Box Pox

By Bob Decker
February 5, 2009

Sen. Christine Kaufmann (D-Helena) is the sponsor of Senate Bill 277, which would enact a gross receipts tax on retail sales greater than $25 million per year from a single store location. The tax would be assessed only on stores that fail to meet a basic threshold for compensating employees. Revenue from the tax would be used to help pay for health insurance benefits for Montana workers and small businesses.

The proliferation of box stores in Montana has created diverse problems in the state. In rural communities, box stores are associated with the “giant sucking sound” of customers and sales being pulled away from small, local businesses to box-populated urban centers. In the urban areas themselves, box stores are often challenged for not paying for the increased demands on public infrastructure that their high-volume, high-traffic operations create.

On a larger scale, box store business decisions can be just as cutthroat as their local discounting practices. Wal-Mart, for example, has created a corporate subsidiary which owns all Wal-Mart buildings and accepts lease payments from the mother ship. Through this arrangement, Wal-Mart is able to write off lease payments on its taxes, while the leasing fees are shipped to the subsidiary in Florence, Italy, in order to minimize taxes for the leasing company in other nations and states, such as, for example, the U.S.A. and Montana, respectively.

Sen. Kaufmann’s bill addresses yet another box store problem: the poor pay and benefits received by employees of some box store operations. Revenue from her proposed tax – from 1 percent of gross receipts above $25 million per year to 2 percent on sales greater than $45 million – would be used to fund public initiatives in Montana that address health insurance and medical challenges for low-income people and small businesses.

The box store tax would only be collected if a large retail operation did not provide a pay-and-benefits package of $23,000 per year or more to its full-time employees (or a proportional amount of that threshold to part-time employees).

How do box store operations treat their employees? Some do well, such as Costco, which offers decent pay and benefits to its workers and wouldn’t be affected by Sen. Kaufmann’s proposed tax. Others do badly. Wal-Mart, the center of the box store solar system and a standard-setter for many other box operations, has been researched more than most companies. Here are some findings related to Wal-Mart’s practices on health care:

- Wal-Mart insurance coverage lags behind national average. Nationally, 64 percent of workers in very large firms (5,000 or more) receive their health benefits from their employer. Wal-Mart covers around 50 percent of its employees. [Employer Health Benefits 2007 Annual Survey, The Kaiser Family Foundation and Health Research and Educational Trust]

- Wal-Mart employees wait twice as long for health care coverage than workers at other retailers. The Wal-Mart average for full-time workers to qualify for benefits is six months, compared to the retail average of three months. Part-time employees must wait a full year before receiving benefits. [Wal-Mart 2008 Associate Benefits Book, pages 10 and 13; Employer Health Benefits 2007 Annual Survey, The Kaiser Family Foundation and Health Research and Educational Trust]

- High out-of-pocket premiums. According to the Center for a Changing Workforce, in 2003, Wal-Mart employees paid 41 percent of insurance premium costs. At the time of the report, Costco employees paid 10 percent of premium costs. Nationally, in 2006, workers paid an average of 16 percent of premiums for single coverage and 27 percent of premiums for family coverage. [Employer Health Benefits 2006 Annual Survey, The Kaiser Family Foundation and Health Research and Educational Trust; “Wal-Mart and Healthcare: Condition Critical,” Center for a Changing Workforce, October 26, 2005]

- Letting workers and families rely on public programs. A memo written by Susan Chambers, Wal-Mart Executive Vice President for Benefits, for the Wal-Mart Board of Directors, said:
“We also have a significant number of Associates and their children who receive health insurance through public-assistance programs. Five percent of our Associates are on Medicaid compared to an average for national employers of 4 percent. Twenty-seven percent of Associates' children are on such programs, compared to a national average of 22 percent (Exhibit 5). In total, 46 percent of Associates' children are either on Medicaid or are uninsured."
Chambers wrote, "Wal-Mart's critics can easily exploit some aspects of our benefits offering to make their case; in other words, our critics are correct in some of their observations. Specifically, our coverage is expensive for low-income families, and Wal-Mart has a significant percentage of associates and their children on public assistance.'' [Susan Chambers Memo to the Wal-Mart Board of Directors; New York Times, 10/26/05]

- Costs to taxpayers. A report by Rep. George Miller (D-CA) in 2004 estimated the costs borne by taxpayers for things like medical insurance and housing assistance for Wal-Mart employees that can’t afford them because of their low wages and benefits. The report shows that taxpayers would have to pick up $420,750 per year for a hypothetical Wal-Mart store employing 200 people. These costs (which will vary based on the number of people employed in any one store) include:
• $36,000 a year for free and reduced lunches for 50 qualifying Wal-Mart families;
• $42,000 a year for Section 8 housing assistance, assuming three percent of the store’s employees qualify for such assistance;
• $125,000 a year for federal tax credits and deductions for low-income families, assuming 50 employees are heads of household with a child and 50 are married with two children;
• $100,000 a year for additional Title I education funds, assuming 50 Wal-Mart families, each with an average of two children, qualify;
• $108,000 a year for children’s health insurance costs, assuming 30 employees, each with an average of two children, qualify for the Children’s Health Insurance Program (CHIP); and
• $9,750 a year for subsidies for energy assistance for low-income families.
[From study done by Rep. George Miller (D-CA), 2004]

Sen. Kaufmann’s bill was heard before the Senate Tax Committee on January 29. It was supported by The Policy Institute and opposed by a handful of business associations and box store representatives. Most of the box store operations, of course, operate on slim margins and cannot afford to either provide better treatment to employees or pay a 1 percent tax. They didn’t discuss the annual salaries of some of their leaders …

Box store CEO compensation (2007)
- CVS (pharmacies) $19 million
- Costco $ 9 million
- Wal-Mart $8.7 million
- J.C. Penney $6.2 million
- Best Buy $49 million
- Staples $20 million
- Target $13 million
[Forbes.com, April 30, 08]

… or the wealth of some of their proprietors …

- Jim Walton (Wal-Mart heir) $23.4 billion
- S. Robson Walton $23.3 billion
- Alice Walton $23.2 billion
- Christy Walton $23.2 billion

The Senate Tax Committee has not yet acted on SB 277.