SC Johnson State Income Tax Called Into Question

This story was written by Patch editors Heather Asiyanbi and Denise Lockwood.

SC Johnson, one of the state's largest companies, has not paid Wisconsin income taxes since at least 2000, but perhaps not for the reasons company representatives like to use.

In an Aug. 12 email exchange, SC Johnson reacted to claims from the Institute for Wisconsin's Future (IWF) that the company doesn't pay any income taxes.

Christopher Beard, a spokesperson for the company, responded:

"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."

He went on to state that since the company located its Research and Development facility within the state of Wisconsin, giving more than 500 people employment, the credit from the state exceeds what would be owed.

Document Reveals One Side of the Story

But now, documents from PricewaterhouseCoopers reveal the company may have been taking advantage of tax loopholes to get out of paying any taxes on Wisconsin profits.

Reuters columnist David Cay Johnston said that he received an unsolicited 15-page document dated 2008 that outlines how SC Johnson used inter-company loans and carried forward net operating losses to avoid paying state income taxes.

Specifically, 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." Interest on that loan was $60 million, but the principle amount is not indicated.

A quick look through the State of Delaware's Department of State website reveals that SNW Company is based there in some fashion. A Securities Exchange Commission (SEC) filing from December 31, 2010, verified that SNW is owned by descendents of S.C. Johnson. On page 95 of that same document, SNW is listed to SC Johson & Son, Inc. with an address of 1525 Howe Street, Racine.

Patch confirmed with the state Department of Revenue that a company like SC Johnson can carry forward R&D tax credits as well as net operating losses for a period of 15 years.

SC Johnson Responds

Statements from SC Johnson representatives are clear about the company qualifying for the R&D tax credit from 2000 to 2008. In emails from Aug. 31 and Sept. 1, Patch requested documents from the company that back up SCJ's assertions. Instead, Kelly Semrau, company spokesperson, issued the same press release that other media outlets received.

In the press release Semrau states, "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."

In that response, Semrau refuted every claim from Johnston and blamed his column on a document allegedly stolen from the company from former employee Michael DeGuelle. SCJ sued DeGuelle two years ago for taking tax documents and disclosing them outside the company. The company also sued him for defamation after he repeatedly and publicly accused SCJ of corporate tax fraud.

DeGuelle never proved SCJ committed tax fraud, but he asserted during the trial that the company filed amended tax returns after his termination and that, in itself, constituted criminal behavior. Earlier this spring, Racine County Judge Charles Constantine ruled in SCJ's favor, awarding the company some $50,000 in damages.

Patch contacted DeGuelle for comment.

"This is an utter falsehood because Judge Constantine ruled that I did not steal any documents or property from SC Johnson, and for Ms. Semrau to say so is libel and slander," he said. "I can also prove that I wasn't the source of the story because the facts are actually much worse than what is being discussed."

Audit List Requested

Patch submitted an Open Records Request with the DOR for a list of when the state's top ten companies were last audited, but a representative from the department said state statute may prevent them from even providing a list.

"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," they write.

The document from PriceWaterhouseCoopers is now available online at the Institute for Wisconsin's Future website.

An Aug. 31 press release from Jack Norman, research director for IWF, calls for an overhaul to Wisconsin's corporate tax practices, saying that just because SC Johnson pays property and sales taxes doesn't get them out of paying state income taxes.

"So do millions of other citizens and businesses (pay property and sales tax)," Norman states. "SC Johnson should not get to pick and choose which tax to pay."