In 2005, before Burger King was majority owned by a Brazilian investment firm, it struck a deal to keep its corporate headquarters in the city where it was founded, Miami. The company had been tempted by an incentive package, including lower business costs, to move to Texas. Instead, the company stuck with its hometown.
This week, the owners of Burger King announced the company will buyCanadian quick-service restaurant Tim Hortons. While Burger King's kingdom will continue to be run out of Miami, the parent company will be operated out of Canada.
Many critics decry this type of corporate activity as a tax dodge. By moving the parent company's headquarters to Canada from the United States, profits from the combined Burger King - Tim Hortons corporation will be taxed at a lower level than if the company's headquarters were to stay in Miami (or anywhere in the U.S.).
According to the Organization of Economic Co-operation and Development, America's 35 percent corporate tax rate is top among the developed world. Canada's central government's corporate tax rate is less than half that at 15 percent. Even adding in local and regional taxes, Canada's combined corporate tax rate is 26.3 percent -- well below what America's tax collector wants from Burger King.
Certainly, that's not what is collected. In 2013, Burger King's effective U.S. tax rate was 27.5 percent according to its annual report. The company figures, given what it paid last year in American taxes, it won't save a bundle of money in taxes by moving HQ to Canada. Burger King executive chairman Alex Behring said on a conference announcing the merger that the deal is "not being driven by taxes."
But even if it were, isn't the attraction of lower taxes exactly the same strategy employed by Florida in attracting companies here? The Greater Ft. Lauderdale Alliance used to advertise with the slogan "Life, less taxing."
Florida's lack of a state income tax has long been the hook for economic development folks when they go fishing for businesses to move to town.
While not impacting a company's bottom line directly, no state income tax is a powerful allure for top performing employees. The sunshine sells itself. The tax benefit to a worker's paycheck is substantial when compared to state and local taxes in California and New York.
So Burger King's new combined company will be Canadian. It will pay Canadian taxes. And the Burger King corporate brand will continue to be run from Miami, where its employees won't pay any state income tax.
BK is having it its way.
