More Corporate Tax Evasion

Edward Lump [what a fitting name], president and CEO of the Wisconsin Restaurant Association, in a recent Journal Sentinel article, rants against a proposed Wisconsin bill which he feels will threaten small business.

He throws out some small business stats, regurgitating the discredited idea whereby small business will save the day. "Small business employs more than 53% of Wisconsin's workforce and creates 75% of new jobs nationally," Lump claims without reference.

And then there is this dubious and confused claim, "Now more than ever, Wisconsin needs government that recognizes small business is a vital part of the local economy, not a bank from which it can withdraw seemingly endless funds. Instead of creating new taxes, shouldn't we look for ways to cut taxes so businesses can add jobs?"

Wisconsin government doesn't recognize the importance of small business? Where's the proof for this claim? Because small businesses are required to pay taxes, that supports the notion that Wisconsin doesn't appreciate small businesses role in our economy? Even if we cut taxes and save a small business, let's say, $5,000-annually, does Mr. Lump think that would really ignite a hiring flurry?

If that were the case, we'd never have recessions, nor would we ever experience anything other than full employment...since we've been cutting taxes since the '80s. Shouldn't the miracle market, combined with the elimination of so much taxation, have produced a Utopian wonderland by now?

But we know this 'full employment, stable economy' scenario has not been the result of the tax cut frenzy we've seen over the past few decades. So how can these hucksters, with a straight face, always claim cutting taxes is the answer.

Now we get to the bill - Assembly Bill 215 - which has made Mr. Lump so limp. The bill regards the valuation of billboards for assessment purposes and property taxation. Lump sees this as a threat to all small businesses. That's quite the leap of paranoid irrationality. [I found it very odd there were no citations nor even the name of the bill Mr. Lump finds so vexing in his article. But then one would be able to go read the bill and see the tenuousness of Mr. Lump's claims...and there would be no reason to print his article.]

He completely leaves out an explanation as to why valuation of billboards is an issue. He doesn't mention that if billboard owners pay their fair share of taxes on their property, the rest of us pay a little less. And, somehow, "There is nothing that would prevent cities from applying the same rules to other small businesses, such as restaurants."

The bill applies to, "...permits issued, leasehold interests, or other intangibles with regard to the outdoor off−premises advertising sign. In this subsection, “off−premises advertising sign” means a sign that does not advertise the business or activity that occurs on the site where the sign is located."

The State already has the ability to tax. If they wanted to tax restaurants more, they would. To paint this legislation as some type of nefarious, backdoor bill aimed at (in a very roundabout way) a tax increase on all businesses is fantasy. Again, if the state wanted to increase taxes on business they could. They wouldn't want the arduous legal battles involved in such assembly bills just for the fun of it.

To support his paranoia, Lump equates billboard valuation with valuing liquor and hunting licenses. He sarcastically squawks, "How would the value of a liquor license be determined? Would the assessment take into account the myriad variables that affect the profitability of a licensed establishment, or would it be one-size-fits-all? ... Think about how ridiculous it would be for the state to tax you on the "value" of your hunting permit...Or on the "value" of the deer you could potentially take home, whether you actually get a deer or not. Who knows what other licenses cities will decide to tax, once the state gives them this power?"

A billboard's value is in the income stream it can generate by exposing whatever it's advertising to more and more people. The reason for the bill - more specific legal language to capture the true value of billboards - is because they are quite different from the much simpler licenses Mr. Lump incorrectly, and purposefully misleadingly, tries to compare them to.

A hunting license doesn't produce an income stream to it's holder. It allows them to shoot a deer (catch a fish, etc.). A liquor license allows its holder to ship, manufacture, and import liquor. The hunter will pay taxes when he has the butcher process his deer. The liquor will be taxed when it is sold. These are direct links along the chain of commerce for these two examples which can be traced and taxed accordingly. When Clear Channel, CBS Outdoor, or Lamar (a few of the largest billboard companies) obtain an outdoor advertising permit for $175, this cost nowhere near reflects the income stream these companies expect to profit from such advertising.

As Dennis Hathaway comments at the Scenic America Blog, "The billboard companies fight tooth and nail against tax assessments that account for the value of anything other than the structure itself, but if one of their billboards has to be removed for a highway widening or other public works project, they will seek millions in compensation based on the value of the sign as a 'revenue' generator. This is a classic case of wanting it both ways, and hopefully governments will point that out in defending against these inevitable lawsuits."

And, maybe both of the fees on hunting and liquor licenses are too cheap, also. Granted, there is a point where costs become too prohibitive and potential users will stop buying the licenses. With the current value of billboards abysmally low (compared to their true market value), we're nowhere near the tipping point. Even with an increase in the taxes billboard owners will pay, not one of them will stop advertising on billboards...because they are all making more than enough money to justify the cost.

Just shut up and pay your fair share in taxes. So residents, workers, home-owners, and those not as fortunate can pay less.

Inflation & Valuations

I know people don't enjoy paying property taxes. But like any other investment or purchase, one must consider taxes (along with other expenses) when weighing the pros and cons of buying a property.

One factor that seems to slip most everyday homeowners' minds is inflation. This depreciates your home's value a few percentage points each year. Everything generally tends to cost slightly more each year. This process automatically lowers the values of properties. So even in the years when your property assessment valuation remained the same as previous years, you were actually losing money due to inflation. Some of this is offset during an appreciating market. But this can also be exacerbated during a downturn in the market, such as we're experiencing now.

Now one can always say, "I want the assessed value low so that my taxes are lower. I can always ask whatever I want, and get more than that, when and if I sell."

That is a bubble market mentality. "I can always get above the assessed value. Real estate doesn't depreciate." Savvy buyers, and those whom have been brought back to reality by our recent financial upheaval, would not pay a large amount above an assessed valuation - since it's based on sales of comparable properties. Hoping to pay a property tax amount below a property's fair share and then reaping large rewards later upon a sale is: 1) mostly a pipedream, 2) unfair to those paying their fair share, 3) hurtful to needed programs funded by property taxes, and 4) selfish.

Just something to think about as people complain about the [supposedly overly high] value of their properties. Do owners actually want to see their values decrease? It would be analogous to wanting your stocks to stay low in value (or decline) so you don't have to pay capital gains tax. Taxes are the price of civilization and we all need to be more aware of such when we make our investments and purchases...rather than complaining after we've overextended (bought too much house) ourselves.

For Further Reading:
Assessment v Property Tax
Tax Burden Shifting: Exemptions
Wisconsin Tax Truths in the Land of Tax Trickery

Assessment vs. Property Tax

It's tax season. People are receiving their property tax bills for the January 1st, 2008 assessment. So there is a lot of chatter about values, property assessments, budgets, and the like. A common complaint I hear is, "I couldn't get that value if I tried to sell it now." This may be true. But the value is of January 1st, not as of the day you received the bill. The assessed values are produced early in the year. Assessors analyze data (sales) from the previous year to see where the market is trending. They arrive at a value for January 1st of the year. Property owners receive a notice in late April, they then have the first three weeks in May to formally object to this value. This seems to be ample notification and time given to homeowners for them to present their case for a discrepancy in the assessed value to the local assessor’s office.

[Since 2008 saw a national slowdown in economic activity during the last quarter, assessors may weigh sales during that period more heavily in their analysis to reflect such for their January 1st, 2009 assessment.]

By state statute, assessments are conducted to determine the fair market value of a property as of January 1st. It’s “as of” such a date because of the complexities and vagaries of the market place. Stability for this municipality revenue-producer, as with any operation, is needed for budgetary and planning constraints. Having some type of moving-target date would allow endless arbitration, court costs, and gridlock.

If a compelling case can be made by a property owner for much-needed repairs (provide a written estimate for the repair), an adverse adjacent influence, or other encumbrances that may detrimentally affect the value of the property, I don’t know of an assessor who wouldn’t make the adjustment to the property value to reflect these negatives.

But the usual thing I hear is “the market.” The market is bad and the property owner wouldn’t receive the assessed value if he tried to sell it. As if assessors aren’t paying attention to the market. Sale of the subject property, or a comparable property, gives the best indicator of the market value of a property (also by state statute). An assessor wouldn’t believe the value of your property either if he or she didn’t have the sales of that property or other similar properties indicating the value.

Assessors follow sales throughout the year. They can see trends, increases and/or decreases. They can see if recent purchases are the same, higher, or lower than the present assessment. If most valid, arms-length sales of a specific type of property in a specific area of a city are moving in one direction or another, it’s relatively easy to see.

Too often homeowners use anecdotal and incomplete information to jump to conclusions from one market to another. Yes, a housing bubble popped. But, as with all bubbles, some areas are affected more than others. Wisconsin towns and cities did not see the stratospheric rise in prices that was witnessed on the Coasts. Also, Wisconsin banks, in general, were nowhere near as invested into the Ponzi-schemes that the financial industry created over the last few decades. Arizona, California, Florida, and Nevada are taking most of the hard hits in the deflation of the housing bubble. Does that mean we won’t experience any aftershocks? Of course not. But it also means that thirty-five percent declines in the Las Vegas property market do not equate to thirty-five percent loses in the Milwaukee property market.

Valid, open-market, arms-length sales are the number one indicator of value. And, the sales must be comparable. Don't reference the homes in bad condition, that are one-thousand square feet smaller than your home, that just sold for a lower amount than your assessment. This isn't a comparable home. Compare apples to apples. Don't just search for homes that sold at lower values than your assessment and reason that your home is only worth that much.

The assessed value is used in your property tax equation. But what you’re assessed at matters much less than what the needs of the locality are, and the budget to fund such operations, in determining what your tax bill will be each year. Your assessment may go down, your tax bill can still increase. Alongside budgetary downturns are usually increased needs for public provisions – food pantry, shelter, etc – which increases city, county, and state budgets. Also, the public (MPS) and technical schools (MATC) need funding, the State takes a share to redistribute to areas of the state where the funds are needed even more, the County uses part of this money to fund it’s operations, MMSD gets part of the money to manage our sewage, and the City uses the rest for it’s day-to-day functions.

The bill for the total of these budgets is divided by the total assessed value of all the parcels in the city to determine a mill rate. Your property’s assessed value divided by one thousand, then multiplied by the mill rate will give you your property tax bill.

The bottom line comes down to: what kind of a society do we want, with what kind of quality-of-life, and what is the fair distribution of the tax burden to provide such an existence. The total bill is quite a bargain for all it provides. I would even like to see it increased so we can provide an infrastructure spending plan and create jobs, and also to provide a heightened quality of service provision throughout the state. But, I also feel that the bill does impose too heavy a burden on working and middle class families as a percentage of their income.

Making corporations pay their fair share and getting rid of many exemptions, tax breaks, depreciation schedules, and other pointless giveaways to the well-to-do would balance the budget and provide the long-term funds and infrastructure needed to attract and maintain business and assure a good quality of life that Wisconsinites have come to expect.