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Montana Viewpoint

TRUST EVERYONE, BUT BRAND YOUR CATTLE

February 16, 2004

If you pay more than $50 in income tax to Montana, maybe you have the wrong accountant. At least that’s what I thought after looking at the amount of income tax paid by some major Montana corporations. The accountant I want works for the company that had $266 million worth of Montana sales in 2003, and wound up paying a whopping 50 bucks in state income tax.

I bet you’d like to know what the name of that company is, and I’d love to tell you, but I can’t. No, I’m not sworn to secrecy, I don’t know. And I can’t know, because corporate income tax records are not open to the public, and that includes guys like me who represent you in the Montana Legislature. For instance, I’d really like to know the names of all 21 of the companies with Montana sales over $10 million that paid a grand total of $1150 in Montana Corporate Income tax. In case you’re curious, the total amount of sales of these 21 corporations made in Montana was $917 million last year.

Now, I know that’s not pure profit, and corporations have a lot of expenses, but I find it pretty interesting that these 21 corporations all had enough overhead or whatever to let them off the income tax hook. These are just the big guys. There’s still another 133 companies with Montana sales over $1 million, and none of them paid a penny more than $150 in taxes.

I’d like to give these guys the benefit of the doubt as to the reason their taxes were so low, but frankly, I’m suspicious. Did they hide their profits by claiming them in states or countries that don’t tax them, like Delaware or the Cayman Islands? Or did they deduct all their expenses in Montana; even expenses that occurred in other states. The big guys do that, you know.

Since corporate income tax records are private, we can’t know the answer to that question, but it wasn’t always like that, and—oh how times have changed—it was a Republican President who insisted that corporate income tax records be made public.

It was President William Howard Taft, Republican, of Ohio, who proposed the corporate income tax, then called the Corporate Excise Tax, to Congress. The tax, like any tax, was instituted to raise money to pay for the cost of government, but there was a “publicity provision,” designed to keep the companies honest. Political policy does not spring out of a vacuum, and the Corporate Excise Tax publicity provision was no exception. The era of the 1890s and 1900s had been one of exceptional corporate malfeasance—think Enron—on an almost universal scale. Companies had used phony figures to make their stocks seem better than they were, and the suckers who bought them went broke. Enron once more.

Taft’s purpose was clear. He argued in his speech to Congress that by making corporate tax records public, “we have made a long step towards the supervisory control of corporations which may prevent a further abuse of power.” Big business was aghast both at the tax and at the publicity provision, but the Wall Street Journal editorialized that, “Much of the protest against the proposed measure has its root in rottenness rather than righteousness.”

There were legitimate concerns from small corporations that release of tax information would give their competitors an advantage over them, and this was addressed in 1910 by effectively making the law apply only to publicly traded corporations, and leaving out the little “closely held corporations” that did not offer stock to the public. Political support for the publicity provision waxed and waned, until it was permanently abolished in 1935.

But the basic rationale for corporate scrutiny was still sound, and federal oversight agencies such as the Securities Exchange Commission were founded to lead the corporate chieftains from temptation; or at least provide punishment if the temptation was so great it led to outright theft.  How well that has worked was shown a couple of years ago with the corporate scandals of Worldcom, Enron, Rite Aid, and a cast of many others. Maybe it’s time to look at a “three strikes” sentencing law for white collar crime. Maybe it’s past time.

[The information cited in this article came from the Office of the Montana Legislative Auditor, the Congressional Record, and the website of the Tax History Project.]

Jim Elliott
Phone: 406-444-1556
Mail: State Senate Helena, MT 59620

jim@jimelliott.org