Business & Tech

SC Johnson Admits Tax Document Mostly Correct After Saying Otherwise

Politifact writer examines tax avoidance allegations made against SC Johnson.

Patch editors Heather Asiyanbi and Denise Lockwood wrote this story.

After issuing a statement to Patch denying information in a recent Reuters column, SC Johnson officials have now admitted to Politifact that some of the information is true.

Reuters tax columnist David Cay Johnston on Aug. 26 cited a document that outlines how SC Johnson has moved and can move money between subsidiaries to bring its Wisconsin state income tax liability to zero. Johnston said he received the document unsolicited.

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When Patch contacted SC Johnson about the allegations, they issued a detailed response outlining how the document was from a vendor hoping to become a company partner and that Johnston's column was based on a document stolen by former employee Michael DeGuelle.

But Politifact writer Dave Umhoefer writes, "The document actually was prepared by a firm that did tax work for the company—and wanted more work—using internal data."

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"Mr. Johnston launched an attack on SC Johnson to drag us through the mud. He lacks the facts to draw the conclusion that he wants readers to make. This journalistic irresponsibility should not be tolerated, and I want to set the record straight," stated Kelly Semrau, SC Johnson vice president, in a release issued to the media on Aug. 30.

R&D Tax Credits Unused

According to the PolitiFact story that ran on jsonline.com on Sept. 11, the record may indeed be set somewhat straight.

"The internal documents show the company didn’t use those research and development tax credits in 2006, and the company later confirmed that for us," writes Umhoefer. "In fact, SCJ did not claim them at all in the 2000 to 2008 time period Johnston examined, the company has now acknowledged. It says it claimed the credit only in 2010."

Yet, in an email exchange with Patch on Aug. 12, Christopher Beard, another SCJ spokesperson, said:

"SC Johnson (SCJ) has not owed Wisconsin state income taxes for the last several years due to a 1984 Wisconsin R&D tax credit, which encourages companies to move R&D jobs to the state. As Wisconsin income taxes are based just on the sale of SC Johnson products in Wisconsin, the company’s maximum tax obligation would be less than $500,000 absent any tax credits or deductions."

Internal loans

In his column, Johnston points out that to avoid paying taxes on $158 million in revenue in 2006, documents show that SC Johnson made an inter-company loan to SC Johnson-Puerto Rico and then transferred it to a Delaware-based entity, "SNW Company."

Beard told Patch on Aug. 27 that the documnet used by Johnston was "wildly inaccurate."

Semrau's responded in her Aug. 30 statement, "(Johnston) claims that SC Johnson improperly wiped out taxable profits using a combination of intercompany loans, royalty payments and other actions. Yet in truth, the intercompany loan he references does not exist today."

Now, though, Semrau told Umhoefer that moves like this are not illegal or being used as a way to avoid paying state income taxes. Instead, she said, it's more efficient and economical to borrow money internally.

State Audit Needed

As Umhoefer concludes, the only way to know for sure what SCJ has been up to and whether or not they conform to state income tax laws is for the state to conduct an audit. The company confirmed that hasn't happened since before 2000.

Patch submitted an open records request for a list of when the ten largest state-based companies last had an audit, but were told, "Taxpayer records and audit information are confidential. Although you have not asked for records but rather dates, the law will still prevent us from providing that information."

The Potential Impact

A former state auditor did talk to Patch, though, and said he has seen more than his share of situations just like this. With over 200 vacant positions in an agency that has 1,000 staff positions, chances are slim that the state will conduct a full, in-person audit of SCJ.

The impact to the state's finances is enormous. According to our source, who spoke on condition of anonymity, the state has about $900 million in delinquent taxes.

"Some of that, of course, isn't collectible," he said. "But somewhere around $350 to $400 million is readily collectible from corporations both large and small and private citizens, too."

When state elected officials decide to cut safety net services and funding for schools, the auditor noted, why aren't they also making people and companies pay what they owe?

"The truth is that the Department of Revenue is woefully understaffed," he said. "There is no way to keep up with the number of audits needed."


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