Windows of OpportunityWindows of OpportunitySchool Funding in AlabamaSchool Funding in Alabama

Susan KennedySusan KennedyManager of Education Funding & RevenuesAlabama Education AssociationManager of Education Funding & RevenuesAlabama Education AssociationAlabama Education AssociationAlabama Education Association

Strong Schools Communities and Economies

Alabama Education Association works consistently toAlabama Education Association works consistently to reduce attacks on education revenue for schools. AEA is well known as the standard bearer for protecting education money. AEA has worked to address loopholes & increase revenue. AEA provides ammunition to fight tax avoidance strategies &

education revenue erosion. AEA works to increase education funding protect AEA works to increase education funding, protect

benefits, & protect existing funding.

The Costs of Inadequate Education

h lif i bli i fThe lifetime public savings to taxpayers from changing one dropout to a high school graduate: $209 200graduate: $209,200

Study by Clive Belfield professor of economics City College of NewStudy by Clive Belfield, professor of economics, City College of New York and Henry Levin, professor of economics and education, Columbia University

What the taxpayer gets from public investment in educationPublic internal rates of return for an individual

obtaining an upper secondary or post-secondary non-tertiary education

(Measured as the rate of return when the individual immediately acquires the next higher level of education)

Males % Females %

Belgium 11.4 9.4Denmark 11.1 8.5Finland 8.2 4.7Hungary 8.3 8.9Korea 6.7 3.0New Zealand 8 3 5 2New Zealand 8.3 5.2Norway 5.5 3.5Sweden 10.4 6.9Switzerland 1.7 2.4United Kingdom 13.4 10.6United States 12.5 9.7Source: OECD, Education at a Glance, 2007

AlabamaState and Local Public School Revenue as a percent of Personal Income

7.0%

p1970 through 2010

5.0%

6.0%

4.0%

2.0%

3.0%

1.0%

0.0%

1970

1971

1972

1973

1974

1975

1976

1977

1978

1979

1980

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1982

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Who Pays Taxes in Alabama?

Small Business and People pay Taxes.p p y A family of four making $21,201, will pay $423 in

Alabama Income tax. For most Alabama citizens income tax rates are 5%. Some Corporate effective income tax rates are

b l 3%below 3%. Insurance Companies do not pay income tax. Th p i l b k f p i l There are special breaks for car companies, coal

companies, banks, airlines, oil companies, and many others.

Is Big Business Paying a Fair Share?

In 2008, 1761 companies doing business in Alabama In 2008, 1761 companies doing business in Alabama reported almost $412 billion dollars to the IRS, but did not pay one cent in Alabama corporate income tax.

Sixteen of those companies reported over $1 billion each to the IRS and paid ZERO Alabama corporate in m tincome tax.

Corporate Loopholes: Most Companies Have Paid Nothing

20,000

25,000

15,000

20,000

10,000

5,000

0Businesses paying No Tax Businesses paying Income Tax

Companies Making BIG Money Pay Zerop g

In 2008, of the almost 6000 corporations that d th $5 illi 30% id Al bmade more than $5 million, 30% paid zero Alabama

Corporate Income Tax.

Of h 437 i ki h $100 Of the 437 companies making more than $100 million dollars, 31% paid zero Alabama Corporate Income Tax.

Of the 47 companies making more than a billion dollars, almost 32% paid zero Alabama b d , p d bCorporate Income Tax.

The Add-Back Gimmick: Shifting Alabama Income To No-Tax States

Delaware PICAlabama Corporation

Delaware PICCompany

Payment for trademark (deducted as expense)PIC makes kPIC makesDividend paymentTo West Coast Parent

Parent makesDividend paymentTo AlabamaCompany. Dividend

West Coast Parent

p yIs tax free.

IT GETS EVEN WORSE: How do they do it? In 2003 Exxon made $89 million in In 2003 Exxon made $89 million in

Alabama and paid Zero income tax.Th d d t d $418 illi i t t They deducted $418 million in payments to themselves.

They deducted 6 times the Federal Depletion They deducted 6 times the Federal Depletion allowance.

Deducting 6 times the Federal Depletion g pAllowance allows Exxon to deduct more than the oil and gas is worth.

Source: Records on file with the Administrative Law Division of the Alabama Department of Revenue Source: Records on file with the Administrative Law Division of the Alabama Department of Revenue

Who is Using These Loopholes?

Lowes Inc. deducted $833 million in payments to $itself and reduced its Alabama income by $25

million. McDonalds Corp. deducted $500 million in p $

payments to itself and reduced its Alabama income by 55%.

Abercrombie & Fitch deducted over $200 million in Abercrombie & Fitch deducted over $200 million in royalty payments to itself and reduced its income by almost 90%.

Talbots income tripled after add-backs by State Talbots income tripled after add-backs by State auditors.

Rheem’s income rose by 2200% after add-backs. Source: Records on file with the Administrative Law Division of the Alabama Department of Revenue Source: Records on file with the Administrative Law Division of the Alabama Department of Revenue.

Is This Really Tax Avoidance?

In one case, nine related companies of theIn one case, nine related companies of theLimited, Inc. received payments from theiraffiliates of $423,098,963 in one year.

The nine Limited companies had noemployees, and shared office space,

i t d liequipment, and supplies. The primary office space used by the nine

Companies was also the primary officeCompanies was also the primary officeaddress for more than 650 othercompanies.p

Add-Back Lawsuits on File Now

Add-Back Lawsuits on File Now

Add-Back Lawsuits on File Now

Add-Back Lawsuits on File Now

Using REIT Strategies to Avoid Alabama Income Tax

Alabama CorporationNevada REITRent paid to REIT (deducted as expense)

REIT makesDi id nd p m nt R l d C kDividend paymentTo Related Company

Related Company makesDividend paymentTo AlabamaCompany. Dividend

Related Corporation in Delaware

p yIs tax free.

Wal-Mart used the REIT Tax Shelter.

In the late 1990’s Wal-Mart transferredIn the late 1990 s Wal Mart transferred ownership of its stores to Captive REITs and rented from those REITs

REITs pay no corporate income tax In one four-year period, Wal-Mart saved $230

million in State Taxes, by paying rent to itself. Wal-Mart deducted the rent payments even

th h th l ft ththough they never left the company.Source: Wall Street Journal, Jessie Drucker, 2-01-07

Alabama Corporate Tax Liability, by Fiscal Year$500 000 000

$400,000,000

$450,000,000

$500,000,000

$250,000,000

$300,000,000

$350,000,000

$100,000,000

$150,000,000

$200,000,000

$0

$50,000,000

FY99 FY00 FY01 FY02 FY03 FY05 FY06

WHAT ARE YOUR OPTIONS?

Examine every possible corporate loophole.G i T Gaming Taxes

Oil and Gas Depletion and Severance Issues. Eliminate the FIT for $1 million and above Limit Loss deducts for Corps. and Indiv. Services Taxes (38 states do it). Digital Property definitions for sales tax. Digital Property definitions for sales tax.

MORE OPTIONS. . .

Medicaid Surcharge on Large Employers Medicaid Surcharge on Large Employers. Decouple from new any Federal changes that

lose you moneylose you money. On-Demand Cable Taxes.

M bil C i ti T Mobile Communications Taxes. Floor on Property Taxes—Examine 4 year or

2 A i l i d2 year Appraisal in down years. PLAY DEFENSE!!!!!!!

Windows of OpportunityWindows of OpportunitySchool Funding in AlabamaSchool Funding in Alabama

Susan KennedySusan KennedyManager of Education Funding & RevenuesAlabama Education AssociationManager of Education Funding & RevenuesAlabama Education AssociationAlabama Education AssociationAlabama Education Association