In mid-August, the Institute for Wisconsin’s Future (IWF) put out its second monthly newsletter on corporations paying little or no state income taxes.
For its new report the liberal think-tank picked the collection of privately held companies owned by Racine’s Johnson family. Leading with SC Johnson & Son, the maker of Glade air freshener, Raid bug killer, Off mosquito repellent and a host of other consumer products, the IWF disclosed that the Johnson companies had all virtually avoided state income taxes for much of the last decade. One company, Johnson Financial (owner of Johnson bank), paid just 1.4 percent of its corporate income in state income tax, far lower than the state’s official rate of 7.9 percent.
The revelations are part of an ongoing project by IWF exposing companies who don’t pay Wisconsin income taxes. The information comes from company tax returns, which are available for inspection at $4 a pop. Pressroom Buzz wrote about the institute’s strategy for disseminating this information back in July.
Yet when IWF first released its Johnson report, no daily news organizations in southeastern Wisconsin picked up on it, despite having gotten copies of the IWF newsletter [PDF].
Time passed, and then Reuters columnist David Cay Johnston—a Pulitzer Prize winner who has made taxes his beat in more than a decade of working for The New York Times before he took a buyout a couple of years ago—followed up with an Aug. 26 column based on an additional source: a leaked PriceWaterhouseCoopers memo to SC Johnson that was both a sales pitch for proposed tax-avoidance strategies and a recitation of ways in which, the memo said, Johnson had indeed avoided taxes in the past.
Still no coverage.
Not until five days after the Johnston column, when SC Johnson issued a press release rebutting it, did local news organizations pick up on the story—and then leading with the company’s denials and subordinating the original findings from IWF and from Johnston.
The Racine Journal Times printed a story pegged to the Johnson news release. Meanwhile, the Journal Sentinel‘s initial story was published only online.
The SC Johnson backlash to the Johnston column was understandable. Johnston doesn’t flatly accuse the company of wrongdoing, but he does raise the question based on circumstantial evidence:
…Wisconsin taxable profits could well have been converted into tax-deductible expenses by paying royalties and interest to family-owned subsidiaries in low-tax and no-tax jurisdictions. The state tax court held in 2009 that such accounting alchemy was improper when done by Hormel Food Corporation because the transactions had no purpose except to make state taxes go away.
In his concluding paragraph, Johnston asks:
Will SC Johnson be held to the same standard as Hormel and, at a minimum, face a thorough audit by the state and the IRS? Or will the richest family in Wisconsin get favored treatment while everyone else bears the burden of state government?
An SC Johnson spokeswoman called the column a sensationalist piece about SC Johnson’s tax practices. Using questionable sources and twisting facts, he delivered a completely misleading article designed to persuade readers that SC Johnson is acting unethically and illegally.
Nearly two weeks later, the JS has come back with a lengthy examination of the subject under the auspices of its PolitiFact operation. It’s one of those rare PolitiFact pieces that declines in the end to come out with a flat-out judgment along the “True” to “Pants-On-Fire” spectrum of veracity that is its stock in trade.
Instead, the headline and deck on the piece pretty much offer the bottom-line conclusion:
It would take an audit / Closer look needed to settle debate on S.C. Johnson taxes.
(Johnston’s column doesn’t mention it, but there’s another angle that adds a further frisson to the story and that the PolitiFact story included. That’s the company’s continuing legal fight with a former SC Johnson accountant who sued after he was fired, claiming he was the victim of retaliation for questioning company tax strategies. The suit was dismissed before trial and the accountant, Michael DeGuelle, was ordered to pay the company $50,000 in defamation damages; the dispute remains mired in the appeals process.)
There are fundamentally two issues at stake. The first is, did SC Johnson cheat in some way? Johnston insinuates they might have; the company insists it hasn’t. That dispute has drawn most of the attention.
But the second is, even if the company acted legally, is this any way to run our tax system? PolitiFact’s Dave Umhoefer touches on that question, quoting SC Johnson spokeswoman Kelly Semrau, who says, “Johnston’s beef should be with the tax code. SC Johnson is simply operating with in it.”
In fact, IWF’s report that started all this [PDF] also doesn’t accuse the company of breaking the law. Rather, it suggests the law itself is broken:
How do the Johnson companies pull in such profits without having a penny of Wisconsin taxable income? We’d love to know and we think legislators should too, so they can legislate a stop to this loophole abuse. Wisconsin needs a thorough review of its tax practices. The rest of us shouldn’t be paying taxes for billionaires of legal loopholes.
It’s that angle that AOL’s Patch focused on in its coverage. Patch thoroughly aired out the conflicting claims from Johnston and Johnson and then followed up with a commentary that took the company to task even if it was following the letter of the law.
Why, asked Patch editors Denise Lockwood (who has been a Milwaukee Magazine contributor) and Heather Asiyanbi, is there an “a la carte” tax system for big business and a far less flexible burden on the rest of us?
But corporations that pay nothing in income tax for years and then hold those jobs hostage is a valid concern; one that is a worthwhile discussion for policy makers and corporate decision makers to consider, especially when a huge disparity exists between the rich and the poor, and we have a shrinking middle class.
As they noted, the whole mess raises bigger questions about tax policy.
The way it’s been covered by the media, though, raises a question as well:
Why is a news story only worth coverage when the—undeniably powerful—subject decides to try to swat it down?
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