Some companies want to 'tweak' new combined reporting law

By JR Ross

With combined reporting now on the books, some in the business community are hoping for a few tweaks to make the change more palatable.

Democrats, in charge of both houses of the Legislature for the first time in 14 years, pushed through the change in how Wisconsin calculates corporate taxes on multistate companies early this year. Supporters of the change have long decried those that took advantage of what they call the "Las Vegas loophole" to move assets to states without a corporate tax to avoid paying it here.

To prevent that, the state will now consider a company’s income from subsidiaries in other states as well as what’s earned in Wisconsin in figuring out a company’s tax bill.

But there have been some grumblings that in the rush to approve the change, lawmakers passed a poorly worded provision that will be onerous on businesses trying to comply with it.

Senate Majority Leader Russ Decker, D-Weston, was one of the leading proponents of pushing the change through the Legislature. His spokeswoman Carrie Lynch said he would be open to any technical changes needed. But she said most of the complaints that have been raised so far aren’t about technicalities.

"They’re trying to rewrite the rules so they can carve out exceptions," Lynch said. "Russ is not OK with making any changes to the bill that would substantially alter the intent of it."

The change in calculating the state’s corporate taxes is expected to bring in an additional $187 million over the two-year budget that begins in June. State officials estimate 13 percent of Wisconsin corporations will be affected by the change, with some actually benefiting from it on their tax bills.

The change, which goes into effect for tax year 2009, adds Wisconsin to the list of 20 states that require combined reporting, with six more that require it in some instances. Wisconsin neighbors Minnesota and Illinois are on that list.

It’s also expected to impact some big names in Wisconsin such as Harley-Davidson, Georgia-Pacific and Kimberly-Clark.

Jeff Schoepke, director of tax and corporate policy for Wisconsin Manufacturers & Commerce, said the ones that will be hit the hardest by the change are the bigger operations with significant sales outside Wisconsin.

And while he acknowledged that many in the business community don’t like anything about the change simply because they see it as a tax hike in the middle of a recession, he said some are hoping at least to get some tweaks through the Legislature.

The bill was unveiled less than a week before lawmakers approved it, and Schoepke complained the haste to push it through resulted in a poorly drafted bill. He said even some multistate companies that have dealt with versions of combined reporting elsewhere are going to have a hard time figuring out Wisconsin’s new requirement.

He also complained that the version approved was the most onerous on business that lawmakers could have drafted.

Still, while he has hope that some technical changes and tweaks that have minimal or no fiscal impact will be approved, he said it will be a tough sale to get any significant changes that would make the tax hike more palatable.

"I’ve got some of the best corporate tax minds in the country saying they can’t figure out certain parts of our bill," he said. "Those are the kinds of things you have when you rush a bill through."

Procter & Gamble made a similar appeal to Gov. Jim Doyle in March, asking the governor to consider a modification to the formula implemented under combined reporting.

The company, which is headquartered in Cincinnati and has a plant in Green Bay, acknowledged that some companies have changed their business structure to avoid paying Wisconsin taxes. But plant manager Marcelo Nery and union head Tony Homa wrote in the letter to Doyle that Procter & Gamble had not.

The pair noted the difficulties the paper industry has experienced in the recession and appealed for help in its attempt to keep "good-paying, family-supporting jobs in Wisconsin."

"We are happy to pay our fair share, but we feel we are being disproportionately penalized under the version of combined reported which was recently approved," the two wrote.

Department of Revenue spokeswoman Jessica Iverson said the agency’s focus is implementing the law as written and noted any changes would require legislative action.

"We are currently working with businesses on our implementation plans — listening to their feedback, developing educational materials and helping them transition to combined reporting," she said.

Wisconsin banks have essentially been living under combined reporting through audit for much of the time Doyle has been in office.

Under Doyle, the Department of Revenue accused banks of transferring income-producing assets like mortgages and loans to out-of-state subsidiaries to avoid paying Wisconsin’s corporate tax. The state eventually reached 189 agreements with banks totaling $46 million to settle the allegations.

Kurt Bauer, president and chief executive officer of the Wisconsin Bankers Association, said for all the talk of a "Las Vegas loophole" in pushing the change through earlier this year, it has been closed for banks going back to the early part of the Doyle administration.

While banks are used to living under the approach to the state’s corporate tax rate, Bauer said he still expects a significant impact for banks with the change largely because he expects less economic activity, meaning less business for banks.

"If they’re paying more in taxes, it will affect their profitability. It will impact their success," Bauer said. "That impacts us and that impacts everybody."

madison.com ©2009 Capital Newspapers. All rights reserved.