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October 22, 2014

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Sun Editorial:

An unfruitful policy

Story about Apple’s Reno office shows failure of state tax structure

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THE NEW YORK TIMES

The offices of Braeburn Capital, an Apple subsidiary that manages and invests Apple’s cash, in Reno. Nevada has a corporate tax rate of zero, as opposed to 8.84 percent levied in California, where Apple has its headquarters.

Reno, the “Biggest Little City in the World,” is home to one of the biggest tech companies in the world. Not that anyone would notice.

Apple, the tech innovator and maker of the ubiquitous brand of computers and devices, opened a low-profile subsidiary in Reno several years ago called Braeburn Capital. As The New York Times detailed last month, the subsidiary — named after a type of apple that is tart and sweet — has a handful of employees in a small office in a nondescript building.

It doesn’t make any products that will bear the Apple logo, but that doesn’t mean it isn’t important.

Indeed, Braeburn plays a critical role for Apple: It collects and invests the company’s profits. And its location, 200 miles from Apple’s California headquarters, is strategic: The California corporate tax rate is nearly 9 percent; in Nevada, it’s zero.

Apple has diligently and legally worked to minimize its tax bill, and that's great for the company and its shareholders. But is it good for Nevada?

Economic development and taxes have been long-standing issues in Nevada, and they have been long linked here. The prevailing argument, dating back to at least the 1930s, has been that lower taxes would mean a more diverse economy. But if that were the case, wouldn’t Nevada have the most diverse economy in the nation? Wouldn’t companies have already brought tens of thousands of jobs here to take advantage of the tax structure? Wouldn’t we be writing about something else?

Apple’s Braeburn Capital is the fruit of policies based on the belief that low taxes are the elixir sure to cure all the state’s economic ills.

What has happened is that companies like Apple might register here and open a small office or a warehouse to take advantage of the tax structure, but they do little else. Sure, that’s better than nothing, but that’s hardly the way to build or diversify the economy.

The fact is that low taxes haven’t created an economy that is both wide and deep. It takes more than low taxes to grow the economy. It takes the right work force, and that means a good education system, as well as infrastructure and a variety of other things businesses look for.

Of course, it takes taxes to pay for things like schools and infrastructure, but the state’s antiquated tax structure, which is narrow and highly volatile, hasn’t generated the revenue needed.

There’s also the issue of tax equity. A company like Apple can set up a shingle here, provide a few jobs and pay virtually nothing in taxes while established industries, notably gaming, pay significantly more while upholding the economy. How is that fair?

However, despite overwhelming evidence that the state needs a broader tax base, attempts to fix it have been squelched by ant-tax critics, and the Legislature and past governors have failed to adequately address the problem.

Given the problems in the state, the issue shouldn’t be avoided anymore. Nevada needs an equitable tax policy that fits the 21st century and creates the type of state that will attract businesses to move here, not just set up tax havens.

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  1. This Apple/Braeburn situation is not a new development. For example, back in the late nineties, the small firm in Chicago that employed me was purchased by a Toronto based company that had set up a one man office in Barbados to avoid Canadian taxes. A local mailing address and a personal computer with internet access was all that was needed to maximize corporate profits by shunning contributions to the State. A "60 Minutes" segment aired last year illustrated that thousands of American companies employed Switzerland as a tax haven. Their profits are taxed only when they are returned to the US which, of course, they seldom are.

    My point here is that this is not merely a state issue but a national/international one in scope. Prevailing laws in this country and most others permit these activities and those companies not availing themselves of such opportunities risk placing themselves at a competitive disadvantage. The larger the enterprise the more money that is at stake. I understand that Cisco alone has over $2 billion parked overseas and such monies will not return to these shores until the optimum tax conditions prevail. Obviously, in their minds zero taxes is the right number.

    The above might lead you to believe that my position is anti-business and nothing could be further from the truth. I'm only positing a reality that tax reform alone couldn't possibly address given that entire countries are vying for sham corporate headquarters and will one-up their competition at every step to maintain any and all advantages. So it's not just, say, Nevada versus Delaware but the United States pitted against the Cayman Islands.

    Thus larger questions arise. Mitt Romney has stated that "...corporations are people, too!" and recent US Supreme Court rulings appear to confirm that position. So, as people (i.e.: citizens), should corporations not be paying taxes like the rest of us? If so, what form should those taxes take and to whom should they be paid? On the other hand, why directly tax corporations at all and rather rely on city/county/state/national sales or transaction taxes for revenue? The progressive/regressive nature of such proposals are yet another debate.

    Of final note, the overwhelming majority of tax haven countries have no (or next to no) standing military nor significant international presence or obligations. They leech off of us for safety and security.

  2. Maybe there are two ways to look at this:

    1. We ought to be ashamed for being a "tax haven" where companies can locate small operations to avoid taxes in other States.

    2. We ought to be ashamed that we do not maximize 1. above so that ever larger operations -- including headquarters operations -- can be safely located here.

    If we had even a semblance of steady, predicable, corporate law combined with a decent educational system, we could make ourselves a home of choice for all sorts of domestic and international companies.

  3. Nevada has in the last 40 years allowed the Unions and the busy bodies to take this state over and prescribe how things are done. The monied special interests have bought and sold politicians like cupie dolls. Even as far back as the 80s the quality of schools was poor there was not any real attempt to improve them. Municipalities decided that they did not want manufacturing jobs and under took to move them out with increased regulations and a mommy-may-I mentality. Now with bloated governments at the state and local level and interference at an all time high, you expect businesses to flock here?

    You can have low taxes but being called "business friendly" is a relative term and this state is not as business friendly as it should be. Other states are worse, of that there is no doubt, but that does not make Nevada good.

  4. And, by aping CA, how does that help NV? Apple's office would not have located to the Silver State; a "handful" of jobs would not have been created; the sales tax revenue NV garnered from those "handful" of employees would have gone to CA instead; office space would not have been rented; nearby restaurants, shoe stores, pharmacies, etc, would have lower sales. The list goes on & on if NV takes CA as an example and emulates it. Lower taxes are a draw for both businesses and individuals to relocate to the Silver State, not an impediment. Wise up!

  5. "A company like Apple can set up a shingle here, provide a few jobs and pay virtually nothing in taxes while established industries, notably gaming, pay significantly more while upholding the economy. How is that fair?"

    SUN -- I see you didn't bother to ask those "few" job holders.

    "Maybe there are two ways to look at this: 1. We ought to be ashamed....."

    lericgoodman -- why exactly? Apple just followed the laws. Nobody, including corporations, is obligated to pay maximum taxes anywhere.

    "Nevada has in the last 40 years allowed the Unions and the busy bodies to take this state over and prescribe how things are done."

    longun45 -- no it hasn't. The legislature makes the laws, not "the Unions and the busy bodies"

    "And, by aping CA, how does that help NV?"

    lvfacts101 -- excellent point, and self-evident!

    High taxes don't result in financially-stable governments, a serious attitude about the public trust and frugal operations accomplish that. Nevada, like government at all levels, is in serious need of the budget ax. Until government gets a lot smaller and gets out of the way, We the people cannot thrive and build this economy back up.

    "I heartily accept the motto, 'That government is best which governs least'; and I should like to see it acted up to more rapidly and systematically." -- Henry David Thoreau 1849 "On the Duty of Civil Disobedience"

  6. California taxes the hell out their people and they're still $16 billion short of paying their bills. In reality more like $25 billion if they project the cost of illegals that are migrating there by the hundreds of thousands after Moonbeam signed their version of the Dream Act into law last year and their infamous welfare growth they enjoy so much of. Kudos to Apple to doing what best for them, not the trolls!

    Nevada better not become like California, that would be the death of Nevada and we'd become like New Jersey casinos and their tourists.

    For those who like paying taxes, move to California and enjoy it. We won't miss you. We pay enough as it is and we surly don't to pay more for liberals to spend on their trolls and then add more of them to our state. California likes them, they can't afford them either. What makes anyone think we want their budget problems knowing if we did tax ourselves, the minions would be loaded up by the bus loads and now they'd be our problem?

  7. California taxes the hell out their people and they're still $16 billion short of paying their bills. In reality more like $25 billion if they project the cost of illegals that are migrating there by the hundreds of thousands after Moonbeam signed their version of the Dream Act into law last year and their infamous welfare growth they enjoy so much of. Kudos to Apple to doing what best for them, not the trolls!

    Nevada better not become like California, that would be the death of Nevada and we'd become like New Jersey casinos and their tourists.

    For those who like paying taxes, move to California and enjoy it. We won't miss you. We pay enough as it is and we surly don't to pay more for liberals to spend on their trolls and then add more of them to our state. California likes them, they can't afford them either. What makes anyone think we want their budget problems knowing if we did tax ourselves, the minions would be loaded up by the bus loads and now they'd be our problem?

  8. A lot of penis envy here, i think.