the Center for American Progress fielded a national survey to further analyze the experiences of DACA recipients. The study includes 1,050 DACA recipients in 41 states as well as the District of Columbia.

This research, as with previous surveys, shows that DACA recipients are making significant contributions to the economy and their communities. In all, 96 percent of respondents are currently employed or enrolled in school.

….Several years of data, including this 2018 survey, make clear that DACA is having a positive and significant effect on wages. The average hourly wage of respondents increased by 78 percent since receiving DACA, from $10.32 per hour to $18.42 per hour. Among respondents 25 years and older, the average hourly wage increased by 97 percent since receiving DACA. These higher wages are not only important for recipients and their families but also for tax revenues and economic growth at the local, state, and federal levels…..

New York sales tax collections reach eight-year high, a credit positive for many cities and counties

Source: Robert Weber, Thomas Jacobs, Moody’s, Sector Comment, August 8, 2018
(subscription required)

On 1 August, the New York State (Aa1 stable) Comptroller’s Office announced that first half of calendar year 2018 sales tax collections grew 6% over 2017, the highest six-month increase since 2010. Sales tax revenues are a significant revenue stream for many counties and cities across New York, and sales tax growth also indicates that New York’s economy is improving. Additionally, the early effects of the federal tax law may be having a positive influence on people’s buying habits through the first half of 2018. As a result, these results are credit positive for many cities and counties in New York.

Related:
Deficit financing legislation helps distressed local governments but lacks teeth
Robert Weber, Thomas Jacobs, Gregory W. Lipitz, Naomi Richman, Leonard Jones, Moody’s, Sector Comment, August 8, 2018
(subscription required)

New York’s (Aa1 stable) legislation allowing municipalities to issue bonds to liquidate operating deficits is an important tool for local governments mired in financial distress. However, accessing this deficit financing has produced mixed results, providing a one-time influx of cash but still leaving local governments vulnerable to poor management decisions.

Employee Benefits—Tax Cuts and Jobs Act of 2017

Source: Mark E. Bokert and Alan Hahn, Employee Relations Law Journal, Vol. 44, No. 1, Summer 2018
(subscription required)

On December 22, 2017, President Trump signed into law the Tax Cuts and Jobs Act of 2017 (TCJA), which significantly amends the Internal Revenue Code of 1986 (Code). While the main focus of the TCJA may be on lowering corporate and individual tax rates, the TCJA also includes meaningful changes in the area of employee benefits and executive compensation, including changes to the Patient Protection and Affordable Care Act (ACA), the tax treatment of how public companies and tax-exempt organizations pay their executives, and the tax treatment of various fringe benefits. Among the changes in the benefits and compensation arena, the TCJA effectively repeals the ACA individual mandate by reducing the individual mandate penalty to zero, effective as of January 1, 2019; prohibits public companies from deducting certain performance-based compensation paid to their top executives; and provides that nonprofit organizations are subject to excise taxes for certain compensation packages paid to their highest paid employees.

Some expected changes impacting benefits and compensation never came to fruition. For example, while some earlier drafts of the TCJA included a repeal of Section 409A of the Code and the expansion of Health Savings Accounts (HSAs), the final law does not include any meaningful changes in these areas.

This column provides an overview of some of the changes enacted by the TCJA that impact the employer-employee relationship. Employers will want to work with their legal counsel to understand the nuances of the TCJA to determine whether any of their employee benefits plans or executive compensation arrangements should be amended in light of the TCJA and whether they should consider revising benefit packages offered to their employees.

Trump’s tax cuts have so far failed to deliver on one key promise

Source: Pedro Nicolaci da Costa, Business Insider, August 3, 2018

– The Trump tax cuts were pitched as a boon to US workers, with the administration arguing their benefits would trickle-down into rising wages.
– While the tax cuts have meant some Americans are keeping more of their paychecks, no discernible gains in wages have materialized thus far.
– Real average hourly earnings (adjusted for inflation) for all employees on private nonfarm payrolls were totally unchanged in June from one year earlier.

Related:
GDP Is Growing, but Workers’ Wages Aren’t
Source: Michael Madowitz and Seth Hanlon, Center for American Progress, July 26, 2018

President Donald Trump recently said that the U.S. economy is “stronger than ever before” and points to his tax plan as one of the major reasons why.1 But the fact is that workers are not getting ahead in the Trump economy. Official data released in recent weeks have shown that workers’ wages are flat or even slightly down, in real terms, over the last year.2 These data fly in the face of many tax plan boosters who have claimed that the bill’s passage has already been a boon to middle-class workers….

Connecticut in Crisis: How inequality is paralyzing ‘America’s country club’

Source: Jared Bennett, Center for Public Integrity, July 25, 2018

The state is caught in an economic straitjacket and there’s no easy way out…..

…. Blue chip companies like General Electric have either left or are threatening to leave. A yawning budget deficit continues to loom over the state, amplified by some of the nation’s most glaring economic inequality. Greenwich, home to hedge funders and Manhattan corporate titans, and the Norman Rockwell suburbs of Westport, New Canaan and Darien share few priorities with Hartford, New Haven and Bridgeport, gritty cities struggling with searing poverty and fiscal disaster. Connecticut’s political leaders must choose between what seem like equally rotten options: cut services, and push more burden onto the urban poor, or hike taxes, and risk repelling both the suburban rich who pay much of the freight and new businesses that might consider moving here. Put simply, Connecticut is in a bind with precious little room to maneuver.

Connecticut’s troubles are extreme but hardly unique. The recovery that has entrenched Connecticut into the haves and have-nots has been unequal in other regions as well – from Florida to California and down to Texas. As the stock market climbs but wages remain relatively flat, the Constitution State serves as a troubling bellwether of national priorities that seem to favor wealth creation for the few before investments in the broader economy. ….

Kansas Supreme Court rules in favor of K-12 public schools, a credit positive for districts

Source: Denise Rappmund, Matthew Butler, Moody’s, Sector Comment, July 18, 2018
(subscription required)

On June 25, the Kansas Supreme Court ruled that the Kansas (Aa2 stable) state legislature’s latest K-12 public school funding bills still do not meet the state’s constitutional standards for adequately funding public education. This ruling is a credit positive for Kansas school districts because it will mean a modest amount of additional operational revenue to districts, on top of the $643.9 million in additional funding over the next five-year period covered by the legislature’s current funding plan. Further, the court has also stated that the current plan is to remain in temporary effect with a stay on the ruling through June 30, 2019, during which time the state will need to re-submit to the court a remedy that will bring funding up to state standards for student achievement.

The Retail Sales Tax in a New Economy

Source: John L. Mikesell – Indiana University, Sharon N. Kioko – University of Washington, presented at the Brookings Institution’s 7th annual Municipal Finance Conference, July 16-17, 2018

For the second half of the 20th century, the retail sales tax was the largest single source of tax revenue to state government and the second largest source for local governments. Born out desperation during the Great Depression, the retail sales tax became the single largest source of tax revenue for the states by 1947. While consumption is an indispensable measure of household ability to pay, the U.S. retail sales tax fails to fully capture that measure in its taxable base. As a result, the tax is not economically neutral, horizontally equitable, robustly revenue-productive, or simple to collect. Since its adoption, political, social, and economic forces have created a tax that is both “too broad” or “too narrow”. We explore patterns of change and their impact on the retail sales tax. Specifically, we explore how changes in consumption, policy, and technology, particularly the internet, have made the retail sales tax less neutral, equitable, administrable, and productive. We also examine which policy options have been successful and what policy changes should be encouraged.

Related:
View Kioko’s slides
View Gordon’s slides
Tracy Gordon (Urban Institute)

Federal Tax Cuts in the Bush, Obama, and Trump Years

Source: Steve Wamhoff, Matthew Gardner, Institute on Taxation and Economic Policy (ITEP), Analysis, July 2018

From the introduction:
Since 2000, tax cuts have reduced federal revenue by trillions of dollars and disproportionately benefited well-off households. From 2001 through 2018, significant federal tax changes have reduced revenue by $5.1 trillion, with nearly two-thirds of that flowing to the richest fifth of Americans, as illustrated in Figure 1.

The cumulative impact on the deficit during this period is $5.9 trillion, including interest payments. By the end of 2025, the tally of tax cuts will grow to $10.6 trillion. Nearly $2 trillion of this amount will have gone to the richest 1 percent. By then, the total impact on the deficit will be $13.6 trillion, including interest payments.

This analysis does not include hundreds of billions of dollars in so-called tax cut “extenders” for corporations and other businesses that Congress has periodically enacted under each administration. More detailed figures are provided in the tables in Appendix I…..

Related:
Data Available for Download

Institutional Arrangements for Public Library Funding and Spending

Source: Carol Ebdon, Ji Hyung Park, Aimee L. Franklin, Jonathan Moore, American Review of Public Administration, Article first published online: July 3, 2018
(subscription required)

From the abstract:
Wide variation in institutional structure and funding patterns in public libraries make this government function useful for exploring the effect of these differences on expenditures. Based on literature related to willingness to pay, special districts, and fiscal illusion, we hypothesize that libraries with taxing authority and more revenues from nonlocal sources will have higher levels of spending. We use data from an Annual Public Library Survey, and U.S. Census data, in ordinary least squares (OLS) regressions for 2007 and 2010. We find that taxing authority leads to increased spending, as expected. However, the results of funding sources are contrary to expectations; relative reliance on nonlocal sources is generally associated with lower levels of spending. This may be due to “crowding-out” of local sources, and there may also be some effect from reduced state aid following the Great Recession.