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Amgen: A lesson in state's tax break policy

Guest Opinion: We should ask whether we would do better focusing on tax breaks for smaller companies, rather than international behemoths.
Amgen's Seattle campus was on the waterfront beyond the Amgen Helix Bridge over BNSF tracks. When the City of Seattle agreed to build an overpass for traffic to have access to the campus, the company built the pedestrian bridge.

Amgen's Seattle campus was on the waterfront beyond the Amgen Helix Bridge over BNSF tracks. When the City of Seattle agreed to build an overpass for traffic to have access to the campus, the company built the pedestrian bridge. Flickr: Chas Redmond

Amgen jolted the Seattle community with a stunning, unexpected announcement last month that they are pulling out of Washington State and terminating employment for the remaining 660 employees as part of a downsizing of 2,900 employees nationally.

My first reaction to the news was pure sympathy for the employees and their families. During a recent bike ride in my Queen Anne neighborhood, I quietly looked over Amgen’s stunning research and development facility — a beacon of global biomedical quality — and reflected upon the social contract between the company and taxpayers of our city, state and country and my role as chair of the state House's Finance Committee. And my disappointment, as USA Today noted, turned to frustration.

Immunex, an anchor of Seattle’s biotechnology and biomedical community from its founding in 1981, was acquired by a main industry rival, Amgen, in 2001.  At the time of the deal worth approximately $16 billion in stock, Immunex had 1,500 employees, a number that was pared down to approximately 750 for the past decade. In addition to the direct employees, Immunex and Amgen generated substantial economic, social, financial and community value as an important part of our state’s civic life — and much good will.  Amgen’s political relationships have been stellar and successful, the support for innovative community programs such as AmeriCorp’s City Year have been impressive, and its employees have made our city a better place to live. (Disclosure: I have received multiple campaign contributions from Amgen, served as a citizen co-founder of City Year, and am a shareholder in the company.)

Despite a well-established trend in Big Pharma (Pfizer, Sanofi, Novartis, etc.) that shows companies pulling back from R&D and retreating to primary research hubs, social and traditional media soon raised the question of whether state tax policy played a role in the company’s decision to leave Washington, casually alluding to an operating assumption that the state didn’t do enough to lower the tax burden on the company.

My personal and professional mission as Finance chair is to institutionalize a more rigorous level of analytical, financial and intellectual analysis of our state tax policy to match what we expect of state spending policies.

So let’s go beyond the headlines into the Amgen story and examine its relationship with state tax policy.

It’s not public information how much Amgen pays in various Washington taxes, although I seem to recall the company says in its federal Securities and Exchang Commission filing that it pays approximately 9 percent effective tax rate in total state taxes. What is public, however, is that the company has since 2004 been the third largest recipient of the high technology sales tax deferral program, a tax credit I have argued should be targeted primarily at small and early stage companies. For early stage and small companies, a modest tax reduction can have a major impact given that we tax on gross receipts, not net profits, and the dollars are usually directly invested in more engineers, scientists and researchers.

The company’s average benefit from the state tax break is $3.6 million per year, for a total of $28.5 million between 2004 and 2011. In 2013 the global earnings for Amgen were $18.7 billion, an 8 percent increase from 2012.  The stock has recently been trading at all-time highs.

Did the $3.6 million annual tax benefit play a role in the company’s business decision to leave Washington?

Don’t kid yourself.

The company told me that Washington state tax policy in no way played any measurable role in this sweeping national business decision, which involved an overal 15 percent reduction in its work force.

And, of course, on the surface it’s patently ridiculous to consider that $3.6 million state tax benefit against revenues of $18.7 billion means anything substantial when you consider that: 1) Washington is strictly a R&D facility, so revenues are likely assigned, as with virtually all pharmaceutical companies, out of state or even the country, meaning that our tax rates are largely irrelevant to the firm. And, 2) Colorado has a generous high technology tax credit and yet the company closed its entire operations in that state, too.


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Comments:

Posted Sat, Aug 23, 11:33 a.m. Inappropriate

Good luck getting your fellow Democrats to go along with you Reuven.
You and your party are responsible for putting most of these tax exemptions in place, for the lack of oversight in monitoring the effectiveness of the tax exemptions and for the lack of will for removing those that are not performing as desired. Don't talk to the public about this, talk to Governor Inslee and your fellow Democrats who hold the power to do soemthing.

Cameron

Posted Sun, Aug 24, 10:37 p.m. Inappropriate

I am impressed with the piece. Thoughtful, nuanced and most importantly, proportional.

But as I understand it, the Port of Seattle donated the land whereon the Amgen buildings sit. What a great opportunity! The buildings should be 'rented' out to start-ups, tiny-to-infintesimal sized companies. The 'rent' can be put off until the start-up makes money. I am not thinking here of only computer companies or pharms but anyone with an idea, the courage to try and make an effort.

Dick Falkenbury

Posted Mon, Aug 25, 5:14 p.m. Inappropriate

Are you kidding Dick?

The Port has an economic mandate, responsible to the taxpayers. Giving 'free' rent or postponed rent to startups with no business history is actually a gift of public funds, and is not legal.

How about the courage to make economically viable decisions that benefit the taxpayers and result in income, not out-go?

Posted Tue, Aug 26, 4:12 p.m. Inappropriate

I have some reservations about your first point but, as to the second, I agree; the lab space (whether owned by Amgen or some secondary company) should, at the right price, attract one or more tenants. The owner of the facility will take a loss if necessary but we should expect to have a new operator that pays professional salaries to technical and scientific employees. It should work out OK.

kieth

Posted Fri, Aug 29, 10:02 a.m. Inappropriate

The Port did NOT donate the land. The Port had recently purchased the land from a subsidiary of Burlington Northern and sold the land for its
fair market value to Immunex, a Seattle-based company. The deal was announced in the mid-1990s. By the time the deal was completed, Amgen had bought Immunex, but it agreed to move forward with the new Seattle campus. The Port also participated with the City in financing the Galer Street Bridge which provides access to that site as well as to Terminal 91 and the T-86 grain terminal.
I was a Seattle Port Commissioner at the time.

Posted Mon, Aug 25, 9:08 a.m. Inappropriate

It's too bad that the NIH or CDC can't take it over as a research facility and incubator for their various research grant proposals.

Does the land revert back to the Port of Seattle now?

talisker

Posted Mon, Aug 25, 9:49 a.m. Inappropriate

When did "latte tax guy" get recast as some kinda tax policy genius?

I miss Helen Somers. I regret Mr. Latte Tax represents me. But he's giant in my District next to the other two intellectual dwarves my district sends to Olymipa.

Neither Rep Latte Tax or anyone else has an appetite for sunsetting all tax exemptions and putting forward new ones with a time stamp to expire. No one in Olympia has an appetite for measuring their true effectiveness and value to the citizens.

Worse still, he wants to spend the savings on a pet project while McCleary remains an unfunded mandate from the courts. Idiot. I hope the WA Supremes spank both parties and two branches of state government hard for their intransigence on McCleary.

Posted Mon, Aug 25, 2:02 p.m. Inappropriate

Aside from your unnecessary insults of Jeanne Kohl-Welles and Gael Tarleton, your history is wrong; Reuven Carlyle was never "Mr. Latte Tax" (another unnecessary insult even when applied to the right person).

louploup

Posted Thu, Aug 28, 9:46 p.m. Inappropriate

You have it backwards, QueenAnneGuido. Reuven Carlyle DEFEATED the "latte tax" guy, John Burbank. After these two local losses, Burbank went on to co-author the State Income Tax initiative (I-1089). Carlyle has his flaws, but defeating John Burbank was a fine accomplishment.

simorgh

Posted Mon, Aug 25, 1:29 p.m. Inappropriate

The idea that investing in start ups is a better use of tax dollars is absurd. We should make these investments, don't get me wrong, but pitting investing in large companies that provide more stable, higher paying jobs against start ups is a loser. Start ups have a extremely high rate of failure. Not to mention the goal of most start ups in the tech world is to grow large enough that a corporation buys them out and they all get a fat payday. So either we lose all the investment when the start up fails or we make a few people rich when the company gets bought out...how is restricting tax credits to small businesses a more noble use of public dollars?

Also, perception is not measurable. While AmGen may have told the Rep. that our "tax policy played no measureable role in their decision," it likely influenced decision in ways that do not lend themselves to easy metrics. Couple the expiration of R&D; tax credits, huge cuts to higher ed, partisan bickering over adequately funding K-12, and the inability to pass a transportation package in almost a decade and it is easy to see how an executive in another state could call into question why the company continues to invest in a state that can't execute on the fundamentals.

Posted Tue, Aug 26, 7:05 a.m. Inappropriate

Reuven Carlyle deserves credit for his proposals for a rolling
review of all present state tax subsidies. But it makes little sense to award new tax breaks to one sector of the economy at the expense of others.

Both liberal and conservative economists agree that tax breaks per se are bad policy. Government should not pick economic winners and losers. Instead, public policy should be as neutral as possible, leaving winners and losers to sort themselves out in the private economy. The same economists would agree that a tax code with lower rates, fewer brackets, and no subsidies and loopholes would best serve economic growth.

This state likes to think of itself as progressive. However, its tax code is shockingly regressive. Those least able to pay bear carry the largest tax burden.

Removal of present tax breaks and subsidies from the code would give the state more than enough money to close its recurring budget deficits and, moreover, generate additional money to meet public priorities. It would make possible lower tax rates for business and individuals. It also would put all private-sector entities on equal footing. Those that were competitive would flourish. No need to push fresh public money into companies with political power or to give one sector an advantage over others. Whether it is Boeing, Microsoft or Amgen, we should learn to say no.

Posted Tue, Aug 26, 1:53 p.m. Inappropriate

Agreed. This is an issue that has caused more harm than good. And the data supports that. We have had budget too many budget issues as a result of this and the unwillingness of the state legislature to represent what is best for the State, instead of either parties ideology.

What Rep. Carlyle did not mention is a way other states are starting to deal with this inequity: clawbacks for failure to deliver promised measureable benefits that outweigh the costs. Had this been in place for Amgen via Immunex, the city of Seattle would have been owed millions for their decision.

Marksp

Posted Tue, Aug 26, 4:15 p.m. Inappropriate

"What should we do? Let’s stop pretending that state tax exemptions and benefits are central drivers of a vast majority of large-scale global business decisions" Wait a minute, did or did not Mr. Carlyle vote for the Boeing tax package?

kieth

Posted Wed, Aug 27, 12:55 p.m. Inappropriate

Rep. Carlyle not only voted for it, he sponsored and introduced it in the House.
http://apps.leg.wa.gov/billinfo/summary.aspx?bill=2089&year;=2013

That, and his ignorant and insistent support of the DBT boondoggle did not please this constituent. Prior to that, he did try to introduce legislation to deal with these tax breaks realistically.

It concerns me when he does the opposite of what he says. It makes me seriously doubt his ability to stay with it when it really counts.

Marksp

Posted Wed, Aug 27, 1:53 p.m. Inappropriate


Reuven Carlyle is a big talker. He's not so good on follow-through though.

He wrote this same kind of column in 2011:

http://crosscut.com/2011/11/22/politics-government/21562/Instead-cutting-cities-revenue-share-should-we-tri/

There he vows to analyze the tax costs local taxing districts impose and determine how useful they are, all using objective criteria:

How much local taxing authority do current and future service needs require? Which level of government — state, county, city, or special district — is best suited to perform each service in question? Are the special purpose districts we have collectively created taking the right share of resources away from the direct city and county authority?

Where did that Carlyle initiative go? Nowhere.

Think you can go to the state's website now and find out whether or not some PTBD, port district, or the RTA is taxing appropriately, and providing good value for people and their communities? For sure not.

Absolutely nothing changed after Carlyle launched that initiative, and nothing will change now that he says he'll start looking closely at whether or not the tax preferences interest groups obtain as a matter of course from democrats here are justified.

crossrip

Posted Fri, Aug 29, 7:12 p.m. Inappropriate

hmmm ... I've read reports that China's internet giant Baidu (they're bigger than Google) is thinking about opening offices in the US, one of which may be in Seattle.
The Immunex/Amgen site may be a good place for them ... at least, worthy of some of Seattle's leaders to talk with all parties about.

elbegewa

Posted Sat, Aug 30, 1:59 p.m. Inappropriate

Good feng shui site there. Or there's the Weyerhaeuser HQ in Federal Way?

simorgh

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