Gross receipts tax – does that really mean what it says?
Wow. This is beyond any sales or income tax and is NOT a tax on PROFITS as this article falsely claims. The proposed statute will require that this tax be paid by oil companies, not on profit, but on gross revenues.
To find out what this means in reality, I examined the 2006 Income Statement for ExxonMobil. While I did not have information on revenues and expenses for Wisconsin available, I was easily able to back things out on a percentage basis to approximate what the tax will mean to ExxonMobil for earnings in Wisconsin. I freely admit that this approach is overly simplistic, but the overall affect on profit should be similar.
Two-and-one-half-percent of anything does not sound like much. If Governor Jim Doyle proposed reducing the Wisconsin sales or income tax to 2.5%, I’d be all over it. But this is not a sales or income tax, it is a tax on the revenue of oil companies.
For corporations, this is significant because net income is always a small fraction of gross revenues. In the case of ExxonMobil that fraction was 10.18% for FY2006. Therefore the JimDoyleTax would be approximately 24.6% of ExxonMobil’s Net Income from Operations for Wisconsin. That is not 2.5% as most think about it and is absolutely confiscatory (think Hugo Chavez) when you consider that ExxonMobil will continue to pay federal and state income taxes in addition to the JimDoyleTax.
Put another way, ExxonMobil paid a total of 41.4% of their Net Income Before Taxes in Income Tax Expense in 2006. With the additional of the JimDoyleTax, ExxonMobil will pay 55.4% of every dollar of Net Income Before Taxes earned in Wisconsin as federal, state, and Wisconsin Gross Receipt taxes. This will reduce the overall profit for fuels sold in Wisconsin for ExxonMobil from 10.2% to 7.7%.
Is it worthwhile for ExxonMobil to sell gasoline in Wisconsin with a net margin of 7.7% when they can sell this commodity in other states and earn 10.2%? Certainly not. ExxonMobil and other oil companies will either pass through the JimDoyleTax to consumers, or market their product in areas where they will earn higher return.
Elsewhere, acknowledging the team’s success since the start of their “These Brewers need a nickname” contest, the Milwaukee Journal-Sentinel announced today that the team’s nickname for 2007 is “The Cubs.”
5 years ago