Tax Break

Corporate state taxes vary widely, depend on industry, location and longevity, study finds

On Wednesday, the Tax Foundation came out with a study on the tax rates different types of businesses face in different states.

Broadly speaking, the foundation found that corporate taxation practices vary widely not only from state to state, but even from one business to another within any one state, and even between businesses in the same line of work in the same state depending on the age of their facilities, with newer locations getting sizable tax breaks and incentives.

“Until you see the data in black and white, these are just perceptions” of differences, Scott Hodge, president of the Tax Foundation, a think-tank that generally  favors lower tax rates for corporations, told me.

By putting numbers on the variations in tax rates that  businesses face, the foundation hopes to ignite debate and perhaps prompt greater fairness among taxpayers, Hodge said.

Michael LaFaive, director of fiscal policy for the Mackinac Center for Public Policy, a pro-free market  Michigan-based think-tank, said the report may get a serious hearing in state capitals.

Essential tax and accounting reading: Barclay’s tax schemes, GM’s tax break, Swiss compromise, and a 75 percent French tax

Welcome to the top tax and accounting headlines from Reuters and other sources.

* Swiss lawmakers set for tax plan vote. Katherina Bart – Reuters. Swiss lawmakers are set to back a tax proposal with the United States on Wednesday in a move which could pave the way for Switzerland to settle a U.S. probe into Swiss banks and hidden offshore accounts. The lower house will vote on a proposal clarifying how Switzerland would hand over data on Americans suspected of dodging taxes at home. The proposal, which passed the upper house in December, seeks to backstop an expected deal over U.S. probes into 11 banks including Credit Suisse and Julius Baer. Link

* French front-runner pledges 75 percent tax bracket. Gabriele Parussini – The Wall Street Journal. French presidential front-runner François Hollande said taxpayers earning over 1 million euros ($1.34 million)a year would be subjected to a special 75 percent tax bracket should he be elected, underscoring heightened interest across Europe in raising taxes on the wealthiest individuals. Speaking on French television late Monday, the Socialist candidate lamented the “considerable increase” in French corporate executives’ pay, which he put at €2 million a year on average. His proposal caused an uproar in the ruling UMP party, and surprised even Hollande’s own advisers. President Nicolas Sarkozy pointed to the “appalling amateurism” of his opponent’s proposals. Link

* Barclays’ tax plans clash with sentiment. Megan Murphy, Sharlene Goff and Vanessa Houlder – The Financial Times. Has Barclays’ attempt to avoid more than 500 million pounds ($791.93 million) in UK tax dealt a lasting blow to the bank’s nascent efforts to put better citizenship at the heart of a new feel-good corporate agenda? The British Revenue & Customs’ announcement that it has closed down two “highly abusive” schemes designed by the bank has thrust Barclays’ tax practices back into the spotlight, at a time when the bank is trying to rebuild its reputation with politicians and the public. Barclays’ insiders say they are genuinely shocked by the government’s announcement, emphasising that both schemes had been signed off by the bank’s professional advisers and were voluntarily disclosed. Link

Essential tax and accounting reading: California’s Facebook tax windfall, Big Four in China, GE’s taxes, and more

Welcome to the top tax and accounting headlines from Reuters and other sources.

* California likes Facebook IPO tax possibilities. Vauhini Vara – The Wall Street Journal. California could reap a tax windfall of as much as $2.5 billion from Facebook Inc.’s initial public offering, a state analyst said Monday, in the first official forecast of the IPO’s impact on the cash-strapped state. The offering is forecast to bring in $500 million of income-tax revenue through stock sales in fiscal 2012, ending in June, followed by $1.5 billion in 2013 and $450 million from 2014 to 2016, according to a report from the Legislative Analyst’s Office, a nonpartisan government entity that advises the legislature. Facebook has planned for an IPO this spring. Link 

* Barclays at center of UK tax avoidance clampdown. Steve Slater – Reuters. Barclays Plc said it was the bank at the centre of a clampdown by Britain on two tax avoidance schemes that the government said would close loopholes and raise more than 500 million pounds ($792 million) in tax. Barclays said it notified Britain’s tax office about its plan to buy back its own bonds, on which it and other banks have made hefty profits in recent years. Tax avoidance is legal, but the Treasury said on Monday the scheme and another one were “highly abusive.” Link  

* “Big Four” auditors brace for big changes in China. Rachel Armstrong – Reuters. The Big Four global audit firms, which dominate the Chinese market, are negotiating with Beijing to lessen the impact of forced changes that could mean only accountants with Chinese qualifications can be partners in their audit practices. The overhaul comes at a delicate time for an audit industry reeling from a rash of accounting scandals at Chinese companies. Any reduction in the audit capacity of KPMG, Deloitte, Ernst & Young and PricewaterhouseCoopers (PWC) would increase foreign regulators’ and investors’ concerns about Chinese auditing. Link

Essential tax and accounting reading: Pushing a U.S. tax overhaul, Germans volunteering to sort out Greek taxes, Santorum’s plan, and more

U.S. Republican presidential candidate Rick Santorum addresses supporters during a campaign stop in Michigan. REUTERS/Rebecca Cook

Welcome to the top tax and accounting headlines from Reuters and other sources.

* Tangled tax code primed for pruning. John McKinnon – The Wall Street Journal. President Barack Obama’s business-tax-overhaul plan underscores the growing likelihood of a serious effort to revamp the nation’s much-criticized tax system, no matter who wins the White House. The question now isn’t whether a tax rewrite will happen, but how far it will go, and whether it will stop at business rules or also extend to individuals. Increasingly the answer appears to be that the entire tax code, all 70,000 pages, could be in play. Powerful dynamics are reducing the significance of partisan differences. One is the expiration of Bush tax breaks at the end of 2012. A broad tax overhaul could give each party a way to break the cycle of short-term tax extensions that is frustrating businesses and individuals. Another is the government’s grim fiscal situation. Many Democrats and even some Republicans see a streamlined tax system as a way to generate more revenue. Link

* Plans for US manufacturing may yield more votes than jobs. Andy Sullivan – Reuters. U.S. factories are hiring again, and Democratic President Barack Obama and some of his Republican rivals are pitching tax breaks to fuel a rebound in manufacturing and help rebuild a battered middle class. Economists on the left and the right say promises to bring back factory work may yield more votes than jobs. Industry experts say the United States is long past the days when steel mills, auto plants and machine shops boosted millions of unskilled Americans into the middle class. Economists say the middle class would benefit more from efforts to boost the economy as a whole, rather than a particular sector such as manufacturing. Link 

Tax and Accounting Calendar

A worker arranges a saree drying after dyeing in a village south of Kolkata REUTERS/Rupak De Chowdhuri

Some events in the week ahead:

Monday, February 27 – Tuesday, February 28
The Practicing Law Institute will sponsor a two-day program in New York featuring speakers from Treasury and the IRS on a number of topics including investment adjustments, accounting issues, Treasury Department developments, inter-company transactions, and tax attributes and consolidation.

Tuesday, February 28

* The Public Company Accounting Oversight Board will hold an open board meeting at its offices at 1666 K Street NW in Washington DC and via web conference to consider proposed standards on related parties, significant unusual transactions and other matters. Starting at 9:30 AM.

Essential reading: Romney to explain tax plan, AIG to take tax breaks, rising stakes for Japan’s sales tax, and gas taxes drop

Window shopping in Tokyo's Ginza district REUTERS/Toru Hanai

Welcome to the top tax and accounting headlines from Reuters and other sources.

•    Romney narrows the gap on Santorum. Richard McGregor in Washington and Anna Fifield in Mesa, Arizona – Financial Times. Republican presidential hopeful Mitt Romney will outline his tax plans in a speech in Detroit on Friday that has been moved from a ballroom in the city convention center to Ford Field, home of Detroit’s football Lions, to accommodate an expected large crowd. It’s his first detailed outline of the economic and tax plan he would take into the November election and it comes four days before the Michigan and Arizona primaries. Link

•    Giving tax edge to manufacturing carries risks. Kathleen Madigan – The Wall Street Journal. The U.S. tax code is a mess. Favoring one sector over others will only make it messier. U.S. President Barack Obama and GOP candidate Rick Santorum recently released proposals that would give manufacturing enterprises a tax break. Santorum advocates factories pay no federal income tax at all. The goal is to make manufacturing a contributor of economic growth and a provider of middle-class paying jobs. The unintended consequences, however, are likely to be businesses gaming the system for a cheaper tax rate and a government policy that values some jobs over ones that are needed more. While certain employees, companies and regions will benefit, the U.S. economy as a whole is unlikely to be better off from the proposed tax changes. Link

•    AIG profit surges on tax benefit. Erik Holm and Serena Ng – The Wall Street Journal. American International Group Inc. reported profit of $19.8 billion in the fourth quarter, thanks to a large tax benefit the bailed-out insurer booked after predicting it can keep generating profits in coming years. AIG recognized $17.7 billion in tax benefits in the last three months of 2011. AIG’s tax boost came about from the reversal of write-downs it had taken to lower the value of its deferred-tax assets, which are unused tax credits and deductions that can be used to defray future tax bills. The insurer had taken those write-downs starting in 2008, when it suffered huge losses during the financial crisis. What changed, AIG said, is that it expects to report sustainable future profits that will enable it to use its deferred tax assets after all. Link

Essential tax and accounting reading: Contrasting tax plans from Obama and Romney, unequal tax payments, dividend tax hike, and more

A Rick Santorum campaign video screens at Mitt Romney's South Carolina primary rally, January 21, 2012. REUTERS/Brian Snyder

Welcome to the top tax and accounting headlines from Reuters and other sources.

* Obama, Romney offer contrasting tax plans. Zachary Goldfarb and Philip Rucker – The Washington Post. President Barack Obama and Republican presidential contender Mitt Romney offered competing proposals for how the government should tax citizens and companies, previewing the ideological clash over taxes that is likely to be at the forefront of the general-election campaign. Obama released a long-awaited plan to overhaul the country’s corporate tax code that plays directly to his base, following his call this month for significant tax hikes on the wealthiest Americans. A short time later Romney unveiled a series of deep cuts in personal and corporate income tax rates, the kind of reductions that have become a tenet of Republican economic thinking. The former Massachusetts governor proposed reducing the rates for individual taxpayers by a fifth, meaning that the highest earners would pay a top rate of 28 percent, compared with 35 percent today. He also suggested taxing corporate profits at a rate of 25 percent. Link

* Obama urges corporate tax cut, closing loopholes. Kim Dixon and Rachelle Younglai – Reuters. President Obama made an opening offer in what could be a long negotiation with corporate America on Wednesday, putting forward his first detailed plan to cut the corporate tax rate. Though it has little chance of becoming law in an election year with Congress paralyzed over fiscal issues, the plan shows Obama’s intent to favor domestic over offshore manufacturing and to broaden the tax base by closing corporate tax loopholes. Of the 30 companies that make up the Dow Jones industrial average, 19 told shareholders that their effective tax rate for their 2011 fiscal years (mostly ending Dec. 31) was lower than Obama’s proposed new tax rate. Link

Essential tax and accounting reading: Obama and rival offer tax plans, UK considers a mansion tax, and more

 

Welcome to the top tax and accounting headlines from Reuters and other sources.

 * Obama to propose corporate tax rate of 28 percent. Kim Dixon – Reuters. The Obama administration will propose cutting the top tax rate for corporations to 28 percent, and pay for it by eliminating dozens of tax loopholes companies now use to lower their rates, a senior administration official said. Most analysts doubt that the convoluted tax system could be revamped by a deeply divided Congress in an election year, but the announcement is certain to fuel debate in the run-up to November’s elections. The plan, over a year in the making, is President Barack Obama’s first official foray into reform of the tax code, which most experts believe badly needs a revamp after years of being loaded up with special provisions. The centerpiece is a cut in the top corporate rate – now at 35 percent, among the highest in the industrialized world. That will appeal to businesses, which gripe that the current U.S. rate puts them at a competitive disadvantage. Controversy will erupt when officials lay out which “loopholes” they want to cut. The proposal makes a special carve-out for manufacturing – cutting that tax rate to 25 percent – and proposes a minimum tax on profits earned in low tax countries. Link 

* Romney says wants ‘flatter, simpler’ tax system. Steve Holland – Reuters. Battling to come back in Michigan, Republican Mitt Romney said on Tuesday he wants a tax system that is flatter and simpler as he laid the groundwork for a major economic address coming up in days. Romney is expected to release an updated tax plan on Wednesday ahead of the Republican candidates’ debate in Phoenix. “I want to see taxes flatter, and fairer and simpler, because I want our tax policies to encourage growth,” Romney said on Tuesday. Link

* Heralding end of ‘dark times,’ Christie offers budget that is bigger and cuts taxes. Kate Zernike – The New York Times. After two years of enforcing austerity, Gov. Chris Christie argued on Tuesday that New Jersey could afford to have it all, presenting a budget he said would cut income taxes by 10 percent at the same time it gave money to schools, provided for the poor and met the state’s pension obligations. The governor proclaimed that “we have left the dark times” as he proposed a $32 billion budget, a 3.7 percent increase over last year’s spending. While still less than the budget of 2008, when the economy faltered, it would be the largest of his tenure. Democrats argued that the income tax cut, which would be phased in over three years, was aimed more at presidential primary voters in Iowa than wallets in New Jersey. Link  

Tax and Accounting Calendar

Mary Schapiro, Chairman of the Securities and Exchange Commission REUTERS/Yuri Gripas

Some events in the week ahead:

Tuesday, February 21

The Taxpayer Advocacy Panel Small Business/Self-Employed Decreasing Non-Filers Project Committee telephonic open meeting, 10 a.m. EST.

Tuesday, February 21 – Thursday, February 23

The Tax Executives Institute will sponsor a three-day seminar in San Diego, California, on audits, appeals and tax controversies, covering topics including winning at appeals, international tax controversy and building an effective transfer pricing case. Sheldon M. Kay, deputy chief of IRS Appeals, will be the Tuesday luncheon speaker.

Essential tax and accounting news: “dozens” of corporate tax breaks in play, private equity taxation debated around the world, and Swiss banks’ new model

U.S. Treasury Secretary Timothy Geithner testifies before the Senate Finance Committee, February 14, 2012. REUTERS/Yuri Gripas

The top tax and accounting headlines from Reuters and other sources:

* Tentative deal reached to preserve cut in payroll tax. Jennifer Steinhauer – The New York Times. Members of a House-Senate committee charged with extending a payroll tax reduction and providing added unemployment benefits reached a tentative agreement Tuesday evening, with Republicans and Democrats claiming a degree of political victory in a fight with significant election-year implications. One day after House Republican leaders said they would offer a bill to extend the $100 billion payroll tax rollback for millions of working Americans without requiring spending cuts to pay for it, the Congressional negotiators struck a broader deal that would also extend unemployment benefits and prevent a large cut in reimbursements to doctors who accept Medicare. A vote on the measure would most likely happen by Friday. But senior aides warned that negotiators still had to sign off formally on the agreement and that obstacles could surface given the long-running tensions over the measure. Link

* Obama plan would end dozens of business tax breaks-Geithner. Kim Dixon and Rachelle Younglai – Reuters. The Obama administration’s corporate tax reform plan would end “dozens and dozens” of tax breaks, Treasury Secretary Timothy Geithner said on Tuesday as he defended the White House’s election-year call for higher taxes on the wealthy. Within days, the administration intends to unveil a blueprint aimed at eliminating inequities in the corporate tax system and lowering the top rate. Companies, which pay wildly different levels of taxes, are clamoring for a cut in the corporate tax rate – which tops out at 35 percent – but disagree about how to strip out preferences that benefit selected industries. Geithner spoke before the Senate Finance Committee a day after President Barack Obama unveiled a $3.8 trillion budget-and-tax proposal that called for aggressive government spending to boost the economy and higher taxes on the rich. Link