Spend Management and Corporate Taxation

Even though it's usually the job of a finance organization and tax professionals to put their heads together in order to create corporate structures that minimize taxation, I believe that procurement should now get involved as well. Consider how Illinois, the manufacturing and services hub of middle America -- we're home to such companies as Caterpillar, John Deere, Accenture, AT Kearney, and scores of other household names in the procurement and operations world -- is contemplating raising corporate taxes through a new VAT.

According to the local papers, the Governor, Rod Blagojevich, "wants to raise $6 billion through a new 'gross receipts' tax that would apply to nearly all types of business transactions. [For example] suppliers selling raw materials to manufacturers would pay the tax." Specifically, the Democratic has "proposed a tax of 0.05 percent for manufacturers, wholesalers and retailers - or $5,000 for every $1 million in gross revenue - and 1.8 percent for other businesses, such as the service industry."

Caterpillar, an industrial bellwether company for the state, would face in excess of over $100 million in new taxes if the plan passes. For all of the European readers in the audience accustomed to a VAT already, I would remind you that Illinois is essentially proposing double -- or even triple -- tax (since this tax would come on top of Federal taxes as well as import / sales duties and other levies which companies already pay). But companies don't need to just hire lobbyists to fight back at this type of VAT nonsense. They can also vote with their feet, moving manufacturing operations and their corporate headquarters if need be. In addition, they can also set-up new subsidiaries in other states and countries. And they can buy more than they make, as well.

All of these efforts will help companies like Caterpillar to get around new taxes such as this (which they will do, if the Governor's nonsense passes muster with his fellow tax and spend cronies in office). Perhaps the only good news in this is that procurement organizations can elevate their status by playing a key role in many of these decisions to outsource operations-related spend, buying more and making less (not to mention optimizing supply chain design to reduce tax consequences). But for the rank and file worker in Illinois, taxes like this bring no positives -- only a higher chance that they'll collect an unemployment check in the future (which, as a local business owner, I'll be footing the bill for).

Jason Busch

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