Your Tax Bill And Local Politics
Taxes are a cost of doing business. You’re going to have to pay them or go to jail. As a matter of fact, if you find a business which has not been paying their taxes that is a warning sign of trouble. Taxes are one of the costs you as a small business person should seek to keep to a minimum.
Everyone blames the government for taxes that they pay. Everyone knows that taxes are the price we pay for a reasonably civilized society. Everyone knows that you can’t get something for nothing. Everyone doesn’t know that big companies use predatory tax strategies to reduce their tax bill which means that tax bill your small business pays goes up. You are subsidizing your competition.
Depending on how you state or province has written its tax laws predatory companies can take an advantage of the small business person. Here is how it works. A company establishes two separate subsidiaries; one to manage its real estate (a captive Real Estate Investment Trust or REIT) and another to run operations. The operating company pays rent to the real estate company and deducts the cost of the rent from its income.
If the state or province does not have something called “combined reporting” where all the subsidiaries of a given company file their taxes on the same form, then the operating company gets a tax break while the parent company suffers no loss in income.
I know, you’re saying “Cool, how can I do that?” As a small business chances are you can’t or it’s not economically advantageous given the cost of setting up a REIT. “Still,” you say, “Cool their sticking it to the government.”
Okay, remember this is your local state, city and county government; the place where you live and send your kids to school. The government still needs the money for the roads, the police, the fire department, build inspectors, etc. Here is the big question. If the big companies are lowering their tax bill through a tax loop hole who is picking up the slack? Look in the mirror.
Now, not all companies do this. Not all states or provinces allow companies to do this. Say you are a small retailer where there are large retailers who take advantage of the REIT loop hole, do you really want to subsidize that big box store with you profits?
The good news is that you don’t have to subsidize your competition. Yes, big corporations have big lobbyists at the state level, but your local representative is elected in your town. You can corner that representative at the next Rotary Club luncheon or the next town hall meeting. You can get the officials you elect in you town to pressure your state or provincial representatives. Politics is retail at your level. Votes do count. A state Senator may want the support of a big box retailer for his run for congress, but if local retailers are up in arms about a tax loop hole believe me that Senator will get the message.
Of course it’s up to you. If you like giving money to your competition keep your seat. However if you are a person who will fight for his or her business then get busy. Know the facts. It’s you money. And remember, all politics are local.
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