Russ: This is The BusinessMakers show, heard here and online at thebusinessmakers.com, and it's guest time on the show, and the topic is taxes, and my guest is Mark Scimemi of PKF Texas, senior manager state tax specialist. Mark, welcome to The BusinessMakers show.

Mark: Thank you, Russ. Thanks for having me.

Russ: Why don't you share with our audience what you spend your time doing on your practice?

Mark: So, my practice focuses on helping clients reduce their state tax liability, helping them better understand what triggers their state taxes, and how to control that, and state taxes could be anything from state income franchise taxes, like the Texas franchise tax, the Louisiana corporate income tax, the New York income tax, to sales and use taxes here in Texas and in other states. Property taxes. Many clients will call on me to help them negotiate property tax issue. Anything outside of U.S. income tax, U.S. national level tax, is something that I focus on.

Russ: There's so much news these days on U.S. income taxes, but I guess it's the same tax pressure cooker at the state level that it is at the national level right now, is that correct?

Mark: It is. In fact, it is even worse because, unlike our national brothers and sisters, most states cannot issue their own debt and sell it worldwide. Most states have balanced budget amendments that require them to pay as you go. Sometimes you'll hear it on the federal level called pay-go. And so as the economy slows and as revenues into the state slow, as well, the state does not have the ability to easily shed jobs, shed programs, and contract their overall liabilities to come in line with their revenue. Annual sort of comeuppance, as you may call them, occur when legislatures meet and they come to terms with their budgetary projections and how they're gonna meet them.

Russ: Okay, and they can't print their own currency.

Mark: And they can't print their own money, that's right.

Russ: Now you mentioned they can't shed their expenses very well. I know cutting expenses is not easy for anyone, but why can't states do it?

Mark: A lot of expense items that states have are items that are tied into federal grants. For example, in order for the state of Texas to get all of the money that may be available through Medicaid, they have to have a corresponding Medicaid program. In order to get all the dollars out of the federal highway program, they have to spend a certain amount of dollars on highways, and so the state can forego some of that but it's very difficult to say, "But for spending a dollar, we wouldn't get four more dollars from the federal government." There's also a lot of the state programs that are entitlement programs, or that are assistance to needy families. It isn't sort of a nebulous welfare state that's being supported. It's county hospitals. It is very much point-of-service to people in need, and so you cannot very easily say, "We are gonna turn our back on the most unfortunate among us." It's not quite as easy to do at the state level as it sometimes seems to be at the federal level.

Russ: Okay, it seems like it's more where the rubber meets the road, I guess, right?

Mark: That's right. This is Band-Aid on the skin. This is not several layers above it. This is gonna hurt when this thing comes off.

Russ: Okay. Well, plus, that's interesting that the federal government has their tentacles and requirements down in the state level, too which makes it impossible to cut some of those programs.

Mark: No, that's right. The federal government incentivizes conduct that they want by saying that, "We will match or we will give you some multiplier of the dollars that you spend on certain items," or, "If you don't do certain things, we won't give you dollars at all." So, this can get to be a frustrating issue for many states. Russ, this is when you hear something called an un-funded mandate, that's what they're talking about.

Russ: Okay. Interesting. All right. So, we chose you to be on the show this morning, though, also because you're heading up a very special tax conference right here in Houston. Tell us about that.

Mark: I am working as the chairman for the Greater Houston Partnership Annual Tax Conference, which is November 8 and 9, here in Houston at the Houstonian Hotel. The Greater Houston Partnership has a mission to advance important public policy within the city of Houston and the ten-county area around Houston. It has part of its mission to help develop the community and to help raise awareness of issues that affect the community. One of the ways it is choosing to advance that mission is by sponsoring an annual tax conference that covers federal and state tax issues that are most relevant that year. This year is sort of an auspicious year to get it started because the Texas legislature meets biannually. Well, next January will be the next time it meets. Texas is facing significant budgetary issues, and, at the federal level, the elections that are coming up the first week in November could be storm clouds of change within federal politics. It may have far-reaching tax impacts, as well.

Russ: Well, auspicious certainly seems like the right adjective. It seems to me like it should be a very popular conference, and it takes place right after the elections, right?

Mark: We intentionally chose the time to be at a point when there wouldn't be so much prognosticating on, "If this happens in the election, then the outcome could be this, or if this happens the outcome could be that." At this point, there will be a very well-understood idea of based on the federal and state elections, what will be the landscape that these tax issues will be decided on.

Russ: Okay, now you mentioned the storm clouds after the election. Boy, I think there's a large group of voters in the United States right now that would like to see some storm clouds blow in and change things. Many of us business people look out and wonder why you never hear, at the national level, discussion about reducing spending. It seems like that's the solution, and perhaps the only solution.

Mark: My personal politics is that I agree. Sometimes it's called starve the beast or kill the beast, the beast being the federal bureaucracy, and so if we just restrict the amount of money that goes to it, it will wither or at least atrophy on its own. Unfortunately, the federal budget contains several immovable items. Those include Social Security, Medicare/Medicaid, and defense. Once you get past those items, the amount of the federal budget that is left is not as large as people think, and so in order for the folks at the federal level to really effect long-term change, someone must come to terms with the new reality in America, and I think that that is really tough for folks to do.

Russ: Well, I believe that. I mean watching the global economy, though, evolve in the last decade or so, it's been real interesting to see some of the more aggressive countries, that have wanted to attract large corporations and attract their workforce, have seen the light on really restricting the size of federal income taxes and, therefore, attracting these companies that will actually have no problem locating anywhere on the planet these days. It seems like our federal government doesn't think that way at all. They tend to think that we have such an advantage here, people will stay here no matter what the rates are. What's your perspective on that?

Mark: Well no, you're exactly right. In fact, one of the issues that's gonna be discussed at length in the conference is the concept of inversion and inverted companies. Russ, an inverted company is a formerly domestic U.S. corporation that has now reincorporated in another country. For example, let's say you have Russ Capper, Inc., and you have operations all over the world, and you decide that if you continue to be incorporated in the U.S. that there may be economic and tax disadvantages that your corporation would experience, so you decide to reincorporate in the Netherlands, or in Bermuda, or Ireland, or you name another country. And so there are many companies that have come to terms with this reality and have reincorporated outside the Unites States. For many of them, there are business reasons other than tax minimization, but it would be hard to miss the fact that many companies receive an enormous difference in the tax burden that they have to withstand by doing this, and the reality of it is if you reduce the amount of taxes someone spends, most people spend that money. In other words, if I save $10.00, most people don't squirrel away $10.00, they go and spend $8.00 and maybe they save $2.00. And so there is this unfortunate battle between the idea that if we just continue to tax the wealth, and what wealth is is anyone who makes a dollar more than you do, if we continue to tax these folks, we're somehow gonna reach ________, where everything gets paid for, and that these Clydesdales at the top of the food chain just continue to run, and the reality is that at some point someone is gonna say, "Well, maybe I'll run someplace else, or maybe I'll do something different."

Russ: Well, like my old friend, John Beddow says, "How many poor people do you know that have given people jobs in the last few years?" I just don't think it happens.

Mark: No, that's exactly right, and as I have seen it unfold over the past couple of years here in Houston as the economy has really struggled, it has been the smallest companies, not the largest companies, that I have seen make investment. These are companies that do not rely on capital markets for cash. These are companies that are paying their way, that are advancing on their own internal resources, and so these are just the folks that many tax policies would punish the most, the folks that are actually drawing us out of this.

Russ: Oh, absolutely. I always wonder why we don't recognize big taxpayers and thank them for it; I mean award them. It's amazing how much of the load some of these companies actually take on and pay.

Mark: No, that's exactly right.

Russ: Okay, back to the tax conference. What would one expect to learn by attending the two-day event?

Mark: Okay, so we have a real marquee set of keynote speakers that include: The Honorable Susan Combs, the comptroller of the state of Texas, Senator Rene Oliveira, who is the chairman of the House Ways and Means Committee; Senator Steve Ogden, who chairs the Senate Finance Committee; Dale Craymer, who is the president of the Texas Taxpayers and Research Association. These four keynote speakers, who are gonna speak at breakfast and lunch over the two days, will really cover the hard truths about what's gonna happen in Texas during the next biannual legislative session. The breakout sessions that'll occur over the two days will be a make-your-own conference setup, where attendees can pick between one of three sessions during every session, either federal, state, international, and make a session that is tailored to their needs. In those sessions, learn about updates on state taxes, cutting-edge ideas, and international taxes; things that are gonna affect companies that have large federal tax profiles or international tax burdens.

Russ: Okay, so they're gonna get a pretty comprehensive preview of tax issues in the future.

Mark: That's right.

Russ: Okay, and, once again, that date is November 8 and 9?

Mark: November 8 and 9 at the Houstonian Hotel.

Russ: Okay, say somebody is interested and wants more information, what do they need to do?

Mark: If they want more information, they can go to PKFTexas.com. The event is hosted on our Web site, and people can go right there and get everything they need to know.

Russ: Okay. Mark, I really appreciate you sharing this with us.

Mark: Russ, thank you so much for having me. Have a great day.

Russ: You bet. You, too. That's Mark Scimemi, senior manager with PKF Texas, and you're listening to The BusinessMakers show, heard here and online at thebusinessmakers.com.