Harley-Davidson Inc.’s announcement that it might move its operations out of Wisconsin to cut $54 million in manufacturing costs has many people pointing to the state’s onerous tax laws, in particular a policy enacted in February 2009 known as “combined reporting.”
Combined reporting requires companies like Harley, with operations in many states, to combine all profits earned nationally so they can be taxed at the rate of the state in which the company is headquartered. In the first quarter of 2009, Harley reported losses of $22.5 million due to a “change in tax laws.”
Wisconsin Governor Jim Doyle (D) attributed Harley’s announcement to the recession. He labeled Republican legislators’ complaints blaming combined reporting as “absolutely untrue” and “ridiculous.” The governor’s office did not respond to requests to elaborate.
“The governor’s spin ignores fiscal reality,” said Steve Baas, government affairs director for the Metropolitan Milwaukee Association of Commerce. “We can all argue about the particular straw that broke the camel’s back, but you cannot argue that a $22 million dollar tax hike was not a significant part of the load.
“With over $2 billion in new taxes passed this last legislative session, it is not safe to assume combined reporting is the only tax hike contributing to Harley’s $22.5 million loss, but it is fair to assume it’s the biggest part of it,” Baas added.
‘Punitive Tax Law Change’
Todd Berry, president of the Wisconsin Taxpayers Alliance, agrees combined reporting was likely the principal tax change in the 2009 budget that influenced Harley’s decision.
“A punitive tax law change that puts a company’s existence at risk would obviously spur a response,” said Berry.
He cites a number of other factors as well.
“Particularly in this economic environment, there are a range of factors that could impact corporate decision making: Individual income and capital gains tax hikes on high-bracket management; Wisconsin’s reputation as more regulatory than elsewhere; the more inflexible workforce situation here, due sometimes to union reluctance to modify contracts; the state government’s history of fiscal instability; and a perception that state politicians have been less sensitive to business conditions,” Berry said.
Other Losses Possible
Wisconsin State Representative Kevin Petersen (R-Waupaca) emphasized the human impact should Harley leave the state.
“Besides 1,400 jobs at local plants, additional job losses could occur in companies supplying Harley-Davidson,” said Petersen. “Furthermore, with Wisconsin’s status as a global mecca for Harley owners, the state could incur a substantial hit on its tourism industry.”
“Combined reporting hits hardest the ‘driver industries’ our economy needs the most,” said Berry. “You can generate a lot of cash in the short term with a tax like that, but we’re cutting Wisconsin’s tires in the long run.”
Brien Farley ([email protected]) writes from Genesee, Wisconsin.
