Milwaukee Biz Blog

If it was coming from the usual left-wing suspects, one could dismiss the latest attack on Wisconsin Manufacturers & Commerce.

But given the criticism is coming from Wisconsin's most successful "new economy" company, it's hard to ignore.

I'm talking, of course, about Epic Systems announcing last week it would avoid doing business with companies that belong to WMC, the controversial statewide business lobbying group that has made its latest splash by spending millions to successfully elect two conservative judges to the state Supreme Court.

With over 3,000 employees, the Verona-based medical software manufacturer is without peer as a homegrown tech firm and is only starting to flex its muscles. Publicly taking on WMC was a bold move by Epic founder Judy Faulkner and her management team, but not one they took lightly. The decision came only after consulting with what Epic called "a wide array of community members from different political backgrounds."

And Epic isn't just posturing. It's hitting WMC members where it matters most: the bottom line.

For example, David Cullen of J.P. Cullen & Sons left the WMC board last month. He wouldn't comment publicly about Epic's move, but it seems like more than a coincidence that his contracting firm has a $200 million deal to work on Epic's sprawling campus north of U.S. 18-151.

Mark Furlong, CEO of M&I Bank is facing a similar dilemma. Does he risk losing the lucrative account of Wisconsin's fastest growing technology company for a seat on WMC's board?

Same with Barbara Swan, president of Alliant Energy's Wisconsin Power & Light unit, who also serves on the WMC Board. With thousands of computers humming, Epic is one of WPL's largest electric customers.

Arguably the state's most important businesswoman, Faulkner has come under attack from some who don't think a private company should get involved in matters political.

But the fact is, big business has had its way at the Capitol since the election of Tommy Thompson in 1986. Since then, corporate taxes have been virtually eliminated, public school spending slashed and business regulation relaxed. In other words, WMC has gotten just about everything it asked for.

And if Wisconsin's economy were roaring, bringing a better standard of living to families from Alma to Ashland, you could argue WMC and its minions in the Legislature had the state headed in the right direction.

Unfortunately, the sad reality is Wisconsin is falling behind in college degrees, personal income and entrepreneurship. Talented young people are leaving while high school graduation rates among minority kids are a statewide embarrassment.

Sure. There's some excitement related to biotechnology and other high-tech research coming out of UW-Madison. These successes have come despite the drumbeat of attacks from those who for some reason despise the state's university system.

But for the most part, Wisconsin remains a rust belt state struggling to find its way in a new global economy. The pending loss of the GM factory in Janesville, after the state spent $10 million to keep it producing gas-guzzlers, is simply the latest example. WMC members Harley-Davidson, John Deere and Wausau Paper have been quietly reducing employment in Wisconsin for years.

In fact, it's no accident that two of Wisconsin's most-respected companies don't even belong to WMC. S.C. Johnson and Johnson Controls have managed to do quite well competing in the global economy without any help from the lobbying group.

Clearly, the world is changing and the tactics of WMC to maintain its hold on the statehouse suggest an organization whose influence is waning. There's a younger generation coming along that believes in health care for all, protecting the environment and equal rights for gays and lesbians.

Instead of deriding Epic and dismissing Faulkner as a meddling "computer lady," WMC and its members might do well to ask her for advice on creating jobs and attracting talent in a tough economic climate without the benefit of out-of-state tax shelters or hand-picked judges.

 

Mike Ivey is a columnist at The Capital Times in Madison.
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The front page reports that Wal-Mart owes nearly $18 million in back taxes to the state of Wisconsin is infuriating - but hardly a new story.

The Milwaukee-based Institute for Wisconsin's Future said as much back on April 15 in a report timed to tax day 2007. The group released a study showing how Wal-Mart used a variety of tax avoidance schemes to cut millions from its state tax bill.

Using public records, the group determined that Wal-Mart pocketed $852 million in net profits in Wisconsin off value-hungry consumers between 2000 and 2003. But over that same period, Wal-Mart paid only $3 million in corporate income tax here. That's a tax rate of 0.35 percent, a fraction of the 7.9 percent base rate for corporations doing business here.

Unfortunately, much of the state's mainstream media failed to pick up on the report. The Capital Times did run it, however, which prompted an immediate response from Wal-Mart attorneys saying the story was "recklessly ill-informed" and "misleading."

Now, four months later, comes news that Wisconsin auditors have calculated Wal-Mart Stores owes $17.7 million in back corporate income taxes, interest and penalties for 1998, 1999 and 2000. Even more could be owed for later years.

The Department of Revenue said the firm avoided millions of dollars in state taxes by having an out-of-state subsidiary own its real estate so Wal-Mart can in effect pay rent to itself, deducting those costs as a business expense. Attorneys for the state agency call it an "abuse and distortion of income."

Of course, Wal-Mart claims it has done nothing wrong but is merely taking advantage of an overlap of state and federal tax laws.

"Anything Wal-Mart can do to lawfully lower its costs allows the company to pass it along through lower prices," company spokesman John Simley told the Associated Press.

The question of corporate taxes has also become part of the impasse over the next state budget being worked on by a legislative conference committee.

Democrats who control the state Senate want to close the tax loophole, but Republicans would apparently rather protect corporate tax avoidance while cutting programs like the Homestead renters credit that actually help low-income people in Wisconsin.

You wonder about those who jump to the defense of corporations trying to skirt their responsibilities. They seem to forget that every dollar in taxes that goes unpaid by big business ends up getting paid by everybody else, including Wisconsin's small businesses.

Moreover, corporations suck resources from local economies not only with tax gimmicks but also because they use their own accountants, lawyers and real estate people. Locally-owned firms, on the other hand, tend to use local services, with those dollars circulating back into the community.

But in fairness, Wal-Mart certainly isn't alone in cooking up complicated tax avoidance schemes.

Kohl's Corp., for example, ended up settling with state tax collectors in 2004 over a gimmick where it used a Delaware subsidiary to shelter income. In that case, Kohl's paid itself for use of its trademark name and then deducted it as a business expense.

Banks in Wisconsin have pulled similar tricks, using dummy subsidiaries in states like Delaware and Nevada, which have no corporate income tax, to lower their payments here at home. The state has collected some $30 million in back taxes from that one.

In the case of Wal-Mart, the timing couldn't be worse. The firm has been struggling to maintain its sales dominance and has seen its share price (WMT) fall to $43 from $52 over the past months.

And it certainly doesn't need the bad publicity right now with a Supercenter slated to open soon at South Towne and talks continuing over a mega-store in Stoughton.

Geez, if Wal-Mart customers knew the real story, they might be inclined to spend their hard-earned money elsewhere.

Mike Ivey is a business writer with The Capital Times in Madison.