By Howard Goldstein
Tyson, of North Bellmore, director of the non-profit advocacy group the Long Island Progressive Coalition, led a demonstration on Thursday, April 28, aimed at drawing attention to the state's corporate tax loopholes. These gray areas in the law, she says, cost New York millions of dollars in state income tax revenues, which could help solve the state's fiscal woes and pay for such things as health, education and social services.
A small crowd gathered for the protest at the Freeport Toys R Us, representing the Families First Coalition, the local member of New Yorkers for Fiscal Fairness, a coalition of more than 300 labor unions, community and religious groups throughout the state. The FFC includes the Massapequa-based Progressive Coalition and the Working Families Party.
The protesters called for state lawmakers to close a loophole that allows big corporations that operate in New York to pay virtually nothing in state income taxes here.
As the Herald went to press, coalition representatives believed, but could not confirm, that their statewide lobbying had made an impression on lawmakers and that the loophole would be closed in the 2003-04 state budget.
A multi-state corporation can avoid paying income taxes in New York by creating a subsidiary corporation called a passive investment companies, or PIC. Ownership of a corporation's trademarks and patents is then transferred to the PIC, which is located in a state such as Delaware or Nevada that doesn't tax royalties, interest or other sources of "intangible" income.
The PIC then charges a royalty to the rest of the business for trademark or patent use, a deductible expense for the stores in New York that greatly reduces the profit subject to taxation. A further reduction of corporate taxes may occur if the PIC loans the profits back to its New York businesses, because the pay-back interest is also deductible and further reduces the corporation's taxable income.
According to New Yorkers for Fiscal Fairness, this loophole costs New York $400 million in annual state income taxes.
Although 50 corporations were identified by the Wall Street Journal (on Aug. 9, 2002) as being involved in litigation with states over PICs, Tyson said that Toys R Us was chosen for the protest for several reasons.
"This is actually widely known as 'Geoffrey's Loophole' [Geoffrey the giraffe is the Toys R Us logotype and a character used in many of its commercials], since it is so blatant in the case of Toys R Us," Tyson said.
"In addition," she said, "Toys R Us markets to kids. The idea that children's services and the $1.2 billion budget cuts to education cripple the very families who pump money into New York Toys R Us stores while the company gives nothing back to the consumers they depend on is wrong."
A Toys R Us corporation spokesperson released a written response that stated, "With over 1,000 stores across the United States, Toys R Us makes meaningful tax payments to every state we do business in. The information that this group is giving out about our company is misleading and inaccurate."
Corporation officials could not be reached for further comment.
The coalition cited a study it did on the Securities and Exchange Commission filings by Toys R Us, Home Depot, the Gap, the Limited (Victoria's Secret), Radio Shack, Sherwin Williams, and Tyson Foods, corporations that use "Geoffrey's Loophole."
According to Stan Bergman, president of the Nassau County Comptroller's Unit and member of the Board of Local 830 of CSEA, "We found that these corporations collectively made over $95.4 billion in gross profits from 1999 to 2001, but paid only $1.151 billion in income taxes for all states over the same period, a collective state income tax rate of 1.2 percent.
"Five of these corporate tax dodgers," Bergman said, "paid less than 1 percent of their gross profits in income taxes in all states, and it is likely that these companies paid little or no corporate franchise tax in New York over this period. Now the burden is on working families and small- to medium-sized businesses in New York."
Sixteen states have adopted a combined reporting law that closes this loophole to corporations. "New York needs to close this loophole as New Jersey recently did," said Rachel Berkson, organizer of the Working Families Party. "We need our state officials to exhibit similar leadership in these times of financial crisis."
Local state officials could not be reached to comment about this story.
