How large corporations avoid paying income taxes in Wisconsin

FOND DU LAC (WITI) -- The state government, led by Gov. Scott Walker, has adopted a pro-business agenda -- giving businesses tax incentives, low interest loans and cash. But in an era where the budget has seen deep cuts to education, healthcare and workers benefits, are companies paying their fair share?

In 2009, Mercury Marine, a boat engine company was trying to stay afloat in hard times. It was threatening to move one thousand jobs to Stillwater, Oklahoma if it didn't get concessions from its labor force and aid from the government.  When the company gave what it called its best and final offer  -- and the union rejected it -- it appeared all was lost.

But, then-Governor Jim Doyle stepped in, offering a package of incentives worth $70 million.

Fond du Lac County passed a sales tax increase to pay an additional $50 million to the company, and the strapped-for-cash City of Fond du Lac added $3 million.

The union gave in to political pressure, and took another vote, this time to accept the concessions.

“As hard as this was, we are now going in the right direction," Doyle said at the time.

Mercury Marine announced it would stay in fond du lac., and its president Mark Schwabero said with the government incentives and the labor concessions “we're in a position where we really can compete."

"If you look at Fond Du Lac and Fond Du Lac County, had that company not been there, it would have been devastating, so even though that wasn't my deal and my proposal, I think Jim Doyle and the deal he put in place was warranted," Gov. Scott Walker said.

At the time, politicians were warning that Wisconsin’s heavy tax burden was driving companies like Mercury Marine out of the state.  So FOX6 News requested – and  examined -- records from the Wisconsin Department of Revenue.

Mercury Marine is a subsidiary of the Brunswick Corporation, which, FOX6 News found has had not paid a single cent in corporate income taxes to Wisconsin since at least 2000.

“If they are making any money, they are making some of it in Wisconsin, and that should be taxable here in Wisconsin," Jack Norman, a researcher who studies corporate tax issues said.

Brunswick posted a loss in 2000, but made a profit in each of the next seven years -- making more than a billion dollars, until the company again posted a loss in 2008.

“They were -- in a sense -- blackmailing Fond du Lac County, blackmailing the state of Wisconsin. The Mercury Marine story is really the perfect example of what's wrong with assuming that business is always right, because here, we were begging them to take money, some of it was in low interest loans, some of it was just cash on the barrel head -- and they're not paying taxes in Wisconsin," UW-Milwaukee Professor of Governmental Affairs Mordecai Lee said.

Mercury Marine executives declined to do an on-camera interview, but in a statement said "our goal has been to emerge from the downturn as a stronger company."

Months after the Mercury Marine saga was resolved, Scott Walker was elected as Wisconsin’s 45th governor -- vowing to help create a more business-friendly climate in the state.

"I don't have people say, 'hey, Scott, the taxes in this state are too low. We can either create a business environment for employers that's better or worse," Walker said at a recent meeting of 1,000 business executives in Madison.

Walker has said on many occasions that his goal is to lower the overall tax burden.  Corporate taxation is a complicated topic.  In addition to paying state income taxes, companies also pay property and unemployment taxes.

A FOX6 analysis of the last two state budgets shows that the state of Wisconsin spends at least $1.5 billion a year on tax credits for businesses -- that's ten percent of the state budget, or about 270 dollars per person.

"Until we can lower the overall rates, we want to have at least some ammunition to go after these employers and to keep them here,” Walker said in an interview.

A recent survey of 341 Wisconsin CEOs shows business leaders feel squeezed by the state.

“We asked them, 'what's the one thing government can do to improve the business climate?' they said lower the tax rate," Kurt Bauer, the president and CEO of Wisconsin Manufacturers and Commerce, Wisconsin's largest business group said.

Bauer says many smaller companies file as individuals, and therefore avoid the corporate tax rate.

“I think businesses, by and large want to pay their fair share, and they are here in Wisconsin," Bauer said.

But FOX6 investigated the tax records of 25 of the largest companies operating in Wisconsin.  A handful -- like Home Depot, Microsoft, Exxon-Mobil, and Harley-Davidson are paying millions of dollars in state income taxes. The vast majority of corporations are avoiding them. More than two-thirds did not pay any state income taxes from 2010 to 2011.

A.O. Smith, Actuant, Brady, Briggs & Stratton, Fiserv, GE, Joy Global, MillerCoors, Rockwell Automation and several others all paid no state income taxes.

Bucyrus paid no income tax in 2010 and 2011 before being bought by Caterpillar -- but in those years, it garnered more than $20 million in corporate income tax credits, cash grants and loans.

Jack Norman reviewed our findings,

“Zero, zero, zero, zero, zero, zero, zero, zero, almost zeroes all over the place. There's a few that really stand out that aren't zeroes. I really like this: McDonald's corporation in 2010, paid a state tax of $764. That's got to be less than minimum wage workers are paying in state taxes," Norman said.

Bauer argues that – especially in tough times – tax issues can dictate business decisions.

"Taxes do matter because it is a cost of doing business, and if you can lower that cost, businesses are allowed to thrive," Bauer said.

A FOX6 analysis of the last two state budgets shows Wisconsin spends at least $1.5 billion a year on tax credits for businesses. That's 10% of the state budget, or about $270 for each person, every year.

Gov. Walker defends the subsidies.

"Until we can lower the overall rates, we want to have at least some ammunition to go after these employers and to keep them here," Gov. Walker said.

Five years after the Mercrury Marine situation, the company is still in Fond du Lac, and has used the incentives to expand and add more than 1,500 jobs. In a statement, the company told us the incentives "have certainly helped fuel our growth."

Lee says the public must have more information before policymakers decide to give subsidies to corporations.

“We really need to talk about return on investment. We really never have that kind of conversation because the presumption is that tax incentives are a good thing.  Maybe they are, maybe they're not," Lee said.

So how are companies avoiding taxes?

There are a number of strategies companies can use.

Major corporations have large tax departments that work with lobbyists to get favorable laws written, and they know how to exploit loopholes -- like off-shore accounts and shifting money to other subsidiaries.

However, a full accounting of the strategies used isn't possible as current law stands, because the public isn't allowed to see most of the information.