Daily Deduction

from the Tax Policy Center

Multinational Machinations, Big Soda, and the Phone

By :: July 8th, 2014

Maybe Chicago is not their kind of town. Five Chicagoans, all Walgreen board members, need to decide whether to pack up and move the company’s headquarters to Europe. Walgreen is in the second stage of its merger with Swiss-based Alliance Boots that could slash Walgreen’s tax bill by over $780 million. But unlike other inversions of late, the company might have to pack boxes and suitcases. Walgreen is under pressure to boost earnings per share by cutting operating costs as well as finding tax savings. Its largest single shareholder is not American, but Italian.

“Momma said there’d be inversions like this.” Destination Maternity, a Philadelphia-based maternity clothing company, has been rejected twice in its efforts to buy Mothercare, a UK-based maternity and children’s retailer. Its latest offer of $453 million would create a new UK-based, and UK-taxed, holding company for both entities. Destination Maternity remains optimistic. It  has until July 30 to make a firm offer for Mothercare, or try again in six months. Probably should be nine.

Ireland won’t take the EU probe of its tax arrangements… lying down. Finance Minister Michael Noonan said,  “Protecting Ireland's economic interests is foremost in our considerations on this issue. We will provide a detailed, technical legal rebuttal to the [European Union] Commission’s position.” The panel is investigating a possible breach of state aid concerning Apple’s tax situation, and may review other companies’ arrangements in Ireland.

“Berkeley vs. Big Soda” could result in the nation’s first soda tax. The Berkeley City Council will put a 1-cent-per-ounce tax on distributors of high-calorie sugary drinks on the ballot this November. It would apply to businesses with gross receipts of over $100,000. If passed, revenue from the tax would go to the city’s general fund.

Landline use is down, and so are tax revenues from old-style phone service. One of the most reliable revenue streams for states and localities is dwindling. Illinois’ telecommunications tax receipts have dropped 14.6 percent over the past three years. Florida’s have dropped 6 percent over the past two years. In Phoenix, landline phone taxes dropped 7.6 percent in the past year. The number of US landlines fell from 161.8 million in 2007 to just 140.9 million by the end of 2012. States are trying to make up the lost revenue by taxing mobile phones but other services, such as Skype, are tax free. Mobile Internet use more than doubled between 2012 and 2013 while multimedia messaging grew by 29 percent.

Maybe Congress wants the IRS to offer online chat support? TPC’s Bob Williams got a first hand look—or ear—at the IRS help line. He never reached a live voice on the landline. This is not entirely surprising given that “the IRS lacks the funds to do everything Congress demands of it and customer service has suffered as a consequence… In fact, House Republicans have proposed to cut the IRS budget by $340 million next year.”

Three Democratic Senators call for a Highway Trust Fund fix while the Big 7 sent a letter. Senators Chuck Schumer, Sheldon Whitehouse and Mark Warner held a conference call yesterday on their desire for a short-term patch for the near-empty Highway Trust Fund. Meanwhile, seven major state and local governance organizations sent a letter to House and Senate leaders urging them to enact a long-term fix. The letter does not mention the federal gasoline tax, the fund’s current major source of revenue.

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  1. Michael Bindner  ::  2:33 am on July 9th, 2014:

    I suspect that Walgreens will keep a regional office in Chicago to overesee its U.S. stores. Managing from Europe, with the attendant trips across the pond is a bit much for tax avoidance.

    Maternity care moving to Britian would be silly – as eventually the Tories will be thrown out and corporate taxes raised by Labor.

    Ireland is fiercly independent, unless it can raise money by catering to potential taxpayers. The way this is being handled is as much about what is lacking in the European Union as the problem of inversion. The question is, will they fix these problems or be absorbed by someone else in the long term?

    Berkley’s referendum is interesting. If the UCal Berkley students register and vote, it has no chance.

    While landline use is down, I suspect taxing providers, such as DLS and Cable, may be used to fill in the gap. Taxing services operating on such platforms are a non-starter – at least directly. While Skype basic service is free, there is an advanced package. That can be taxed – perferably with a VAT so that the entire supply chain is taxed as well – including revelue from advertising.

    The reason IRS funding is always threatened is because some constitutents want the IRS to go away – which is impossible. Even in the unlikely event of a FairTax – or a more likely VAT, some agency will exist to manage the data and confirm any prebate or child tax credt paid through employers. As far as Bob – he needs to call a good tax attorney if he wants an answer that will be beneficial to him. Any IRS advice he gets after submitting an online request for information will be vetted through at least one, if not two, supervisors and the office of the general counsel – and if it represents a need to change policy – the wait could be six months.

    It looks like there is some movement on the Highway Trust Fund’s coming insolvency – but passing the related tax increase that actually matches what is funded will be a last miniute thing. That would be better than anything gimmicky. Sadly, gimmicks are what we are likely to get for the short term.

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