Will State Apply Sales Tax to Services?

With the State of Wisconsin facing an unprecedented budget deficit there is legislative talk of removing the sales tax exemption for services.

Under current law the general rule is that only "tangible personal property" is subject to the sales tax. In other words anything you can buy that you can touch is subject to the tax and things like services are exempt. Of course there are many nuances to the law which make compliance difficult, but it is clear that the State leaves plenty of money on the table by not taxing things like legal and accounting services.

So will services be taxed in the future? I think they will even though plenty of lobbyists are against it. If I've observed one thing in life it is that politicians love to spend money and it's rare that they leave money on the table. The fact that the exemption for services exists is something that surely bothers plenty of legislators. The fact that this can be spun as a "leveling" of the playing field and a tax that will imposed on people like attorneys this will surely get some traction. It is also important to remember that taxpayers seem to have no problem with higher sales taxes. In the past election, the County of Milwaukee voted to TRIPLE its county sales tax.

Yes, we will see some opposition from the lobbyists, but I just don't see a great groundswell of public opposition to a change in the law like this. Assuming they will keep most groceries, prescriptions and medical services exempt from the tax I believe that other services will start to be subject to the sales tax.

What Government Can Do to Help the Automakers

If you saw any of the coverage of the congressional hearings today you were treated to quite a bit of unintentional comedy. It's no wonder the country is in trouble. With that said, what could really be accomplished to help?

1) Repeal the CAFE Standards
Our government mandates that automakers produce a fleet of vehicles that meet minimum mileage standards. This is a noble cause, but it also means that the automakers are forced to produce a number of cars that people don't want (sub compacts) in order to produce cars that people do want (SUV's). Most of my environmentally conscience friends drive SUV's so if they are not buying the cars that actually get good mileage who is?

Yes, Toyota can thrive in this environment due to the Prius, but that leads me to my next point.

2) Give the Automakers the Money to service their Legacy Costs
What has killed the auto industries and is killing government spending is the high amount of people who are still on the payroll long after they have retired. The Pension system is from another era and does not work in today's global economy. When pensions were in vogue we did not have serious competition from automakers in Japan and Korea.

This allows the companies to honor their commitments to the people who are retired and also frees up cash that they can then plow into research and development. As Toyota does not have these costs they have been able to crush our automakers in this department and have advances like the Prius.

3) Force the UAW to Assist
If we secure the pensions of those who are retired and those employees over a certain age and with enough years of service the UAW needs to help out by giving up pensions to newer employees and adjusting their benefits to a reasonable level. The Big 3 can't survive if Toyota's employee costs are 60% of theirs. So the pensions need to go and the health insurance benefits need to be scaled back.

4) Tax Credits to those who Buy a Car from the Big 3
Why not? We gave out tax credits for the purchase of a hybrid car. The least we can do is encourage people to buy cars from the Big 3. For whatever reason no one seems to want to buy an American car these days. It seems to have something to do with the perception that our cars are somehow inferior to the foreign cars. I've owned 2 cars in my adult life. The first was a Mercury Tracer (which my wife felt was an upgrade from a Ford Escort) and it was just over 100,000 miles before getting totaled in an accident. Aside from basic maintenance and wear and tear replacements like the brakes and tires, I had zero problems with that car. I now have a Ford Taurus that has exceeded 125,000 miles. Not to jinx anything, but aside from usual maintenance I've never had a problem. In other words, our cars are probably just as good as the imports, but people have the perception that they are not and buy a Toyota or a Hyundai instead.

At the end of the day if we give the Big 3 a blank check with no strings attached my bet is that it merely prolongs how long they are able to stay in business rather than solve any problems.

What Am I Missing on the KRM Line?

It seems these days I cannot look at the Milwaukee Journal-Sentinel's editorial page without being told how critical the KRM line is to the region. I want to be good and support things like this, but the accounting side of my brain kicks in and asks if this is something we really need as opposed to something we really desire. I am at a conference this week in Chicago so I've had plenty of time to think about this while riding the train.

In case people didn't know we already have two train options that can get you to Chicago. The first is the Amtak that has a station in downtown Milwaukee and one at the Airport. The other is the Metra which has a station in Kenosha.

I have ridden them both many times and each has their pros and cons. Amtrak, which still needs an operating subsidy, is extraordinarily expensive at $44 a round trip and the Kenosha Metra is slow moving and inconvenient to get to, but it is relatively inexpensive. The Amtrak is a faster moving train whereas the Metra has the feel of being on a bus due to the frequent stops and people getting on and off.

I believe people use mass transit for a few reasons. They have to, it is convenient, it is less expensive than a car trip. As the vast majority of people in our region own a car, let's throw out that a large amount of people will have to use this because they have no other option.

In order to become a great alternative the KRM line then will have to be a more convenient and a less expensive trip than a car ride in order to be successful.

Having rode the Chicago Metra several times I have no doubt this is more convenient to a person working in the Chicago area. Driving to Chicago is a nightmare. The Metra makes sense in Chicago. However, has anyone ever said that driving to Kenosha is a nightmare? I know I never have. In fact, it is one of the easiest commutes that one can make. So I can't see the KRM line being more convenient especially as you will have to be on their schedule and you will need to use an additional form of transit like a bus or taxi unless the place you are going is near the line.

Then we look at cost. I have no idea what the charge for a ride will be, but I do know that the ride down to Chicago is currently $12 round trip. If I'm to go to Kenosha from my house it is a roughly 20 mile commute. Using the Federal mileage rate which takes depreciation of your vehicle into account that trip costs me $11.70. So the cost of the train will likely be cheaper assuming I will not have to use a bus or can to get to my destination. While it will likely be cheaper, I'm not convinced that the cost savings offset the inconvenience factor of using the train.

In any event I would suspect most people would continue to use their cars to commute from Milwaukee to Kenosha.

Supporters will say that you know have the opportunity to take a lower cost train from Milwaukee to Chicago now and that will be true. However, that overlooks two key things. The first thing is what will the annual operating subsidy be? Amtrak isn't profitable at a $44 round trip cost, so it's imperative we know how high that cost is especially in this time of high government spending. You also have to consider the convenience factor. The Metra train from Kenosha take 1.5 hours to get to Chicago which is what it takes the Amtrak to get there from the downtown station. Given the number of proposed stops the trip to Chicago may take in excess of 2 hours which makes it a more unattractive option despite its costs.

Supporters of the plan fall back on two other positions that I really do not get. One is that train lines spur economic development and the other is that other cities are doing this so why don't we.

Having travelled the Metra to Chicago many times I've noticed that the stations are almost exclusively surrounded by residential area. They are not linked to job centers. The Metra train exists largely to get people into downtown Chicago which is a massive economy. It is far different than even Milwaukee in it's economic power. I'd encourage anyone to visit the Kenosha station (assuming you find it) and let me know what economic development is happening anywhere near that station. I just don't think all sorts of good paying jobs are going to come into Oak Creek and such just because there's a train that connects the OC to Milwaukee and Racine.

Sure other cities have trains, but other cities have much worse traffic than we have. We seem to have a crush on Portland. We were there last year and the car traffic stinks and it's not exactly easy to get around on public transport. When we were in Seattle car traffic was also an issue, but they had a great public system that was largely anchored by the use of buses.

I like to think I'm forward thinking, but I'm just not seeing this one.

Rupena's is Coming to Public Market

While walking through the Market this morning I noted that in the space vacated by Ceriellos, Rupena's was readying to open.

This is great news for the market on a few fronts.

Obviously, it fills a huge need in the market in both space being filled and a huge gap in their product offerings.

The second great thing about this is that all the business in the Public market are Locally based. I believe this is important because the mission of the Market should be to highlight businesses that are unique to Milwaukee.

You can still get a stimulus check

In 2007 taxpayers were eligible for an economic stimulus payment based on their filing status, number of children and income. If your income was too high you were disqualified from getting a check.

If your circumstances have changed in 2008 you may still get a check. The IRS will be giving out checks to people whose income has dropped below the maximum threshold imposed in 2007 or those who had additional children.

Something to keep in mind as tax season approaches as it has not been a publicized part of the law.

Reading between the Lines a Wisconsin Tax Increase is Coming

In today's Milwaukee Journal-Sentinal, Governor Jim Doyle announced that the State would be facing a 5 BILLION dollar deficit by 2011 which would make it the largest deficit in State history. A short time ago Doyle announced that the deficit would be in the neighborhood of 3 billion dollars.

The State is faced with a few options here:

- Cutting state aid to municipalities: While this helps to close the State's gap it would mean that local property taxes would likely skyrocket.

- Making Big Cuts in the budget: It could happen, but you usually do not see governments make massive cuts in spending.

- Attracting More Business to Wisconsin: If we cut corporate rates it could be done, but the impact would not be felt in the short-term.

- Raise User Fees: As Doyle notes, raising tuition in the UW system is an option, but he does not want to price people out of it. Other user fees can be raised, but that would only make a small dent.

- Raid a restricted fund: The last two budgets have been balanced by raiding the transportation fund. It's possible to raid a new fund, but that only prolongs the problem.

- Raise taxes: This is what I expect them to do. I would expect Wisconsin to implement a more progressive income tax. Under current law Wisconsin essentially has a flat tax rate of 6.5%. I could see that rate be increased for taxpayers making over some arbitrary amount.

The real problem all governments are facing are the same ones the Big 3 automakers are facing. Until we change the way governmental employees are paid, legacy costs will be a huge issue as people live longer and therefore stay on the public dole longer. The pension system cannot sustain itself and it would be in governments interests to increase current pay as a tradeoff to eliminate some of the legacy costs.

Boo Yah! Cramer is pushing dividend yielding stocks

Jim Cramer may be the most influential person in the stock market today. He is the host of Mad Money on CNBC and is known to make contraversial statements and has a frenetic on camera persona complete with sound effects and the viewers wondering if this guy is sane.

Cramer has been making a big push for investors to buy stocks based on their dividend yield for weeks now. Is this good advice? It depends.

If wealth preservation and safety fit your investment profile Cramer's advice makes a lot of sense. The reasoning is that at least you are earning some money off the dividends. As stock prices have gone done, some of the dividend yields have become pretty attractive in today's uncertain market.

If you are a young investor this may be a viable strategy but you may also be costing yourself capital appreciation. In general, dividend yielding stocks tend to be more stable in price. Investors make their money off of the yield rather than the appreciation of the stock. Therefore, you may get a safer investment in exchange for a lower rate of return.

As always, you should talk with your advisor before you simply follow the advice of Cramer.

Understanding the LLC

If you've started a business one of the questions you need to answer is should you incorporate and if you do is a corporation or a LLC the best way to go about it.

If the business you start has any exposure to liability or if it's going to be your full time job I believe it is best to incorporate. A separate entity helps to insulate you from liability and creates a division between your business and you.

Once you've made that decision I believe in most cases it is best to become a Limited Liability Company (LLC). While a LLC can sometimes cost more to setup they reap benefits in the long term. Namely:

- A LLC can make an election with the IRS regarding how they want to be taxed. You can keep it simple and be taxed directly on your 1040 or you could choose S-Corporation status. You can even choose to be taxed as a regular corporation if you want. If you choose to form a corporation you are limited to being taxed as a corporation or a S-Corporation.

- LLC's do not need to compile shareholder minutes and have a board of directors like a regular corporation has making it much easier to maintain. You can lose the limited liability aspects of a corporation if you fail to comply with the standards so picking a LLC makes it very easy to be in compliance.

In any event this is a question you do not need to answer alone. We can help you make your decision and many attorneys have a great deal of knowledge in this area.

Not Paying Taxes is Not a Good Way to Protest

In a recent blog post Melissa Etheridge stated that she did not plan on paying her California State Income Taxes due to the passage of Proposition 8 which bans gay marriage. In Etheridge's view she is not treated as an equal person in California see the tax as "taxation without representation".

While I am sympathetic to her cause and believe that she has a point it is never a good idea to not pay your taxes because you disagree with a government policy. It's something that you cannot win and all you will do is add interest and penalties and perhaps even jail time on the amounts that are owed. Charles Merrill, of the Merrill Lynch family, is currently facing 3 years in prison for refusing to pay taxes after the passage of the Defense of Marriage act.

While Etheridge's stand is sure to get some attention, this is not the first time people have refused to pay income taxes over a dispute with governmental policy. The Iraq War spurred some to refuse to pay Federal taxes. There is a group of people who believe the income tax law to be unconsitutional and refuse to pay.

While any of these causes may have a good rationale behind them it is important to note that they never win.

Most Overrated Bands of All Time

This Tuesday, Pitchfork releases its book about the 500 best songs from the Punk era through today. For those who don't know Pitchfork is a music website known for their somewhat snarky reviews and their love of some bands that are just unlistenable. In honor of their book I figured it might be a good time to come up with a list of some overrated bands that they will no doubt be fawning over.

NIRVANA
I actually like Nirvana and thought they were a good band, but much like Jimi Hendrix they are given too much respect because the early demise of each causes people to wonder what might have been. In that vein Nirvana has been given complete and total credit for the birth of alternative music and causing the death of hair metal. A few problems with that theory.

- Groups like Guns and Roses and Metallica had already become hugely popular before the dawn of Nirvana and their success caused the hair metal bands to change their approach and adopt a different style.

- Alternative acts such as Jane's Addiction, Faith No More and the Red Hot Chili Peppers had already broken into the mainstream. Not to the extent of Nirvana, but change was upon us.

I'm not going to say that Nirvana is a lousy band and undeserving of praise, but when you see polls listing Kurt Cobain as one of the all time greatest guitarists there is clearly a disconnect between perception and reality.

MY BLOODY VALENTINE (MBV)
If you look at any list of best CD's from the 90s you are sure to see MBV's "Loveless" in the top 2 or 3. I've listened to this CD several times and simply do not get it. The songs have no melody and the lyrics cannot be understood. It seems like a case where people want to say this is a great CD simply to show you that they are more musically enlightened than you are because it can't be because this is truly a great CD.

U2
Never has a band gotten more mileage from essentially recycling the same riff over and over again.

SCOTT WALKER
He shouldn't be confused with Milwaukee's County Executive, but my guess is our County Executive could create a better CD. If Walker releases a CD it's sure to be in any lists Top 10 of the year. I'm thinking this is another case of trying to be on a higher plane than the unwashed masses, but I challenge you to get through one of his CD's. I know I failed in my attempt.

HONORABLE MENTIONS
Jimi Hendrix - For many of the same reasons Nirvana is
The Ramones - If The Clash had no talent they might sound like these guys
The Fleet Foxes - I liked it the first time when it was Crosby, Stills and Nash
Bruce Springsteen - Great live, but not very many truly memorable songs for the amount of output he has

Should the Auto Makers be Saved?

The next economic bailout to be on the plate of our government appears to be GM, Ford and Chysler. All 3 companies are facing daunting challenges and the reality is that all three of them could feasibly go out of business. Because these are iconic American companies and because they are deemed "too big to fail" it is expected that the government will offer low cost loans or even infuse these companies with capital in exchange for preferred stock. So should the government bailout these companies. In a word, no.

The challenges that the auto companies face cannot be addressed by simply infusing them with capital and I believe that the current economic model they must follow cannot survive. Consider the roadblocks they face:

1) Our country has the second highest corporate tax rate in the industrialized world. This makes it very difficult to conduct business in America as they face stiff competition from foreign manufacturers who do not face this obstacle. The simple fact is that not only does Japan and Germany make desirable cars, but Korea has also entered the fray.

2) The regulations regarding fuel standards that our companies face are well intentioned, but it also leads to producing a fleet of cars that the American consumer has decided that they do not desire.

3) The legacy costs faced by the automakers are crippling. In a competitive industry it is hard to match the research and development of the competition if your retired workers account for a higher cost than their existing employees.

I believe that these companies will not be able to overcome these challenges and an infusion of capital will only delay the inevitable. It is time to let these companies go and perhaps a new automaker can rise up in our country.

Milwaukee Sick Pay - The Details

Now that the Milwaukee Sick Pay Referendum has passed, it's important for businesses located within the City to be familiar with the provisions of this new mandate.

How is Sick pay Accrued?
Employees will earn one hour of sick pay for every 30 hours that they work and can accrue up to 72 hours of leave which translates into 9 days of leave. If you are an employee of a business than has less than 10 workers you will only be allowed to accrue up to 40 hours of sick pay.

What defines being sick?
Employees will be allowed to utilize their sick pay if they are sick, if a family member is sick or if you want to receieve "preventative care". All definitions are very broad such as what constitutes preventative care. Family member is also very loosely defined and can include friends. At the end of the day the employee can take off for any reason they deem necessary. The law is that broadly defined.

Other Provisions
Employees will be able to start taking sick pay once they are employed for 90 days. Sick pay will roll over from year to year, but employees will be limited to taking the annual maximum accrual of days.

Employers
Employers cannot require unreasonable documentation if an employee takes a sick day for their own benefit and the employer cannot require documentation if the employee takes off for a family member.

As the language is the ordinance is vague, most attorneys I have talked to believe that it is in the employers interest not to challenge an employees use of the sick time.

Employers will now have to review their compensation and benefit structure in order to add this mandate. I would suspect that they will simply grant paid time off rather than vacation days.

It will be interesting to see what employers who have multiple locations do with this. If you give 9 days of sick pay to your employees in Milwaukee can you get away with not doing the same for employees who might be in a suburb?

R.I.P. Ceriello's at Milwaukee Public Market

As I went over to the Milwaukee Public market today I was sad to see that Ceriello's at the Milwaukee Public Market had closed shop. I had read rumors of their demise, but it seemed like it was just rumors as they seemed to be plugging along in recent weeks.

While Ceriello's is technically a national chain they did offer one thing that I felt was unique to the Milwaukee marketplace and that was the dry aged steak.

If you like steak and haven't had a dry aged one you are really missing out. They are incredibly expensive in the restaurants that offer them so the ability to purchase them and grill them yourself made them affordable.

They were also a good vendor who seemed to fit in well with what the Market is trying to offer. They will be missed.

On a positive note I think the Public market has made some positive changes and will continue to refine its format. El Rey will be opening up a Taqueria and Kehr's Candies and The Spice House are expaning their offerings, so good things are continuing to happen.

Election Fallout

The results yesterday were resounding and here's what I think the fallout to business will be:

President and Congress
Barack Obama won a convincing victory yesterday. He ran a great campaign and like other great presidents in our past he has the ability to communicate to the masses. He has the potential to be a great president, but it will come down to how he decides to govern. If he can stay to the center he will be an effective president, but he could also take the country on a hard left turn.

Congress has large democratic majorities right now and the members have made no secret of the legislation they want to pass that will not be friendly to business. The Republicans appear that they will be able to use the filibuster in the Senate, but they are significantly weakened and I believe Congress will essentially be able to pass any law it wants to.



Sick Pay in Milwaukee

The sick pay benefit in Milwaukee passed by an overwhelming margin. The law states that businesses with more than 10 employees will now be required to give their full time employees 9 days of sick pay. Part time workers will get a lesser amount based on the number of hours they work. Employers of 10 or less people will have to offer their full timers 5 days of sick pay and their part time employees a pro rated amount.

The fallout of this could be huge. I would expect businesses to change their time off policies to mitigate for the passage of this law, but it's not clear at this time if they will be able to do this.

Businesses that can easily relocate may consider doing so as even employers who offer sick pay rarely offer as much as 9 days.

County Sales Tax
The advisory referendum passed by a workable margin. Now the State must approve the increase. I expect that they would as we voted for the increase. Then the County Board will revote on the increase and Scott Walker will likely veto the measure which will not matter as the board has a veto proof majority.

This will not have a huge impact on business except for those who sell high priced items such as cars and major appliances. Put it this way, you can now buy a car for a few hundred dollars less in Waukesha County.

Get Out and Vote

One of the things that makes our country great is the transfer of power we have. Regardless of who wins the election they will become the president in a peaceable manner. Much has been sacrificed so that we have the ability to vote, so get out there and do it.

Regardless the outcome, one thing that we should all be able to agree on is it will be nice not having to watch and hear political advertisements ad nauseam.

More Good CD's from 2008

Here's a few more good ones:

Metallica - Death Magnetic (really)
Cold War Kids - Loyalty to Loyalty
The Stand Ins - Okkervil River
The Replacements - (All Their CD's have been reissued)
TV on the Radio - Dear Science

County Sales Tax Referendum

If you live in Milwaukee county one question you will be faced with is whether or not to raise the county sales tax by 1 cent per dollar spent. This translates into a tripling of the current tax rate from .5% to 1.5%.

The increase in the tax will be ostensibly to offset property taxes. This is the same rationale that was used in the early 1990s when the County first imposed the tax. If you haven't noticed, property taxes have skyrocketed throughout the 90s and into the 00s. So trusting the County Board to provide long lasting property tax relief is a bit of a stretch.

So why is the tax being proposed and is it a good idea?

Not unlike the automakers that are currently in crisis, Milwaukee County is burdened by massive legacy costs. Legacy costs are defined by pension payments and health insurance payments to employees who have retired. This issue became an even bigger problem a few years back when the Board and Tom Ament passed a nice pension sweetener that they are now taking advantage of. A huge percentage of the County's budget is to pay for people who are no longer serving the County.

Like any proposal to increase tax the Board has said that we need this for Parks and Transit. Parks and Transit are two things that most of us like and would like to be supported. What is interesting is that the budgets for these two areas has remained stable that last few years. So do either of these areas need an isolated tax stream? I'm a person who uses the parks quite a bit for biking and golf and i have not seen a real decline in the quality of the park system.

I would argue that if it wasn't for the pension scandal, county finances would be in good shape. So I'm not sure giving the Board more money is a real sound idea as they created the mess that we are in.

The next issue to consider is assuming the board could be trusted, is it better to shift the tax burden to sales tax rather than property tax. I believe this has some merit as I believe the most effecient way to tax is through consumption. You also get the added advantage of collecting the tax from visitors who are not in the area. Yes, some businesses who deal in high price items such as cars could be adversely impacted, but I do not think people will change the vast majority of their shopping problems and the impact to business has probably been overstated by some of the critics of the increased sales tax.

The other positive of shifting the burden away from property taxes is the one tax people tend to pay real attention to is their property tax. Property tax is one of the few taxes that people actually write one lump sum check for. Therefore people tend to notice when it goes up and perhaps they will pay increased attention to their bill if the provision passes. The trouble is the increase in property taxes have far outpaced inflation and taxpayers have done little to stop that.

Shifting the tax burden has merit, but unfortunately one can't trust the board to be responsible in their spending and hold the line on property taxes, so I wouldn't recommend voting for this. I think if it passes we will simply have a higher sales tax and property taxes will continue to go up.

Supporting Local Business - The Spice House

With the seasons changing it's not uncommon to start making things like Chili. With that in mind I'd suggest making a stop to The Spice House. They have two locations. Their Flagship is on Old World Third Street near the Bradley Center and they have a location in the Milwaukee Public Market.

The great thing about the spice house is you will find all sorts of options that you won't in the grocery store. This means instead of using the same old chili powder you've been using you could change things up items like: ancho chili powder, new mexico chili powder, habanero powder and many others.

They have all the basic spices you'd want for any type of cooking and also have some unique blends that can be used as a rub for chicken and beef.

So if you enjoy cooking at all this is a great place to stop by.