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Tax Notes Goes To Court (Again)

David Stewart: Hello and welcome to the 100th episode of Tax Notes Talk.

Welcome to the podcast. I'm David Stewart, editor in chief of Tax Notes Today International. This week, Tax Notes goes to court. In honor of our 100th episode, we're getting back to our roots a bit and giving you a look behind the curtain at what Tax Notes and Tax Analysts really values. And that's fighting for transparency. We'll be joined shortly by Con Hitchcock, a D.C.-based attorney who works on transparency issues and is representing Tax Analysts in its efforts to get records that are of interest to our readers. 

But first, joining me in the studio is Tax Notes Today senior reporter Lauren Loricchio. Now she's been covering the state and local bidding war for Amazon's second headquarters and has even won an award for her reporting on it. Lately, she's been fighting to get the details on the bid Indianapolis made for HQ2. The city has so far refused to hand over documents, and Tax Analysts has taken them to court over it. A hearing is set for February 18. We've had Lauren on the podcast before to talk about her HQ2 reporting, and we'll link to that episode in the show notes. Lauren, welcome back to the podcast.

Lauren Loricchio: Hi. Thanks for having me.

David Stewart: As we get started, how about quick update on where things are with Amazon's HQ2?

Lauren Loricchio: Sure. Tax Analysts is going to court this month to try to get Indiana's Economic Development Agency to release Indianapolis's HQ2 proposal. For those who aren't familiar with it, HQ2 is the name for Amazon's second headquarters that's being built in Northern Virginia. Amazon released a request for proposals for the project in 2017. Amazon's RFP said that incentives or tax breaks and other financial subsidies would be significant factors in the selection process. There were 238 localities that submitted bids for the project, and we tried to get proposals submitted by several of them, including two cities in Indiana: Gary and Indianapolis.

David Stewart: Now, you've been working on trying to get these incentives reports from a number of municipalities. Can you tell us about your efforts to FOIA these documents?

Lauren Loricchio: I submitted access to public records requests for the documents submitted by Gary and Indianapolis. I tried to get the Gary proposal first because they didn't make it onto Amazon's short list. I filed an OPRA request, which they denied by using an exemption that gives state agencies discretion over whether to disclose records related to negotiations with industrial research or commercial prospects, so long as the records are created while negotiations are in progress. But based on the law, I thought they should have to disclose it. So, I filed a formal complaint with Indiana's Public Access Counselor, which handles public records disputes. The public access counselor agreed with me and told Gary to release the proposal, which they did. Once Amazon announced that HQ2 would be split between New York City and Virginia, I tried to get documents related to Indianapolis' submission by filing an OPRA request with the Indiana Economic Development Corporation. They denied my request, citing the same exemption. So, I filed a formal complaint with the public access counselor.

David Stewart: Now, pulling back from just these individual cases, what is the importance of getting ahold of the incentives cities are trying to give to entice Amazon to come to them?

Lauren Loricchio: People should care, because the money used to provide these incentives takes away from funding for other things like public transportation, affordable housing, and schools.

David Stewart: Well, on the phone, we have Con Hitchcock. Con, you're part of Tax Analysts' legal team in this case to get the documents related to Indianapolis. Can you tell us what has happened since Tax Analysts first filed the lawsuit, and where things stand today?

Con Hitchcock: We filed the lawsuit, which is something that reporters and citizens can do if an agency turns them down. And we filed a motion saying that we're entitled to win on the law. There's no need for trial. The Indiana Economic Development Corporation filed its own motion opposing us and saying that they were entitled to win. So there's motions there dealing with the merits of it. And we'll be presenting the arguments to a judge in Indianapolis on the 18. It's not clear if the judge will rule at the time on who was right and who will get the records or not get the records, but that's where we are now.

David Stewart: Now, what is Indianapolis' argument that they don't have to turn over these documents?

Con Hitchcock: Their argument is that they are entitled to hold onto records about negotiations to protect the confidentiality of what they're offering and incentives and that sort of thing. Our response is "Yes, that's true while the negotiations are going on but the negotiations are over." The statute says when the negotiations are over, that the public's entitled to find out what happened. If there's a contract or if there's a tax incentive awarded, that gets made public. Here, however, the matter ended without a contract or without any commitment on Indiana's part for the HQ2 in Indianapolis. And what they are arguing, in effect, is that the matter still gets to remain confidential.  It wasn't really an offer they're telling us, for example, and if it is disclosed, it might hamper their ability to negotiate these types of deals with other parties in the future.

David Stewart: So effectively, they're saying, "if we had won, we'd have to tell you. But because we lost, we get to keep it quiet."

Con Hitchcock: That's one way of putting it, yes. Their argument is that if we sign a contract with somebody and award incentives then, yes, that gets to be made public. Otherwise, there's just a total seal. As Lauren pointed out in her comments, there could be considerable public interest in learning how these economic development agencies work [including] what they're offering and what they see as valuable.

Lauren has done a terrific job of with her reporting on this. For example, from the Gary offer they made, we found out that the Indiana Authority was willing to offer $1.5 billion, and potentially almost $3 billion in incentives, to bring the project to Gary. Those are big numbers, and Indianapolis is a much larger community. One other thought on that, just in terms of looking at the importance of bids from cities that didn't make it. If you compare the bids that were made by the winners,  New York offered $3 billion in incentives. New Jersey, right next door, offered $7 billion in incentives but they went with New York despite the fact that the New Jersey offer was a lot richer.

It's the same thing if you look at the Virginia site that was selected. Virginia offered $800 million in incentives. Across the Potomac in Maryland, Maryland offered $3 billion. Again, a lot more than Virginia was offered. So, why are there these disparities? There's information there that reporters and citizens ought to be able to dig out and ask questions about. As another aside, New York with its winning bid. Although they're not going to build it there, at $3 billion that was about four times the size of the offer of the incentives from Virginia, which was a winner. Why that great disparity? There's a lot of questions that ought to be asked about economic development programs as Lauren mentioned. Do they really work? Are they worth it? There are other things that could be done with taxpayer money.

David Stewart: Alright, so now we're looking ahead to a hearing on February 18 as we're recording this. What do you expect to arise from that hearing?

Con Hitchcock: I think it'll be fairly dry. Mostly lawyers arguing, no witnesses or anything of that nature. I will be arguing for Tax Analysts that the law says we're entitled to win. That the law says these bids ought to be made public even if they aren't successful. The Economic Development Corporation will say though, that the statute favors not disclosing these types of records if a bid is unsuccessful. So, it'll be lawyers arguing back and forth for an hour, I would guess, about the meaning of the statutes.

David Stewart: Now, you've been working with Tax Analysts on its FOIA fights in the past. What sort of lawsuits have you worked on with Tax Analysts, and how have they turned out?

Con Hitchcock: I think Tax Analysts has a pretty good record, and has accomplished some significant things in terms of transparency. I'm working with another Tax Analysts reporter right now on one of the very first projects Tax Analysts started in the early 1970s to focus on the IRS and make private letter rulings public. As they are now and have been for 40 years. Many practitioners, reporters and others may not realize this, but those used to be entirely confidential. Lawyers inside the IRS or Treasury who worked on them would know what they said, but nobody else did. Tax Analysts said that's wrong. This type of information ought to be made public. 

Tax law is extremely complicated, as you know, and there's a lot of value to provide whatever guidance there is. So, looking at the federal level, it's not an exaggeration to say that a lot of the information, a lot of the guidance that is now publicly available came about as a result of Tax Analysts' lawsuits over the years. As the Indiana case indicates, Tax Analysts is focusing efforts on state departments of revenue, state tax policy, where a lot of the issues are the same. Indiana's the fifth state in which Tax Analysts has filed a lawsuit to open up Department of Revenue records in the last few years and hopefully, the taxpayers and others will benefit as a result of greater knowledge of how their agencies are working.

David Stewart: My last question is actually open to both of you. What do you expect or hope to be the outcome of this particular case?

Con Hitchcock: Well, at a basic level, I hope they were able to get the records and that it will cast light on what the Indiana Authority is doing. I think more broadly, it would send a signal to revenue departments elsewhere that this is a matter of interest. Tax Analysts has certainly covered a lot of these economic incentive issues at various levels. I mean, I'm thinking on the federal side, a lot of the opportunity zones have been the subject of a lot of coverage - how well they work, how well they are targeted. This is the same thing at the state level. The more that we could contribute to having a discussion of programs, the better. I'll turn it to Lauren.

Lauren Loricchio: I, of course, hope that we will win also, but I'd like to see what's in that proposal. Hopefully, it'll open some things up in Indiana, and force them to make future economic development deals public. I don't think we're the first organization to go after a proposal like this. I know that there are other lawsuits in Illinois and New Jersey and some other states. So, I hope that it sets a precedent for future economic development deals.

David Stewart: Alright. Con, Lauren, thank you for being here. 

Lauren Loricchio: Thanks for having us.

Con Hitchcock: Thank you.

David Stewart: Thank you for being with us for these 100 episodes. To mark this milestone, we're going to take a quick look back at some of our favorite interviews over the last two years. Back in November, we had economist Gabriel Zucman on the podcast to talk about his new book that he wrote with Emmanuel Saez. Here he is talking about how to address income inequality in America.

Gabriel Zucman: Yeah, there are many ways to make the tax system more progressive with a more progressive income tax, for instance, or with a higher corporate income tax. The tax system of the 1950s and 1960s achieved this high progressivity mostly through these two instruments: a very progressive federal income tax and a high corporate tax of 50 percent. We think that for the 21st century, this would not be enough to restore progressivity. We think that what's required is a new instrument, a new tax, which is a progressive wealth tax.

David Stewart: In late 2019, we were joined in the studio by former IRS Commissioner John Koskinen. In part of that interview, Tax Notes senior reporter William Hoffman put him on the hot seat on whether presidential candidates should be required to release their tax returns.

William Hoffman: So, you do not believe that major party candidates should be required to release their tax returns?

John Koskinen: Well, that's a political issue that...

William Hoffman: I'm asking you a political question.

John Koskinen: A political question, I tend to think that the public is more comfortable if they have a chance to just have somebody review the return. It does reveal how much money you made, maybe deductions, whether you lost money, what you made as a charitable contribution. But if you're going to run for president, that's not a lot of information that's overly private. You may recall with Bill Clinton, people discovered, when he was not making much money, a lot of very personal deductions for charitable in-kind contributions and usually it's a one-day story. I think most people can't remember what any of the primary candidates returns showed other than maybe Bernie making money. To the extent it makes people more comfortable with the person who's running for president and they know more about them, it's probably a good thing.

David Stewart: Much of the discussion on this podcast over its run has been about the OECD's digital economy project. Here's an exchange between OECD tax chief Pascal Saint-Amans and Tax Notes Today International chief correspondent Stephanie Johnston about the somewhat fundamental question of what we should even be calling the project.

Stephanie Johnston: During early discussions in the BEPS 2.0 – can I call it that? Is it that official? BEPS 2.0?

Pascal Saint-Amans: The only person for the time being who called it 2.0, in addition to Stephanie Johnston, is the French President Macron at the previous G-20 summit. He mentioned in Argentina, in Buenos Aires, he said, “Well, we need to move to 2.0, BEPS 2.0.” So, why not? We don't yet have a brand, but happy to discuss and debate.

Stephanie Johnston: You heard it first here, folks.

David Stewart: And from that same interview which took place at the International Fiscal Association Congress in London, he talked about the main message stakeholders should take away from the OECD's digital economy project... or whatever it's called.

Pascal Saint-Amans: The main message for all stakeholders is things are happening. They may fail or they may succeed. It will depend on the commitment of governments, of the contribution of the different stakeholders – business in particular – and I would invite them all to think of the counterfactuals. After BEPS where they were nervous, we have a new project which may even be more fundamental in a sense even though that will just be incremental. But people are nervous. Now, think of what would happen if there is no agreement. And I think this idea of a counterfactual which is not, “Oh, state the score with the existing rules and that’s it,” but counterfactual as an increased number of unilateral measures on tech companies, but much beyond tech companies is what we need to have in mind so that all the stakeholders engage constructively and help us design a solution which will be sustainable so that we have a more stable and sustainable system for the decades to come.

David Stewart: Last May, we held our very first live recording at the ABA Section of Taxation conference in Washington. Our guests were Will Morris of PwC and business at the OECD. And Georgetown professor Lilian Faulhaber, who weighed in on the OECD project. Here's Lilian on whether consensus is possible.

Lilian Faulhaber: So,I think what we don't want is consensus for consensus's sake, where everybody wins, but actually there's complexity sort of layered on top of complexity. I do think that, and from a positive perspective, I think this could be a really exciting moment when this is an opportunity to be reassessing the international tax system. And I hope that that's where these conversations go. That countries are using this as an opportunity to look at a system that has been around for about 100 years and that as designed for one type of economy and our economy has evolved in certain important ways. And I think that if countries used this as an opportunity to really respond to that and come up with a new but manageable and administrable model, that will be an exciting moment. I think if instead we're just reaching consensus so that we can say in 2020,we reached agreement, I think that might create concerns.

David Stewart: There are some issues that go beyond the tax community, and even non-tax people are paying attention. That's certainly been the case with some large companies seen as not paying enough taxes. Grace Perez-Navarro, the deputy tax head at the OECD, described her own personal experience at Christmas time.

Grace Perez-Navarro: When I went to buy my Christmas tree at Christmas from the little flower market by my apartment in Paris, I asked the Christmas tree guy to remove the little stump they put at the end, which is how they make the Christmas tree stand up. And he said, "Oh, you must be American, and you must have one of those tree stands that you can put water in." And I said, "Yes, I am. And yes, I do have one of those." He said, "I can't find those in France." I said, "Just go online." He said, "No, I will not buy anything from Amazon because they don't pay tax in France. And by the way, I will not drink Starbucks coffee either because they don't pay tax in France." So this is a real man of the street issue, and it is a reputational issue, and eventually it may hit their bottom line. So I would say, for those companies that have not yet woken up to this new reality, they need to take a close look.

David Stewart: We hope that you'll be with us for the next 100 episodes.

And now, coming attractions. Each week we preview commentary will be appearing in the Tax Notes magazines. I'm joined by Content and Acquisitions Manager Faye McCray. Faye, what'll you have for us?

Faye McCray: Thank you, Dave. In Tax Notes Federal, Dennis Ventry discusses the IRS's Free File program. Abraham Leitner explains the ways in which the December 2019 final regulations changed the Qualified Opportunity Zone program. In Tax Notes State, Timothy Noonan and Joseph Endres discuss a New York Tax Appeals Tribunal ruling that Apple incorrectly charged tax on its 2011 and 2012 back to school promotions. Darien Shanske and David Gamage discuss the tax cannibalization problem and whether it applies post-TCJA. In Tax Notes International, Thomas Horst examines whether U.S. corporations have repatriated large amounts of intangible property after the TCJA. Dalton Dallazem argues that Brazil should update its rules on undistributed dividend taxation. And on the opinions page, Martin Sullivan explains why lawmakers should take the profit from hidden customers into account when drafting tax policy. And Ben Willis discusses the benefits of high-vote stock.

David Stewart: You can read all that and a lot more in the February 10 editions of Tax Notes Federal, State, and International. That's it for this week. You can follow me online @TaxStew, that's S-T-E-W. If you've any comments, questions or suggestions for a future episode, you can email us at And as always, if you like what we're doing here, please leave a rating or review wherever you download this podcast. We'll be back next week with another episode of Tax Notes Talk.

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