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September 21, 2011
When Surrender Sounds Like Victory

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By David Brunori

Billy, the school bully, threatens meek and mild Jason every morning. In response to the threat, Jason hands over his lunch money. The principal orders Billy to stop taking Jason's money. Billy starts punching Jason in the nose but still takes the money. The principal and Billy negotiate a settlement whereby Billy can keep taking Jason's money as long as he stops punching him in the nose. The principal then declares victory over bullies.

In our parable, substitute Amazon.com for Billy, the people of California for Jason, and the State Legislature for the principal. Amazon spent years not collecting sales tax on its sales -- sales tax that rightfully belongs to the people of California. The Legislature, in a momentary lapse of political cowardice, passed a law making it do so. Amazon's response was to fire its affiliates and very publicly start a process to repeal the new law. The Legislature decided that to save California from the threat of a referendum repealing the law, it would just let Billy -- I mean Amazon -- refrain from collecting taxes for another year. That probably makes sense, since the state doesn't really need the money. The most amazing thing is that the legislators who negotiated this deal (or fell for this flimflam) actually said it was a victory for California.

Whoever's doing the lobbying for Amazon deserves respect. Those guys are good.


Speaking of California

I see that the Legislature couldn't muster the votes to repeal the inane law that allows corporations the option of using a single-sales-factor or a modified three-factor formula. That option, sneakily created in 2009, basically makes the corporate income tax voluntary for California corporations. Opponents of the crazy law couldn't get the two-thirds majority in the State Senate to replace it with a mandatory single-sales-factor apportionment formula. I am no fan of single-sales-factor apportionment formulas because they allow corporations with a lot of plants and equipment and people in a state to avoid paying for services they use. But the single sales factor is a heck of a lot better than the voluntary tax system now in place.

Good for Crowell and the Tea Partiers

There is a proposal in the Missouri General Assembly that would provide more than $360 million in tax credits to spur international trade in the St. Louis area. Basically, the proposal would give $360 million to developers for aerotropolis (the name supporters of the proposal call the proposed St. Louis air freight center that is intended to be a trade hub with China). It would also authorize state and local sales tax exemptions on new and expanding data centers and on utilities, machinery, and equipment used on the centers' construction or remodeling. That, of course, is a good thing from a tax policy perspective. To help pay for the tax breaks, the proposal would eliminate the Circuit-Breakers Property Tax Relief Program for low-income and disabled renters.

Sen. Jason Crowell (R) has vowed to filibuster the proposal. He says it's nothing more than corporate welfare for developers. That sentiment seemed to be carrying the day, as more and more Republican politicians were criticizing the proposal because the government was choosing the winners and losers.

The Missouri Tea Party also criticized the tax incentive program because it would allow the government to give money to specific businesses. My liberal friends cringe at the very mention of the Tea Party. But the party is right on in its critique of tax incentives.


Rocky Mountain Tax Policy

There has been a lot of talk (and editorials) about the need to raise taxes in Colorado. A recent report by the Center for Colorado's Economic Future at the University of Denver said that without substantial tax increases, the state's budget will be eaten up over the next decade by public schools, healthcare, and prisons. There will be no money for anything else, such as state courts and universities. The Denver Post says the state should restore tax rates to 1999 levels and expand the sales tax to services and groceries. While the financial predictions for Colorado are grim, I suspect there is not much public interest in raising taxes.

When Businesses Support More Taxes

Conservatives, and particularly those who have taken the pledge not to raise taxes, are always unhappy when business people come out in favor of higher taxes. But it happens much more than they would like to admit. In Idaho a very large group of businesses is arguing for the adoption of a local option sales tax. The group believes that local residents should have the opportunity to raise more money for infrastructure spending. Businesses need good transportation systems to get employees to work and goods and services to market.

The business community supported a similar proposal three years ago, but it failed because of opposition by GOP lawmakers and lack of support from the governor. Opponents then and now say that the people do not want higher taxes and that they're bad for business. But neither is necessarily true. In Idaho, businesses are supporting the local option sales tax. And whether to raise those taxes will be up to the citizens. What better way to decide what the people want?


STDs

Discussing the fact that he could not get a single Republican to support his plan to raise income, sales, and vehicle taxes, California Gov. Jerry Brown (D) accused some lawmakers of thinking "that taxes are like some kind of sexually transmitted disease." As the kids today say, "Ewww."

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The Politics of State Taxation is by State Tax Notes contributing editor David Brunori, who welcomes comments at dbrunori@tax.org.

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