When Congressional tax writers signaled their intention to enact a new tax break for domestic manufacturing income in 2004, lobbyists began a feeding frenzy to define both “domestic” and “manufacturing” as expansively as possible. As a result, current beneficiaries of the tax break include mining and oil, coffee roasting (a special favor to Starbucks, which lobbied heavily for inclusion) and even Hollywood film production. The Walt Disney corporation has disclosed receiving $526 million in tax breaks from this provision over the past three years, presumably from its film production work, and even World Wrestling Entertainment has disclosed receiving tax breaks for its “domestic manufacturing” of wrestling-related films.
But CTJ has now discovered, after poring over corporate financial reports, an example that may trump them all.
Silicon Valley-based OpenTable, Inc. provides online restaurant reservations and reviews for restaurants in all fifty states and around the world, connecting customers and restaurants via the Internet and mobile apps. While members of Congress may enjoy how OpenTable can “manufacture” a last minute seating at their favorite Beltway watering hole, it’s hard to believe the company engages in any activity that most Americans would think of as manufacturing.
And yet OpenTable discloses in its SEC filing that the domestic manufacturing tax break reduced the company’s effective corporate income tax rate substantially recently, saving it about $3 million over the last three years. Even as a small portion of the company’s overall tax bill, that $3 million is emblematic of the scores of absurd loopholes carved out of the corporate tax code.
President Obama has repeatedly proposed scaling back the domestic manufacturing deduction to prevent big oil and gas companies from claiming it, but we have argued that the manufacturing tax break should be entirely repealed. At a minimum, Congress and the Obama Administration should take steps to ensure that the companies claiming this misguided giveaway are engaged in something that can at least plausibly be described as manufacturing.