Thursday, February 8, 2007

Club For Growth Questions Another Fletcher Tax

From NKY Politics:

Brian Richmond, the head KY Club for Growth, released this statement on the state's AMC tax.

The Gross Receipts Tax - often referred to as the Alternative Minimum Calculation, or "AMC" for short - sounds fairly non-threatening at first blush, but in reality, every business owner, manager, employee and job-seeker is affected by this anti-growth tax on free-enterprise.

In 2005, the Kentucky General Assembly passed Governor Fletcher's "Tax Modernization" proposal, which, among other things, closed loopholes in Kentucky's Tax Code that had previously permitted pass-through entities such as Limited Liability Corporations and S corporations to largely escape corporate income taxes.

In addition, the plan instituted the ostensible Alternative Minimum Calculation, which required all businesses in Kentucky to calculate their tax bill three ways, and then pay the highest amount, with a minimum amount due of $175.

The three methods are as follows: (1) 7 percent of all net income, (2) 9.5 cents per every $100 of gross revenue, or (3) 75 cents per every $100 in gross profits.

Among those saddled with this new tax are single-owner businesses and small partnerships, whose income had previously been collected at the individual level. Also affected are high-volume, low-margin businesses such as grocery stores and service stations, since the new calculation is based in part on total revenue, which does not accurately reflect their actual profits.

Subsequently, due to significant public outcry, under a revised plan agreed to in a Special Session of the General Assembly called by Governor Fletcher in 2006, businesses with gross profits of less than $3 million became exempt from the alternative minimum calculation. Nonetheless, opponents of the new Gross Receipts Tax - such as the Kentucky Club for Growth, a non-partisan economic watchdog group - contend that the token exemption for Kentucky's smallest businesses merely serves to accentuate the punitive nature of the AMC, and are advocating for its immediate repeal.

"The new Gross Receipts AMC hurts the economy by hiding additional taxes and fees into the many products and services our economy relies on everyday," says Brian Richmond, Executive Director of the Kentucky Club for Growth. "This is not simply a tax on the profit a business earns, but on every transaction it makes with vendors and consumers. This means that the tax is in fact compounded and passed along to every consumer or company involved in billions of transactions made everyday."

Take for example fictional company ABC - perhaps an airline carrier or manufacturing firm - which actually suffered a significant financial loss in 2006, despite taking in gross receipts of $100 million. Even though the company has over 2800 employees, and is in the midst of cutting salaries and staff, they still will be forced to pay taxes on the $100 million in gross receipts. Does this seem like a winning economic proposal? Who do you think loses?

Alternatively, let's use the example of a small family-owned business we'll call the XYZ Company, which operates a small chain of grocery stores or service stations, In 2006 their gross receipts were $10 million, while there net income was $500,000. Under Kentucky's new gross receipts taxing paradox, they will be required to pay taxes not on their net income, but on their gross revenue. Guess who pays more for groceries, fuel and repairs?

The notion that the Gross Receipts Tax affects large businesses only is totally false, even if the Commonwealth continues to raise the ceiling on exempted revenues. Consumers and small business owners may not notice the additional price at the checkout immediately, but you can be sure that it will sorely impact their pocketbook. Worse than affecting a corporate bottom line, the gross receipts tax profoundly impacts the average citizen, employee and job-seeker through hidden fees and reduced capital investment. Perhaps that is why most state governments eliminated this tax in recent decades. What happened?

The Kentucky Club for Growth wants to know.


Anonymous said...

It's about time someone calls Ernie out on this. It was part of an income tax cut. How do you raise taxes but tout your tax cuts accross the Commonwealth?

Elena said...

Good for people to know.
KYConservativeBlogs Network
Another Opinion
Bluegrass Institute Blog
Blue Grass, Red State
Conservative Edge
Conservative Musings
Elendils Blog
Jefferson Review
Jim Clarks Muckraker
Kentucky Club for Growth
Kentucky Pachyderm 2
Kentucky Progress
On the Right!
Osi Speaks!
The Pure Investor
Right Foot Forward
Right in Kentucky
Steele's Kentucky
Tri-County Consulting
Vere Loqui