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“Aetna Leaves Connecticut, Sort Of.”

Thomson Reuters David Brunori

David Brunori is a regular contributor to Checkpoint State & Local Tax News. David is a partner at Quarles & Brady and a professor at The George Washington University. The views expressed in his articles are his own and should not be construed otherwise or as legal advice. He can be reached at [email protected].

Aetna, Inc. announced recently that it was moving to New York City. And it was getting tax breaks from New York as well. That of course is big news. Aetna – named after the volcano – has been in Connecticut since the 1850s. It is a Fortune 100 company with something like $70 billion in revenue. And, Aetna's departure follows that of GE and Pfizer which also departed the Nutmeg State.

Aetna says it's not personal. It loves Connecticut. But New York is, well, New York. Some folks pointed to the ongoing budget problems that caused Aetna to leave. But Aetna has been in Connecticut since before the Civil War. Certainly the state has seen budget upheavals before. Still others pointed to the tax incentives Aetna is getting. But Aetna is getting a paltry $24 million from New York over ten years. It is getting some property tax breaks from the city as well. It's hardly Tesla incentive money. Besides, Governor Malloy said he would match any incentives.

Aetna is not leaving Connecticut over taxes. Who moves to New York for tax reasons? And it's not really moving. It's keeping over 6,000 employees in Connecticut. Only about 250 executive staff will be moving. Losing the Aetna headquarters is not the end of the world. Still, it is worth considering the real reason why a company that has long been associated with the state would pick up and go.

Speaking of Connecticut. There are folks in Connecticut who would like to broaden the sales tax base. Proponents of this change are looking for revenue. But I think the state should consider broadening the sales tax base as part of a reform plan that would lower the rate.

People who sell goods and services exempt from tax don't like the idea of expanding the sales tax base. I get it. Ultimately, they fear that the tax will increase the costs of their goods and services and result in lower sales. But, let's be clear—good tax policy dictates that all personal consumption should be subject to sales tax at the lowest possible rate. Readers are certainly aware of the mantra that appears in every tax reform report – the ideal tax system is built on a broad base and low rates.

I am hardly “pro-tax.” But broadening the sales tax base is always a good idea. Few political leaders understand public finance well enough to understand that.

Fly Me to the Moon. A wise man once told me to save my breath and stop criticizing the inevitability of economic incentives. I am almost there. Alabama looks like it is going to use its legendary incentive policies to seal a deal with Blue Origin LLC. Blue Origin makes jet engines for space flight. And it wants to do this in Huntsville. Huntsville is known as “Rocket City” for its close relationship with NASA and the space program. Huntsville also has a lot of, well, rocket scientists.

Blue Origin will invest in Huntsville and create 340 jobs. It will receive about $38 million in state tax breaks. Most of the tax breaks will be for income and utility taxes. Since I think the corporate income tax is awful policy, maybe it's not so bad. I would prefer a debate over the efficacy of the corporate income tax. But even in the most conservative states no one seems to want to get rid of the tax. Maybe decimating the tax through incentives is the next best thing. Even with the incentives, the state will see a net tax revenue gain from Blue Origin's investment.

But Then Again. I am shocked more people aren't talking about the Missouri state auditor report on tax credits. The auditor released the report on June 21 and it basically says the billions in tax credits the state hands out don't work. Imagine that. In fact, they don't work so much that $3 billion in credits have gone unclaimed!

No Standing. I think the Georgia Supreme Court got it right when it held that taxpayers lacked standing to challenge the state's educational tax credit. In Gaddy v. Department of Revenue, the court affirmed the dismissal of a suit asserting that the credit was unconstitutional. Under the law, taxpayers can receive a tax credit for donations made to approved nonprofit organizations for scholarships to private and religious schools. Many states have similar programs. Plaintiffs argued that the state credit diminished the funds available for public schools. That argument was appropriately rejected by the court as speculative. I think the appropriate way of voicing disagreement with such laws is through the political process.

Wine is Fine, but Liquor is Quicker. New York passed a law that exempts beer, cider, and liquor tastings from the state's 4% sales tax. The goal was fairness as wine tastings were already exempt. I have never been to a beer, cider, or liquor tasting. I would like to though. Maybe it's the 21 year old in me, but I am all for lowering taxes on alcohol.

Best News of the Year. The insidious effort to adopt a gross receipts tax in Oregon is over. Proponents, who did not seem to care that the people of the state did not want this tax, have given up for the year. Gross receipts taxes are hidden, regressive, cynical ways of raising revenue. If you are for a gross receipts tax you are against transparency and fairness. And I find it incredible that the tax is pushed by the most liberal legislators. Do they not realize who bears the burden of the tax?

Trivia. The answer to last week's question (first state to adopt a modern cigarette tax) was Iowa. This week we go back in time. There is a chance that the Brunoris once served in the Roman Army marching with Caesars through the empire. I have not been able to prove that yet. The question is Emperor Vespasian (who ruled from 69 A.D. to 79 A.D.) is credited with imposing a tax on something most unpleasant. The first person to write me with the answer will receive a copy of my award winning state tax policy book which is often used as a coaster on coffee tables.


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Originally published in Thomson Reuters and is reproduced here with permission, July 10, 2017