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CEO Makes Case Against Tax Incentives for Companies

3 min readBy: Andrew Chamberlain

A common view among lawmakers is that if companies are given a choice between special taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. incentives or more neutral, broad-based tax relief, they’ll favor tax handouts every time.

But as we’ve noted before, this is often not true. Companies today are increasingly aware of the dual-edged nature of targeted tax preferences: they may provide short-term economic stimulus, but ultimately they increase tax complexity and compliance costs, encourage costly industry rent seeking, and raise tax burdens elsewhere in the economy.

The latest issue of Budget & Tax News features an excellent interview with Mark Baker, CEO of Gander Mountain, the nation’s third-largest outdoors retailer. In it, Baker makes a persuasive case against the sort of targeted tax incentives that are widely employed by today’s state and local governments. From the interview:

Interviewer: Gander Mountain has launched a national campaign in opposition to government subsidies in the outdoors retail industry. What is wrong with subsidies?

Baker: Competitors of Gander Mountain have successfully convinced state and local governments in several states to provide large tax incentives in order to build stores in their communities. They portray their stores as “destination retail” in order to secure the incentives, claiming that by having their store in a community it will draw millions of tourists, and their wallets, to the area. However, these retailers are in the marketplace to sell product and turn profit, and like all retailers they analyze the markets to determine where their customers live and shop.

Playing one community off another, these retailers push for tens of millions of dollars from taxpayers to help finance their stores. Even more troubling, in some cases they are persuading states to give them favorable “nexus rulings” that are costing taxpayers even more in lost sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding. collections.

Cabela’s estimates that tax increment financing and other forms of government assistance [cover] about one-third of the cost of building new stores–or an average of $10 million to $20 million per location. However, the public financing packages can be larger. For instance, Cabela’s received a tax increment financing package totaling $40 million to build a mammoth 180,000-square-foot store in Kansas City, Kansas.

Neither Cabela’s nor Bass Pro would disclose the total amount of public money they have received over the years, but our estimates put the combined total at well over $400 million. When you add the value of the nexus rulings, the total goes even higher.

Interviewer: What are you doing to oppose these subsidies?

Baker: We’ve put together and distributed a booklet and educational materials for state and local officials all across the country outlining our concerns. We are meeting with state and local officials directly, and communicating with the media and opinion leaders all around the country. We are building coalitions with taxpayer groups and other nonprofit organizations that share our concerns. We have worked extensively to identify and assist grassroots opposition in targeted communities.

We are building a network of like-minded individuals and think tanks that can defeat these proposals on the ground. We are doing everything in our power to encourage a discussion about retail subsidies and educate the state and local officials that will have the final say.

Interviewer: Why doesn’t Gander Mountain join in and take the subsidies?

Baker: We believe in the American system of free enterprise and consider these demands to be anti-competitive and fundamentally inappropriate. We cannot in good conscience go down that road and maintain our integrity as a good corporate citizen. We think it’s wrong. So we are unwilling to accept the “everyone is doing it” argument and become part of the problem.

Who says companies don’t care about sound tax policy? Read the full interview here.