Monaco Coach Corp. and other major companies operating in Indiana are lobbying for a change in the state’s corporate income tax code that they say is a deterrent to creating new jobs.
The Indianapolis Star reported that when Monaco shuttered one of its RV plants in Oregon last year, it pondered moving at least part of the 500-person facility to its campus in northern Indiana. Instead, it sent all of the plant’s assembly lines to its headquarters in Coburg, Ore.
Indiana lost out, Monaco officials said, in large part because of an obscure difference in how the two states calculate corporate income taxes.
That difference gives Oregon’s larger manufacturers a break by basing corporate tax bills solely on how much the companies sell in the state without considering their property or work forces there. Oregon will fully phase in its law by 2008.
Now, two dozen of Indiana’s largest companies – including Eli Lilly, Roche and Monaco – want the state to calculate its corporate income tax only on sales. Companies argue the method, termed “single factor sales apportionment formula,” not only would help them, but also create more jobs in Indiana.
Michael Mazerov, a state and local tax expert at the Center on Budget and Policy Priorities in Washington, disagrees. In a lengthy report, he argued that the 17 states with single factor sales formulas have done no better in attracting or retaining jobs than states without them.
“Large corporations are likely to obtain a disproportionate share of the tax savings that flow from the switch to a single sales factor formula,” Mazerov wrote.
Nevertheless, Republican leaders in Indiana’s House of Representatives placed the single factor sales formula at the top of their “job creation” agenda this year. Gov. Mitch Daniels, a Republican, supports the idea but wants to wait a year because of budget constraints.
Don Lance, Monaco’s tax director, expects most states to eventually adopt single factor sales formulas.
Why? Monaco, Lilly, Roche and others lobbying for the tax change provide well-paid manufacturing jobs that are becoming harder to keep. In the end, Oregon kept Monaco’s jobs because of its tax laws, Lance said.
“Both states gave very comprehensive and well-thought-out proposals,” Lance said of Indiana and Oregon. “(The single factor sales formula) was a big factor.”
Mark Cahoon, vice president for economic development at the Indiana Manufacturers Association, said the change would allow Lilly or Roche or even an out-of-state firm to build big new plants in Indiana and hire many Hoosier workers – and the company’s corporate income tax would not go up.
“Most other states are considering single sales factor,” Cahoon said. “Indiana has a window of advantage if it moves early.”
But Mazerov encourages states not to move at all. Jobs data from states that have adopted the single factor sales formula show just as many well-paying manufacturing jobs lost as in other states, he said.
Changes in the business climate require such cutbacks, Mazerov acknowledged. But it’s unreasonable, he said, for states to think they can stop those moves by changing their tax codes.