By Shay Totten | Vermont Guardian
Posted April 27, 2007
ST. JOHNSBURY — When a Northeast Kingdom manufacturer sought to grow its global business, Vermont was on its short list to house the $45 million expansion and up to 45 jobs.
In the end, Vermont was once again the bridesmaid and not the bride as EHV Weidmann, which has offices in Switzerland, chose that European country for the expansion. Vermont came in second, ahead of the Ukraine and China, according to company officials.
The company cited the higher taxes it would pay in Vermont as compared to what it would pay overseas as one major factor, according to a letter from one company official to Gov. Jim Douglas.
The story, first reported in The Caledonian-Record, quickly appeared as an Associated Press wire story in other Vermont papers under the headline, “High taxes deter plant expansion.”
Company officials reiterated that to the Vermont Guardian, however the Guardian has also learned that EHV Weidmann has been receiving preferential tax treatment at both the state and local levels for close to a decade.
“I was on committee to evaluate the sites, and as we evaluating those six sites we came down, operationally, in terms of expense. What we felt was a pretty good number in Vermont, but we still felt this number was actually quite high,” said John Goodrich, the company’s vice president and general manager.
While Vermont’s taxes and operational costs were higher than the Ukraine, the state fared better in other areas, but “Vermont was a far cry from the best winner in that regard which was Switzerland.”
Goodrich notes that while Switzerland is a high-price country, their tax structure benefits companies.
“The state and federal taxes on profits are about 60 percent of what we pay here in Vermont,” Goodrich noted.
Those high taxes are despite being granted a number of local and state tax breaks in recent years.
The company’s most recent local tax stabilization agreement had it paying less than fair market value on its properties through 2005. It wasn’t until 2006 that it was paying on 100 percent of its assessed value. The only reason that town officials decided not to renew the agreement was because St. Johnsbury is undergoing a reappraisal and it expects that values for its industrial properties to grow far less than that of residential properties.
Town Manager Mike Welch said the agreement was worth it to the town since EHV Weidmann is a good corporate citizen and employs many local people. The company has a workforce of about 242 full-time and 40 part-employees.
“EHV is certainly a very important part of our local economy here and jobs and active member of our community,” said Welch. “Also, we have, in the past, approached them about property taxes when we’ve had to make major sewer and water improvements and they are our highest water user.”
The town has also given up ownership to a road near the plant to help make it easier for the company to consider expanding in Vermont.
“I think their problem is mostly to do with the state taxes, because we’ve really tried to work with them locally,” said Welch.
What do they pay?
In 2006, EHV Weidmann paid about $90,000 in property taxes to the state. Most of that probably stayed in St. Johnsbury, Welch notes, because the community is a so-called receiving town.
That same year, EHV Weidmann paid about $60,000 in local taxes to the town’s highway and general fund on its buildings and personal property.
In all, EHV Weidmann’s six properties in town are valued at slightly more than $5 million and its personal property valued at roughly $926,000.
The Guardian has also learned that EHV Weidmann had some of its tax credits recouped by the state after the company saw its employment levels drop below what it had when it had taken the tax credit through the Economic Advancement Tax Incentives (EATI) program.
Despite calling Vermont’s tax burden heavy, Goodrich would not divulge what Weidmann pays in taxes, or what annual sales are from the Vermont plant, saying he didn’t want that number made public.
A recent report by the Joint Fiscal Office found that of the 23 out-of-state companies with Vermont taxable income of more than $1 billion, two paid only $250, which is the alternative minimum allowed by the state. In the $100 million to $1 billion taxable income group, 22 of the 140 companies only paid $250, and 25 of the 111 companies with taxable income of $50 to $100 million paid $250.
Meanwhile, Vermont companies of the same size pay based on their taxable income, and it’s not until you get into taxable income below $10,000 that you see Vermont companies taking advantage of the alternative minimum.
In fact, of the 860 companies with taxable income of $10,000 to upwards of $50 million, only two filed for the alternative minimum payment of $250. Both of those companies were in the $10,000-$25,000 income group.
Goodrich said if a company such as Weidmann has carry-forward losses for a couple of years and pays little, if anything, in corporate taxes, it’s the long view they take when making decisions on where to invest resources.
“If we have a situation with some operating loss carry forward, you might minimize your taxes for a year or two, but if you’re looking at making a major investment that is, in the case of our company, something that is going to last 20 to 30 years that is what you base your decision on,” said Goodrich. “And, Vermont’s marginal rate is among the highest in the nation.”
Goodrich said his business was also soured on its experience with the Vermont Economic Progress Council (VEPC) and the tax credits it earned, and then had taken away.
“We lost out on a tax credit because we had to have seven more people [on the payroll] than we did, but if you counted our temps we exceeded that,” said Goodrich.
EHV Weidmann was authorized to earn $233,173 in Economic Advancement Tax Incentives (EATI) on Feb. 25, 1999. The earning period, based on the economic activity to occur, was Jan. 1, 1999, to Dec. 31, 2003. Those credits were applied to the company’s tax liabilities, said Fred Kenney, VEPC’s executive director, in an e-mail interview with the Guardian.
By law, a company can lose its EATI status if for 120 consecutive days its employment levels drop below 75 percent of the level it had at the time of its award. An EATI award can also be recaptured, or taken back, after it has been applied to a tax liability.
In this case, EHV Weidmann asked for and received a deferral to get its employment levels back up during a 12-month period. At the end of that year, employee levels were still not back to their original levels, so the state moved forward with recapture. However, in 2005 the Legislature amended the recapture provision and Weidmann appealed the VEPC decision directly to the tax commissioner, who upheld the ruling.
“In this case, the employment level did not reach the statutory level by the end of the deferral period and VEPC could not recommend mitigation due to the cost-benefit results. Therefore, VEPC requested that the Tax Department recapture the amount of earned and applied (utilized) credits in accordance with the formula in statute,” Kenney said.
Kenney would not say how much money was recaptured, though he did say the law decreases the amount of incentives that can be recaptured the longer lapse there is between the time tax credits are earned, and when recapture is triggered.
In a letter to Gov. Jim Douglas, which also served as Goodrich’s resignation as chairman of the governor’s Commission on the Future of Economic Development, he wrote, “Our situation points out a couple of real issues Vermont faces in its economic development process. There is a strong impression by many investment decision makers that Vermont is unfriendly to business. While there are numerous complaints about tax credits, what is in place to encourage and make Vermont a competitive offering to industries such as ours?
“It is fundamentally critical that Vermont re-orient to bring our state into a modicum of competitiveness. We have an on-going business here and I hope to remain, while continuing to offer good jobs to a worthy and high-performing work force. Good economic development means creating opportunity for all the work force training initiatives we have,” he continued.
In response, Douglas lay the blame for Vermont’s poor business climate strictly at the feet of the Legislature, though ironically it is the EATI program being administered by the Douglas administration that is partly to blame for the company’s decision.
“Your letter hit home for me. I have worked hard since becoming Governor to erase the perception that Vermont is unfriendly to business. It is an uphill battle: the political philosophy that has been in place in the General Assembly for many, many years results in well-intentioned but often heavy-handed actions that have made it extremely challenging for business owners, both large and small. I have tried to address many of those issues in an ongoing effort to make this state more attractive to investors and employers,” Douglas wrote.
Goodrich believes the state should focus its efforts on making sure that any tax credit system is fair, and transparent, and that businesses are rewarded for creating jobs.
“I think there are niches and specialties that have a place in Vermont,” said Goodrich, “especially if you you’re going to compete on labor alone. There are companies out there that can create high-paying jobs and are much less capital intensive than we are, and we need to be making Vermont a place for them to come.”