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December 14, 2011

A tasty tax deal

Yum! Brands making record profits, but not paying state corporate taxes

On Dec. 7, Yum! Brands’ stock hit a new 52-week high, as the multibillion-dollar multinational behemoth was trading at $57.80.

The same day, Citizens for Tax Justice and the Institute of Taxation and Economic Policy released a study showing that 20 of the most profitable companies in the country paid no net corporate income taxes over the last three years — including Louisville’s own Yum! Brands.

So how exactly could a company that made more than $1 billion profit over that time not pay a dime in state corporate income tax?

As Kentucky’s General Assembly readies to meet in Frankfort next month — to address a $190 million shortfall and devastating budget cuts on the horizon — tax reform advocates are hopeful that their efforts to address this problem are not ignored, as they have been in recent years.

The recent study shows that between 2008 and 2010, 265 corporations paid well below the average state corporate tax, with 68 companies paying no state income tax in at least one of those years. This amounts to $42.7 billion in lost revenue for states.

Yum! paid less than 1 percent of its profit in state income tax in 2009 and 2010, and received a refund of $9 million in 2008.

Jason Bailey — director of the Kentucky Center for Economic Policy, a progressive group that assisted with the study — wrote in a press release that these results are troubling, especially in these times of government austerity.

“At a time of record corporate profits, many large corporations are avoiding paying their fair share for the public services from which they benefit,” wrote Bailey. “By deepening Kentucky’s budget woes, corporate tax avoidance directly harms our ability to provide quality education, improve health and build a foundation for a strong economy.”

But how much money Kentucky’s general fund lost out on, and how companies like Yum! would have pulled this off, is still somewhat of a mystery.

The study outlined ways companies can avoid paying this tax — such as receiving generous tax breaks and subsidies, or hiring an army of lawyers and accountants to find loopholes — but companies’ federal tax filings do not reveal how much they pay in individual states.

Yum! did not return inquiries from LEO Weekly asking how much corporate income tax they paid in Kentucky, and what economic development tax incentives they currently receive.

The Beshear administration referred LEO to the website of the Economic Development Cabinet, whose database shows Yum! was approved for a $600,000 tax incentive in 2004, but that incentive is currently listed as inactive.

Beshear’s re-election campaign repeatedly highlighted business tax incentives under his administration — millions of dollars in tax breaks on the condition that they create or retain a certain amount of jobs.

But the two leading tax reform advocates in the state House of Representatives — Jim Wayne (D-Louisville) and Bill Farmer (R-Lexington) — have criticized these incentives.

Farmer tells LEO he’s not surprised by the study’s findings, confirming his belief that Kentucky must end the corporate income tax altogether and replace it with more reliable income through increasing the sales tax and expanding taxes on services.

“Our corporate tax receipts in this state have gone down hundreds of millions of dollars over the last 10 years because we’ve given out all of these crazy incentives,” Farmer says, “and they’re going to find a way that they pay as little taxes as possible.”

Farmer also notes that these incentives are extremely difficult to track. “They keep all these things secret, and, as legislators, we never hear what they are. So I don’t know if the state gets a good deal on these things or if they get a raw deal.”

Rep. Wayne has introduced legislation that would require the effectiveness of each tax incentive to be studied. If they are not beneficial to the state, they would not be renewed.

“Corporations want to be treated as individuals, but at the same time, that also means you have a responsibility to the public sector,” Wayne says. “And we’re all in this together, so we want all the corporations to pay their fair share, just like we want all of our citizens to pay their fair share.”

Wayne adds that Yum! Brands is important to his district, but that potential tax revenue “would go a long way to help schools, social services, diminish the burden of Medicaid, and environmental protection.”

However, University of Louisville economist Paul Coomes tells LEO that the findings should not be “overplayed,” as corporate tax revenues are “a very small part” of Kentucky’s budget — only 3 percent.

Coomes says that Yum! employees pay state and local taxes, and if the company was to move out of state, the budget would take a hit. Plus, “They have a responsibility to their stockholders, employees and customers not to pay more taxes than are required by law.”

Gov. Steve Beshear has been adamantly opposed to tax reform — taking criticism from both Democrats and Republicans — saying that broadening or increasing taxes in the middle of the recession would hurt the economy.

When asked about the study, Beshear spokeswoman Kerri Richardson says, “Despite the corporate income tax situation, multi-state corporations with operations in our state provide valuable employment for our citizens that results in a multitude of benefits for our communities and state as a whole.”

Despite Beshear’s opposition, both Wayne and Farmer will push for tax reform again in the upcoming session. And with the budget in as bad a shape as it is, there’s no time to waste.

“It’s been my understanding from the worshipers of Grover Norquist, of whom I am not, that you can’t raise additional revenue,” Farmer says. “We need to spread our base to where the revenue is, and we don’t do that.

“Everyone will stand around and talk about it, but can we have an adult discussion about it? That’s against the rules, I think.” 

Heya

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