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Eye on Subsidies |
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June 14, 2007 by Karla Walter and Allison Lack
Cabela's Caves on Nexus, Will Collect Sales Tax on Internet and Catalog Sales Cabela's recently announced that it will begin collecting sales tax on catalog and internet sales to residents of states where it also has retail stores. That's big news: Cabela's has been a holdout among national retailers with both "bricks and clicks," most of whom quit dodging such sales tax collections years ago. Normally, state "nexus" rules require companies with a substantial physical presence in the state to collect sales tax on all purchases that occur in the state - whether they occur in a store, via the internet or by catalog. But as it morphed from mostly a catalog operation to also include a chain of (massively subsidized) mega-stores, Cabela's sought and won rulings from attorneys general in a reported 19 states that its catalog, internet, and retail divisions were essentially separate entities and therefore did not create overall nexus. The #1 outdoor sporting goods retailer will end the "separate entity" business by installing in-store internet kiosks and allowing customers to pick up internet and catalog purchases at its retail locations. Prior to this announcement, Cabela's faced skepticism on its nexus immunity claim from some states. In Kansas, the Department of Revenue has assessed Cabela's $392,000 in back taxes and penalties on internet purchases made between 2002 and 2004. And last summer in Maine, when competitor L.L. Bean and others weighed in, that state refused to grant a nexus exemption, even when Cabela's threatened to cancel a new store there. Cabela's is building the store anyway. Besides the tax issues, Cabela's nearly lost a previously authorized subsidy. The Washington County (Wisconsin) Board last month voted against borrowing funds to supply Cabela's with a $4 million subsidy. However, the County had pledged such funds to the retailer in 2005 in exchange for public ownership of one of Cabela's in-store pseudo-museums (with taxidermy, etc.). But the current board, which was elected in 2006, narrowly rejected the bonding proposal. However, two weeks later, after a closed door meeting with the county attorney, the county commission again reversed itself, voting to approve the bonding. While many of the commissioners who switched their votes cited obligations to uphold a development agreement they inherited, opponents questioned whether one board of supervisors can compel a future board to vote a certain way. Meanwhile, Cabela's voracious quest for mega-store subsidies marches on; it is averaging about $25 million per facility or about $500 million to date. Legislators in Washington State were recently displeased to learn that some of their $100 million job fund subsidized low-wage jobs. Among the criticized deals: a new Cabela's in Lacey, where most of the jobs will pay only $9 an hour, barely a dollar over the state's minimum wage. Incredibly, the program's rating criteria gave more weight to expected tax revenues than to family-wage jobs. Credit Cabela's for its audacious candor: "We've never built a store anywhere without some kind of incentive," a spokesman told the Seattle Times. Bass Pro, the #2 outdoor sporting goods retailer, often seeks mega-store subsidies as well, with more than $200 million to date. Click here for our recent article on Cabela's and Bass Pro - including Cabela's pseudo-museums. Alabama "Wins" ThyssenKrupp Steel Mill at a Cost of $810+ Million German steelmaker ThyssenKrupp AG recently chose Alabama's Mobile County for its new plant, but the full cost of Alabama's subsidy package - which at a minimum is the one of the largest in state history - is still unknown. Alabama's deal is valued at $810.4 million, but this does not include an additional tax break that could be worth billions: ThyssenKrupp will be able to take up to $185 million in state corporate income tax credits each year for 30 years, up to a cumulative total of $3.7 billion (the company's apital investment). On June 5th Alabama voters approved a $400 million increase in the state's bonding capacity, about half of which will be used in the ThyssenKrupp package. ThyssenKrupp chose a site in Alabama over one in Louisiana, even though the Pelican State offered the company a whopping $1.97 billion deal. Lousiana officials blamed a business basic - Louisiana's high electricity prices. While some are touting the deal, there are critics, including those who fear the new plant will undermine good jobs at a long-standing Alabama employer. Steelworkers union members in Birmingham are worried that their jobs at U.S. Steel's Fairfield Works - which makes steel for the construction and appliance industries - will be threatened by the new ThyssenKrupp plant. ThyssenKrupp's raw steel will be produced using cheaper labor in Brazil, then shipped to Alabama for further processing. Greg England, who helps laid off Steelworkers in Birmingham, told the Birmingham News, "Instead of sending jobs overseas this time, Alabama is using taxpayer money to bring in a foreign company that will take away our jobs." Executives of U.S. Steel - which employs 2,200 people at Fairfield - have also objected to the ThyssenKrupp incentive package. Executive John Goodish wrote Alabama Gov. Bob Riley saying in part: "Trading existing good-paying jobs with benefits in one area of the state for new jobs in another geographic location is not a win-win for the overall state economy and job creation." The ThyssenKrupp plant is projected to employ about 2,700 workers. Besides the job-displacement threat, the deal has an unusually brief clawback clause. To claim the biggest package in state history, ThyssenKrupp must employ 2,000 people - but the clawback obligation for creating and then maintaining those jobs lasts only two years. Subsidized RadioShack Headquarters Laying Off, Subtletting Just two years after the grand opening of its highly subsidized corporate headquarters in downtown Fort Worth, RadioShack is laying off hundreds of workers and seeking to sublet one of the three riverfront buildings. The City granted RadioShack over $96 million in retention subsidies. RadioShack spent $227 million to build the campus, but then in 2005 sold it to a German real estate company as part of a bid to buy back company stock. Fort Worth is one of the strongest markets in the country for office space so it does not generally grant subsides for office projects. RadioShack will have a distinct advantage in subletting the space over developers who did not get any tax breaks. In the last year, RadioShack has laid off roughly 800 downtown workers, 280 in April alone. To its credit, Fort Worth included job-retention levels for both city residents and central city residents. If RadioShack falls short it may owe the city roughly $1 million in taxes annually through 2014. Minnesota Governor Vetoes Tax Breaks to Thomson West and Mall of America Minnesota Governor Tim Pawlenty vetoed an omnibus tax bill that would have awarded Mall of America and legal publisher Thomson West massive subsidy packages. However, Pawlenty supported both subsidy deals; he vetoed the bill over a clause that would require government officials to factor inflation into their budget calculations. Mall of America is slated for a $1.7 billion expansion. The tax bill called for $180 million in subsidies for an 8,000-space parking structure that would be financed by increasing property taxes across the seven-county Twin Cities metro area. Current law already mandates that the seven counties share 40 percent of their commercial and industrial tax base growth. Downtown retailers, in direct competition with the Mall of America, were strongly opposed to their tax dollars supporting the mall expansion. Under the vetoed bill, Thomson West stood to receive an estimated $11 million in state and local subsidies for a $140 million, 2,000-employee expansion at its legal software and publishing headquarters in Eagan, Minnesota. While the city of Eagan planned to supply $1.5 million in tax increment financing (TIF), without a special exemption, office use is not allowable under TIF. Pawlenty signed another bill that awards Thomson $3 million in subsidies; however, it requires the publisher to spend at least $60 million in total capital investment and in the wake of the Pawlenty's veto, Thomson West said it is reviewing plans for the overall campus expansion. Parent company Thomson Corp., has 32,000 employees worldwide and had $6.6 billion in revenues last year. There's no Business Like Show Business for Subsidies in Louisiana and North Carolina A number of states have tax incentives for the film industry, but cities in Louisiana and North Carolina are betting instead on live theater. In New Orleans, local leaders are asking the state Legislature to grant tax breaks to theater owners and theatrical producers to help renovate old theaters. The initiative, "Broadway South," would offer state tax breaks to historic theaters and qualifying production companies throughout Louisiana. The state's Legislative Fiscal Office has yet to estimate how much the legislation would cost the state in lost revenues. The Broadway South plan provides incentives similar to those given the film industry, which as of 2006 have cost Louisiana more than a quarter-billion dollars in tax revenue. Meanwhile, city officials in Roanoke Rapids, North Carolina borrowed $21.5 million to build a theater in an economically depressed part of the city. The city will pay entertainer Randy Parton (brother of Dolly) $1.5 million a year to manage the theater. Parton will also receive a fully furnished home and car for three years, though the city's economic development director, Rick Benton, says private donations not taxpayer money provided the house and car. Bob Orr, former executive director of the North Carolina Institute for Constitutional Law and current gubernatorial candidate told the Associated Press: "Local governments simply have no leverage in negotiating these deals. They're desperate and they're taken advantage of by the other side." "It looks like Mr. Parton got a very sweet deal out of this," he said. Up, Up and Away: Piper Aircraft Co Threatens to Fly for Richer Territories Five cities, two within Florida, are flashing their wallets at Piper Aircraft Co. and its new jet with 1,500 jobs. Albuquerque, Oklahoma City, Tallahassee, Fla., and Columbia, S.C. are competing with Piper's hometown of Vero Beach, Fla. for the aircraft company's new production site of very light jets (VLJs) and possibly its corporate headquarters. While Oklahoma City and Columbia have not disclosed any subsidy offers, giveaways from the other cities range from $50 to $90 million. Vero Beach's $50 million package includes a proposal to buy and lease back Piper's existing facilities and to build a new facility. Tallahassee's City Commission gave preliminary approval to $90 million in local subsidies for new manufacturing and office space. The state of Florida may add as much as $20 million in support of its cities' bids. A third known bid comes from Albuquerque, which may offer as much as $70 million. Any subsidies would defray VLJ product-development costs; Piper hopes to begin production in late 2009. In Kansas City, Subsidized Parking for the Feds The federal government is insisting that Kansas City subsidize parking for a new federal office building. The new General Services Administration-owned facility will house more than 2,000 employees and needs 1,500 parking spaces. A GSA representative told the Kansas City Star that any development plan would need to have tax increment financing (TIF) for the private developer to make parking lease rates affordable. If that weren't bad enough, Kansas City has to compete with the Port Authority of Kansas City for the project site. While the Kansas City Area Transportation Authority and Mayor Mark Funkhouser have endorsed a dense infill location in downtown called East Village, the Port Authority and its developer Forest City Enterprises are pushing instead for a site along the riverfront. Although a parking structure would be significantly cheaper to build at the riverfront location, GSA representative Brad Scott told the Kansas City Star the government considers public benefits as well as the bottom line and East Village comes closer to matching the city's master plan. Tax giveaways for the federal government are nothing new in Kansas City. In 2006, Kansas City and the State of Missouri granted a $120 million TIF package for a regional Internal Revenue Service facility. With Missouri entering Year 6 of its acrimonious statewide TIF-reform debate, Kansas City voters recently elected Mayor Mark Funkhouser, a grassroots candidate who won in an upset, promising major reform of the TIF program. Wal-Mart Stores Continues to Benefit from Development Subsidies Good Jobs First has found that Wal-Mart Stores, Inc. has benefited from more than $200 million more in state and local economic job subsidies in just the past three years. In an update of the landmark 2004 report Shopping for Subsidies, which found more than $1 billion in subsidies for Wal-Mart facilities, Good Jobs First found 39 new deals worth more than $200 million. Nine of the deals worth almost $50 million are in Illinois. Good Jobs First has mounted all of the data on a state-by-state searchable website called Wal-Mart Subsidy Watch. The new website also contains data from disclosures made by about two dozen states on the number of Wal-Mart workers (or their dependents) who have enrolled in taxpayer-funded healthcare programs such as Medicaid and the State Children's Health Insurance Program. Click here for more information on new Wal-Mart deals and the Subsidy Watch website. Tax Increment Financing (TIF) Round-Up TIF is the nation's most problematic subsidy, deserving of its own round-up: ARKANSAS: School Increment Shielded - The State Supreme Court ruled that property taxes intended for schools cannot be diverted to pay for development. An amendment to the Arkansas state constitution requires that 25 mills of property tax revenues must be reserved for school funding. (Each mill produces $1 per year for each $1,000 of assessed value.) A subsequent amendment allows cities to redirect property taxes to pay off bonds for commercial projects (i.e. TIF), the courts disagreed with TIF advocates who argued that these TIF provisions in effect amend the constitutionally-mandated school finance requirements. Since the high profile decision, two TIF recipients in the Little Rock area have announced that they are going forward with construction despite the smaller TIF diversions. IOWA: TIF for Illinois Firearms Manufacturer - The LeClair City Council agreed to a $150,000 TIF deal and the sale of city-owned land to attract an Illinois gun maker, Les Baer Custom. The move is projected to create 18 jobs by 2010. Baer told the Quad-City Times (May 23, 2007) that he decided to move after Illinois lawmakers proposed a ban on the distribution, sales and manufacturing of automatic weapons. MISSOURI: Mild Reform Weakened - After several years of heated TIF abuse debate, the state legislature recently approved a very modest reform to deter TIF-financed job piracy in the St. Louis Metro region. The law creates county commissions in St. Charles, Jefferson, and St. Louis Counties to review local plans, with the goal of preventing battles among municipalities. However, the bill was substantially weakened by an amendment that allows city councils to overrule the commission's findings with a three fourths majority. RHODE ISLAND: Shipwreck Seeks TIF - Dial Family Resorts is asking the city of West Warwick to issue almost $18 million in TIF bonds to help finance Shipwreck Falls Water Park and Resort. The $109 million project will include an indoor water park, 347 hotel rooms, convention space and a family dinner theater billed as "Branson, Missouri meets Chuck E. Cheese."
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