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BRIEFLY:
U.S. Senate begins energy debate
Beginning this week, members of the United States Senate will consider energy legislation (HR 6/S. 1419). The IMA opposes amendments offered by Sen. Harry Reid (D-Nevada) that will raise costs and levy mandates on industry including: 1) arbitrary CAFE mandates; 2) price controls that interfere with market forces; and 3) mandatory renewable portfolio standards.
The mandated fuel economy standards are extreme, not economically feasible, and will place Illinois' domestic automobile manufacturers and their suppliers at a competitive disadvantage. It limits customer choice while risking thousands of manufacturing jobs.
Please call your member of Congress and urge them to oppose the Reid amendment and to support the alternative Levin-Bond amendment that will allow the United States to move forward on robust, comprehensive, and forward-looking energy policies. More information, including a draft letter, is available at
http://www.ima-net.org/ga/fednrg.cfm.
Social Security Administration to implement SSN verification changes
Beginning August 25, 2007, the Social Security Administration (SSA) will implement four changes to the Social Security Number Verification Service: 1) SSA will return all names and numbers submitted, not just the mismatches; 2) Where names and SSNs match, SSA will return only the last four digits of the SSN; 3) A new unverified code "6" will now be returned when appropriate; and 4) The eight position tracking code will be replaced by a 16 position confirmation number. For more information, visit the SSA Website at
http://www.socialsecurity.gov/employer/ssnv.htm.
IRS and SSA partner to publish Reporter newsletter
The SSA/IRS Reporter, a quarterly newsletter, consists of educational news for employers. The Reporter also carries general information about best payroll and employment tax practices and IRS and SSA products and services. To view current and past issues, visit
http://www.irs.gov/businesses/small/article/0,,id=109886,00.html.
Important Tax Filing Deadlines
June 15, 2007 2007 Second Quarter Estimated Taxes Due
State tax increase proposals vary widely
The spring session of the Illinois General Assembly has entered overtime with lawmakers and Governor Rod Blagojevich disagreeing on a number of pending issues. At the top of that list is the question of whether to increase taxes, who would pay, and how much.
Earlier this year the governor proposed a massive $8 billion gross receipts tax (GRT) to be paid by a fraction of Illinois businesses. The governor proposed to use the new revenues to boost education funding by more than $10 billion over three years, begin to shore-up the state's major pension systems (currently considered to be the worst funded in the nation), and to pay for the bulk of a state-run universal health care program. In addition, the governor proposed a three percent payroll tax on employers to pay part of the health care plan costs. All totaled, more than $10 billion in new taxes all paid for by employers have been proposed.
While it is not unusual for state chief executives to propose visionary programs, the enormity of Governor Blagojevich's proposals left virtually every lawmaker stunned and skeptical of the necessity of such increases. To compound matters, the governor failed to make a concerted effort to communicate directly with legislators (either before or after last November's elections) preferring instead to promote his proposals through a tightly scripted public relations campaign that included a multi-day bus trip around the state and near daily attacks on the state's employer community.
While the governor found one ally in Senate President Emil Jones (D-Chicago), most rank and file legislators shied away from the governor's proposal. Indeed, despite President Jones' introduction and strong-armed effort to move the GRT from a Senate committee to the full Senate, a vote has never been taken by the full body. Over in the House, Speaker Michael Madigan (D-Chicago) held an extraordinary Committee of the Whole to consider the GRT in early May followed by a vote on a non-binding resolution to determine whether House members would support implementing such a tax. The governor's proposal produced not one vote of support from the 118-member House.
Following the House vote, a second tax proposal was concocted by President Jones that would raise more than $5 billion through a wide ranging mix of six new and increased taxes, a 40 percent increase in riverboat casinos, and closing 18 so-called "corporate tax loopholes." Again, the focus of the hikes was aimed squarely at employers. Among the new taxes imposed by the Jones proposal was an Alternative Minimum Tax on gross receipts for companies who legally do not owe the state income taxes and requiring Subchapter S corporations and partnerships to pay the state's corporate income tax as well as individual taxes on distributed earnings. While the governor tacitly embraced the Jones proposal, once again the proposal has yet to be considered by senators.
Meanwhile, Speaker Madigan who had publicly stated in April that he believed a tax increase would be necessary to increase education funding conducted several surveys of the House Democrat caucus to determine whether a consensus could be reached on ways to increase revenues. That effort resulted in a drastically scaled back tax proposal that would raise almost $300 million. Coupled with a more modest increase in the number of gaming positions allowed at existing riverboat casinos, the Madigan plan was approved by the full House on a partisan roll call in the closing hours of the spring session. The Senate, however, has not acted on the House proposal.
With the deadline to pass bills by majority vote passing on May 31, Republican lawmakers in the House now play an increasingly important role in fashioning the state's budget blueprint for the fiscal year that begins on July 1. Already, House Minority Leader Tom Cross has told reporters his caucus believes a maintenance budget that includes nearly $900 million in natural revenue growth, coupled with some modest expansion of gambling to fund a capital program, would likely be agreeable to Republicans. However spokespersons for Governor Blagojevich have said that the Cross plan would reduce social service spending, something held dearly by most Democrats, by more than a billion dollars. Nonetheless, most observers believe the governor and Democrats will need to make major concessions if the necessary three-fifths vote to approve a state budget are to be found.
Speaker Madigan has issued a June schedule that calls for lawmakers to be in session at least three days each week. While President Jones has not issued a formal schedule, it's expected the Senate will generally follow the House lead. Rank and file legislators are expected to push to resolve the matter sooner rather than later. According to the statute, lawmakers are prohibited from collecting their $125 per day housing and meal allowance after May 31, unless the governor calls for a Special Session. That has not yet occurred.
How this impasse plays out is anyone's guess. Most statehouse denizens believe that until Governor Blagojevich either agrees to vastly scaled back versions of his proposals or jettisons some to obtain his top priorities, legislative gridlock will continue under the capitol dome.
Real estate valuation and holding the line on property taxes
By Bob Weigel, Tax Manager, RSM McGladrey State and Local Tax Group
Have you looked at your real estate tax bill lately? Do rising property taxes irritate you? Sure, you know taxes continue to rise, just like other expenses, but chances are you still haven't addressed the underlying issue valuation. Property taxes are based on government spending and the overall market value of the property within the jurisdiction. Property tax is a leading expense for most companies. Although typically viewed as "uncontrollable," property tax can present an opportunity to realize significant savings. Unlike income taxes, they do not vary according to business profits. As a result, it is important to control property taxes. This process becomes increasingly difficult as your business expands into multiple taxing jurisdictions, each with different rates, assessment practices, and potential exemptions.
Real estate markets vary by state, city, and even neighborhood. By knowing and understanding your real estate and personal property (outside of Illinois), and assumptions made by the assessor, you can proactively address valuation concerns. For example, if a building has shortcomings, those imperfections may translate into property tax savings. Virtually all property tax assessment systems, whether based on market value, reproduction cost or any other measure, embrace the valuation concept of obsolescence. Obsolescence comes in two forms: economic and functional. Economic obsolescence relates to factors outside of the property that reduce its value. Functional obsolescence relates to factors within the property, which decrease its value. Either or both forms of obsolescence may be applicable in a given scenario and, if proven quantifiably, can substantially reduce the assessed valuation of an industrial property.
Property tax advisors can help to make this "uncontrolled" expense controllable, providing your company a competitive advantage. Before you lift a shovel, sign on the dotted line, or script a press release, consider the tax implications.
For more information, contact Bob Weigel at bob.weigel@rsmi.com.
Web seminar Thursday, June 14th . . . RSM McGladrey's 2007 Manufacturing and Wholesale Distribution Survey: Results and Ramifications
Date: Thursday, June 14 * Time: 9:30 am PT11:30 am CT12:30 pm ET
Length: One hour * Cost: Free
Thank you for participating in RSM McGladrey's 2007 Manufacturing and Wholesale Distribution Survey. This year's national survey garnered over 900 responses and provided us with answers to the following questions: How optimistic are U.S. manufacturers and wholesale distributors about the present and future of their industries and their companies? What are the leading growth strategies within your industry? How are your peers managing costs and improving operations? Where are they finding skilled labor? What primary factors are impacting cost structure? Please join us on June 14. Register now for
RSM McGladrey's 2007 Manufacturing and Wholesale Distribution Survey: Results and Ramifications Web seminar. Learn firsthand what your industry peers are doing now and what they see as future obstacles and opportunities.
To register, go here or call 800-274-3978.
Guest editorial . . .
Companies' fair share: Zero percent
By Andrew Chamberlain, Economist
(The following article originally appeared in the February 20, 2007 edition of
TCSDaily.com.)
Conventional wisdom on taxes these days is that good taxes are progressive taxes. The more we earn, the higher our tax rate should be. And for nearly a century that logic has been etched into federal tax law, with progressive income tax rates rising along with Americans' rising incomes.
The usual justification for those graduated rates isn't that they raise more money. It's that they're "fair." And what do we mean by that?
Ask an economist and she'll tell you there are two basic approaches to tax fairness. One is "benefits received" which says taxes are fair if those who use the most government pay the most taxes. The other is "ability to pay" which says to forget how much government we use people who make more money should pay more tax.
In today's policy world, ability to pay wears the pants. And although adherence to that principle doesn't require that tax rates be graduated even a flat 20-percent tax means rich pay more dollars than poor in practice, ability to pay is the ethical centerpiece of America's progressive income tax, currently with rates from 10 percent to 35 percent based on incomes.
So here's a question. If graduated tax rates on people are fair, are they also fair for corporations?
I hope you're sitting down, because the improbable answer is that they're not fair.
Even if we enthusiastically embrace progressive income taxes on people, progressive taxes on corporations don't follow at all. In fact, it turns out today's steeply graduated corporate tax rates eight brackets ranging from 15 percent to 39 percent are unfair to a large number of low-income workers and consumers. And once you see why, you might find yourself whispering among friends that maybe, just maybe, the fairest corporate tax rate of all is zero percent.
Let's start with a simple example. Imagine two companies. One is a start-up that makes high-tech satellites. Like most start-ups, it's well-financed but earns no profits. It has rich customers, highly-paid employees, and very rich venture-capitalist shareholders.
Now consider a second company. It's a large big-box retailer. Like most big companies, it earns handsome profits. Most of its thousands of employees earn low wages, and so do its customers. Its stock is publicly traded, and shares are mostly held by mutual funds feeding 401(k) retirement plans of workers, many of whom fall in the middle of the nation's income distribution.
Question: which of these two companies should pay a higher corporate tax rate, given their ability to pay?
At first this seems easy. The one with higher profits should pay higher rates. But look closer. What do you mean by the company's ability to pay?
Every freshman economics class teaches companies can't bear taxes, only people can. Companies are just legal fictions that shove off taxes onto customers, employees and shareholders. The firm itself pays nothing. And so the age-old notion that we should hammer rich companies because "they can afford it" is really based on a simple misunderstanding.
Personally, I blame lawmakers for the mix-up. They notoriously preach the gospel of "tax companies, not people" with campaign promises to shift taxes from families onto businesses. But business taxes are just a tricky way of dumping tax burdens back onto different people. So in the world of corporate taxes, the right measure of ability to pay isn't the profits of the Fortune 500. It's our own pocketbooks.
Back in our two-company example, one earns zero profits but has well-paid workers, rich shareholders and wealthy customers. The other earns huge profits but has low-wage workers, poor customers and middle-income shareholders. How can a progressive corporate tax be fairly applied here? What's the logic in taxing poor folks who work and shop at profitable companies with a 39 percent rate, while rewarding wealthy employees and customers of unprofitable start-ups with a 15 percent rate?
Yet that's what our current tax code does. And that leads to our take-away point. Those buildings downtown don't pay taxes, we do. So progressive corporate tax rates that treat companies like people aren't just silly, they're unfair. And unfair in an especially capricious way that should infuriate people who really care about tax fairness.
If you can understand this simple argument, congratulations are in order. You understand something an army of Washington lawyers, economists and lawmakers who continually wring their hands about "companies not paying their fair share" do not. As if companies ever paid a dime. As if the only thing keeping Americans tethered to the yoke of taxation are those darn buildings, desks and cubicle dividers that won't pay their share of the tax bill.
Sam Walton was rich. But the poor families who bought jeans at Wal-Mart this morning aren't. Why soak them for shopping at a profitable company? Why not tax the Waltons directly, and forget the rococo con game of corporate taxes altogether?
Source: The Tax Foundation, http://www.taxfoundation.org. Andrew Chamberlain is an economist at the Tax Foundation in Washington, D.C.
Commerce Department publishes first-ever Trade Finance Guide . . . user-friendly resource provides the essentials on finance export opportunities
The International Trade Administration's (ITA) Office of Finance has published the Trade Finance Guide: A Quick Reference for U.S. Exporters. This comprehensive, informative and easy-to-understand tool was created specifically for U.S. small and medium-sized enterprises (SMEs).
According to Commerce Undersecretary for International Trade Franklin Lavin, "By taking advantage of this cost-effective, easy-to-obtain tool, U.S. exporters can enhance their competitiveness in today's global marketplace and easily learn how to turn overseas opportunities into actual sales and profits."
The Commerce Department will update the guide in the future. Each update will be posted on the web or published in print reflecting the feedback received from the department's Trade Information Center, U.S. Export Assistance Centers, and Commercial Service's overseas posts that directly assist U.S. businesses in exporting their products and services to overseas markets.
The Trade Finance Guide is available online. Exporters can also obtain a copy from the Trade Information Center or through the Commercial Service's network of domestic Export Assistance Centers and overseas posts. To find a local U.S. Export Assistance Center or an overseas Commercial Service office, please visit the U.S. government's export portal at
http://www.export.gov or contact the TIC at 1-800-USA-TRADE.
Background The Trade Finance Guide was created through a public-private partnership formed with FCIB. The FCIB is an Association of Executives in Finance, Credit and International Business that serves as a not-for-profit business educator of credit and risk management that has extensive knowledge in trade finance training.
April 2007 trade gap is $58.5 billion
U.S. international trade in goods and services
The U.S. monthly goods and services deficit decreased in April 2007, according to the U.S. Bureau of Economic Analysis and the U.S. Census Bureau. The deficit decreased from $62.4 billion (revised) in March to $58.5 billion in April, as imports decreased and exports increased. The March deficit was slightly lower than its previously published value of $63.9 billion.
Exports
Exports of goods and services increased $0.2 billion in April to $129.5 billion, reflecting an increase in services exports. Goods exports were virtually unchanged.
The small change in goods exports reflected increases in foods, feeds, and beverages; industrial supplies and materials; and consumer goods, which were mostly offset by decreases in capital goods and other goods.
The increase in services exports mostly reflected increases in travel and other transportation.
Imports
Imports of goods and services decreased $3.6 billion in April to $188.0 billion, reflecting a decrease in goods imports. Services imports were virtually unchanged.
The decrease in goods imports mostly reflected decreases in consumer goods and automotive vehicles, parts, and engines.
The small change in services imports reflected small decreases in several categories that were nearly offset by small increases in others.
Goods by geographic area (not seasonally adjusted)
The goods deficit with China increased from $17.2 billion in March to $19.4 billion in April. Exports decreased $0.6 billion to $4.8 billion, while imports increased $1.5 billion to $24.2 billion.
The goods deficit with Canada increased from $5.4 billion in March to $5.8 billion in April. Exports decreased $1.8 billion to $20.2 billion, while imports decreased $1.4 billion to $26.0 billion.
The goods deficit with the European Union increased from $7.7 billion in March to $9.0 billion in April. Exports decreased $2.8 billion to $20.2 billion, while imports decreased $1.5 billion to $29.3 billion.
BEA data and economic data for states, local areas, and industries are available on the BEA Website at
www.bea.gov.
The mid-year tax agenda: calm before the storm?
From a manufacturer's perspective, there's been relatively little action on the federal tax front so far this year. A notable exception was enactment last month of an expanded and increased expensing provision for smaller companies. As we move toward the halfway mark in the legislative year though, look for things to change.
There are a few "must do" items on taxwriters' lists including the need to address the rapidly escalating problem with the individual alternative minimum tax and the continual challenge of extending the expiring provisions like the R&D credit, a top priority for the National Association of Manufacturers (NAM). Leading tax writers also have identified other issues they'd like to tackle this year including separate packages of education and energy tax incentives.
In the current "pay as you go" environment, potential revenue offsets are always on NAM's radar screen. While we were successful in our efforts to derail Senate efforts to couple several anti-business revenue raisers with a hike in the minimum wage, it is likely that some tax writers will take another look at these revenue raisers as well as a host of others to offset tax priorities.
Meanwhile, the NAM is taking a longer view of U.S. tax policy. More and more NAM members operate in the global marketplace and face higher costs than many of their competitors in other countries. We are leading the charge for the fiscally responsible, pro-growth tax law changes needed to ensure that U.S. companies can thrive and compete in the global marketplace. This summer, the NAM will formally unveil A Twenty-first Century Tax Policy to Promote Job Creation and Economic Growth, as part of our white paper series on the manufacturing agenda. In this paper and related advocacy materials, the NAM sets out the rationale for a tax policy agenda that includes lower corporate tax rates; a permanent, strengthened R&D credit; reform and simplification of our international tax rules; and permanent lower tax rates on investment income.
Source: NAM Tax Talk Newsletter, June 2007.
R&D Credit bill draws record number of taxwriters as cosponsors
A National Manufacturers Association (NAM)-supported bill (HR 2138) to strengthen and make permanent the R&D tax credit introduced May 3 by House Ways and Means members Sander Levin (D-MI) and Dave Camp (R-MI) has received unprecedented, strong bipartisan support from fellow committee members. Nearly three-quarters of the Ways and Means Committee members, including Committee Chairman Charlie Rangel (D-NY), have joined Levin and Camp as original cosponsors. The bill, which currently has 60 cosponsors, increases the rate for the Alternative Simplified Credit (ASC) to 20 percent, makes both the strengthened ASC and the traditional credit formula permanent, and repeals the Alternative Incremental Research Credit.
NAM continues to serve in a leadership position with the R&D Credit Coalition, a group that meets every other week at the NAM headquarters in Washington, D.C. The coalition's current efforts are focused on getting more cosponsors for HR 2138. For further information or to be added to the Coalition's email list, contact Monica McGuire at
mmcguire@nam.org.
Source: NAM Tax Talk Newsletter, June 2007.
DATES OF NOTE:
More events may be found at www.ima-net.org/calendar.cfm
September 6, 2007
IMA EVENT: Hot Wage & Hour Issues: A Review of Recent Court Decisions & Agency Rulings, Executive Conference Room, 1225 W 22nd St., Ste. 140,
Oak Brook, 8:00-11:00 am
In this program you will learn: the common mistakes employers often make in the area of compliance required by the wage and hour laws, the need for consistent and appropriate job classifications and how employers can use audits and classification reviews to be more proactive. Particular attention will be focused on new advice memoranda and opinions issued by the U.S. Department of Labor, on difficult issues of FLSA interpretation. COST: $125 for IMA members; $100 for each additional attendee from the same company and $200 for non-members.
For more information, visit https://www.ima-net.org/hwh_seminar.cfm
November 7, 2007
IMA EVENT: Annual Sales Tax Seminar, NIUNaperville
Joe Bigane, a tax expert will update on current sales and use tax laws specific to manufacturing.
Contact: Kimberly McNamara, 800-875-4462, ext. 2109 or email kmcnamara@ima-net.org.
Tax Policy Memo is published quarterly for IMA members by the Illinois Manufacturers' Association,1211 W. 22nd St., Ste. 620, Oak Brook, IL 60523, (630) 368-5300.
Editor: Stefany Henson, Director of Publications (shenson@ima-net.org).
Reproduction of all or any part is prohibited except by permission of authorized IMA personnel.
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