Corporations not paying state income taxes? What’s Mary Burke’s position?

MADISON (WITI) — In the race for governor, Democratic candidate Mary Burke has been touting her experience as a Trek Bicycle executive. Trek Bicycle is a world-famous bike company that was founded in Waterloo, Wisconsin in 1976. FOX6 is taking a closer look at Trek’s track record on taxes.

In March, FOX6 News examined corporate tax avoidance in Wisconsin — looking at the 25 largest companies, and found most of them don’t pay state income taxes — even when they’re making profits.

That story also explored Gov. Scott Walker’s pro-business agenda.

Now, FOX6 News is looking at Mary Burke’s position on corporate taxes — and her association with Trek Bicycle, which she touts in virtually every campaign ad and during every public appearance she makes.

“I’m Mary Burke, and helping to turn my family’s business into a global company has been a big part of my life. As a business executive at Trek Bicycle, I have actual experience creating jobs,” Mary Burke says in a gubernatorial campaign ad.

“Today, 930 people work at Trek — the great Wisconsin company she helped build,” another one of Burke’s campaign ads says — even using the Trek logo.

Burke, a Democratic candidate for governor has staked her campaign on her experience as a Trek Bicycle executive.

“Every good business person knows, if you want to grow, you need to make investments,” Burke said.

Burke has even based the title of her jobs plan — “Invest for Success” — on her experience at Trek.

“I came up with the title because I thought back on my experience as an executive at Trek Bicycle, and Trek is a very successful company. It has done very well,” Burke said.

But Burke’s campaign doesn’t want to talk about the company’s record on taxes.

She declined FOX6’s requests for an interview on this topic — but she was questioned about corporate taxes during a recent forum at Marquette University.

“Do you feel that taxes are a significant detriment to business and economic development in this state?” Burke was asked at Marquette.

“I will go back to my experience at Trek. Trek has started from a couple of people to nearly 1,000 people, and has been successful, and thinks that Wisconsin is a great place to do business and has never considered leaving it. Do they feel the taxes need to change? I don’t think that’s on their top 25 list of things in making sure Trek Bicycle is a successful company,” Burke said.

There may be a reason for that.

Records from the Wisconsin Department of Revenue obtained by FOX6 News show that Trek Bicycle has not paid net income taxes for more than three decades — at least as far back as 1982.

“The division that I ran, we increased sales from $3 million to almost $50 million. This was building up new markets in Europe,” Burke said.

The company takes advantage of “Subchapter S” of the tax code, which allows shareholders to file as individuals and pay taxes at lower rates.

“Trek has always complied with state and federal income tax laws,” said Trek spokesman Eric Bjorling.  He points out that the practice is common in Wisconsin and Across the country, “S corps are the most prevalent type of corporation with 61.9 percent of all corporations filing a Form 1120S in 2003.”

Indeed Kurt Bauer, the President and CEO of Wisconsin Manufacturers and Commerce, the state’s largest business group, defensds the practice: “Ninety percent of Wisconsin businesses pay taxes at the individual rate, so just looking at the corporate rate is a misnomer, because again most businesses are paying at the individual rate because they’re path through entity like a sub chapter S or an LLC.”

“Lots and lots of companies do pay through the individual tax,” corporate tax expert Jack Norman said.

Norman says many corporations tend to avoid taxes — or pay the least amount they can legally — something that ultimately shortchanges the public.

“If we’re talking corporate tax avoidance, we’re talking hundreds and hundreds of millions of dollars a year, and again there are so many other ways companies have tax benefits in Wisconsin — property tax benefits, sales tax benefits, so those also add up,” Norman said.

Tax records show that Burke personally paid more than $120,000 in 2012.

“The key question in this election is not going to be over someone’s taxes — it’s going to be ‘are you better off today than you were four years ago?’ I think for the vast majority of people in this state the answer is yes,” Gov. Scott Walker said.

Gov. Walker has advocated tax breaks for businesses — something Burke has criticized.

“Giving tax breaks to out-of-state corporations and to those at the top doesn’t create jobs,” Burke said.

But when Burke was the Wisconsin Secretary of Commerce, she advocated for some of the same policies that gave out-of state companies tax incentives and state aid.

“I was involved in attracting U-Line’s new headquarters to Kenosha,” Burke said.

Burke helped put together a package that offered millions in incentives and aid from Wisconsin to U-Line Incorporated to move its headquarters from Waukegan, Illinois and build a new facility in Pleasant Prairie.

And Flambeau River, a paper mill, reopened in 2006 with millions in aid from Burke’s Commerce Department

Trek itself has taken advantage of state aid in the past.  “In 1995, through the Wisconsin Department of Development, Trek received an $875,000 loan to expand Trek’s manufacturing capacity in Whitewater, Wisconsin,” Bjorling said.  “Up to $440,000 of the loan was eligible for forgiveness provided Trek created and maintained a certain number of jobs at the facility through May of 2000. $392,300 of the loan was forgiven. The balance of the loan was repaid in accordance with its terms.”

“When you start throwing money at companies and they don’t give you any explicit guarantee or any legally binding agreement in return, that it seems to me is a really bad approach to government,” UW-Milwaukee Professor of Governmental Affairs Mordecai Lee said.

Lee studies the issue, and says subsidies are not always a wise investment of public funds.

“Politicians are falling all over themselves to get businesses to come or to stay or to expand, and you’ve really got to ask yourself, ‘if they hadn’t been offered all of that money, would they have done it anyway?'” Lee said.

FOX6 also looked at more than 25 of the largest businesses — and found more than two-thirds of them are not paying net income taxes.

Still, Gov. Walker and business leaders like Kurt Bauer of Wisconsin Manufacturers and Commerce have complained that corporate taxes are too high.

“We’re still considered a high tax state, and the best example I can give you is when Gov. Quinn raised taxes in Illinois by 66 percent — they are still lower for the individual rate than they are in Wisconsin,” Bauer said.

“Taxes, no doubt are part of it, but I think that companies — particularly companies in this competitive environment look to making sure they can get a skilled workforce, that they can attract people to work for their company, regardless of where they are in the state,” Burke said.

Burke was given multiple opportunities to comment on this story, but declined.

Corporate tax wathchdogs like Norman have questioned whether comapnies that don’t pay state income taxes are good corporate citizens, so the questions is: Is Trek a good corporate citizen?  “Absolutely”, Said Bjorling, who provided the following list:

  •  Trek’s founder, Richard Burke, left his entire estate to the Burke Foundation. The Burke Foundation supports innovative opportunities and programs that improve urban education, youth and leadership development by focusing on the well-being of youth and future leaders, and addressing long-term viability in the changing community. Major past grantees include Milwaukee’s Urban Ecology Center, the YMCA’s Sponsor a Scholar program, and the Milwaukee Youth Symphony Orchestra.
  • 2. This year alone, the Burke Foundation has awarded $6,050,000 to the following beneficiaries: COA Youth and Family Centers ($2 million), Cristo Rey Milwaukee High School ($2 million), College Possible Milwaukee ($700,000), Carmen High School of Science and Technology ($550,000), Beyond the Bell Milwaukee ($400,000), Pearls for Teen Girls ($300,000), and Playworks Wisconsin ($100,000).
  • 3. Established by Trek founder Richard Burke, Marquette University awards ten full-tuition Burke Scholarships every year to academically talented Wisconsin high school seniors who exhibit leadership in a manner that reflects exceptional commitment to community. To date, over 150 recipients have had their Marquette educations fully funded by the Burke Scholarship.
  • 4. For 25 years, Trek has hosted the annual Trek 100; a mass charity bike ride – scheduled for June 7 this year – which has raised over $11 million for the MACC Fund. The Trek 100 is the MACC Fund’s largest fundraising event every year.
  • 5. Trek donated $1.5 million to establish a city-wide bike share system in Madison. Trek continues to manage Madison B-cycle for free.
  • 6. Trek established and continues to assist in the operation of the Madison and Milwaukee DreamBikes locations, which provides access to affordable, quality bikes while providing youth with valuable work experience through the Boys and Girls Club.
  • 7. Trek sponsors the annual Bike for Boys & Girls Club event, which raises funds that go directly to inspiring more than 3,000 youth in Dane County. Trek and the Burke family were significant contributors in building the Dane County Boys and Girls Club facility.
  • 8. Trek has been recognized by Outside Magazine as one of the US’ Best Places to Work
  • 9. Recognized as a Green Master as part of the Wisconsin Green Masters Program —Green Masters demonstrate a commitment to sustainability leadership within their sectors and in their communities
  • 10. In 2009 Trek became one of the first manufacturing companies in Wisconsin to switch to 100% renewable electricity.
  • 11. Trek supports various other organizations and makes large contributions of time, money, and bicycle support to various causes on an as-needed basis. Examples of this are a large bike donation to kids affected by tornadoes in OklahomaBo Bikes Bama, the Warrior 100 RideRide the Drive, the Trek Breast Cancer Awarness Ride, and more.
  • Trek was founded by a man who believed “to whom much is given, much is required” and we continue to act under this principle. Since 1976, Trek has built a successful business in Wisconsin, provided good jobs to thousands of families, helped numerous organizations, and has been a force of good in the community.

 

CLICK HERE to view Mike Lowe’s previous story on this issue, entitled: How large corporations avoid paying income taxes in Wisconsin.

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5 comments

  • Greg Sell

    This is without a doubt one of the most misleading and ignorant news reports I have ever seen on local TV. Most people including you don’t have a clue as to the taxation of an S corporation (in this case Trek) , or that the individual shareholders are taxed on the corporate income instead of the corporation. I doubt you even looked into what the respective tax rates might be. Norman’s comments were equally misleading By the way an S corporation is a federal election that to my knowledge every state in the country allows as well . Next time do some more research instead of saying you couldn’t get the other side to comment.

    I have seen many of your reports and this is not up to your usual standards

  • Politiwars (@politiwars)

    This is a VERY misleading article. There is nothing nefarious about setting up a SubChapter S Corporation. It’s a very typical corporate structure for closely held companies. The entire amount of the profits pass through to individual stockholders who have to pay taxes on those profits. Those tax rates may or may not be lower than what a corporate rate would be. If people knew anything about what effective corporate tax rates are they would know that.

    Of course Trek Bicycle itself would not pay corporate taxes. No SubS corporation ever does, because it would amount to double taxation.

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