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Tesla said Governor Christie’s administration has "gone back on its word"

Tesla Motors has been trying to push its direct sales model into various U.S. states, and while it saw a bit of success with New Jersey, a new state rule could destroy Tesla's plans. 

According to Tesla, New Jersey Gov. Chris Christie’s administration recently proposed a new rule that requires that a person have a franchise agreement with an auto manufacturer in order to be granted a license to sell. 

This is a problem for Tesla, considering it already operates two stores in New Jersey and had plans to open more. It's possible that Tesla could have to stop selling its all-electric Model S and any future vehicles in these stores and instead use them as showrooms where customers can look, but not buy. 

"Unfortunately, Monday we received news that Governor Christie’s administration has gone back on its word to delay a proposed anti-Tesla regulation so that the matter could be handled through a fair process in the Legislature," said Tesla in a statement. "The Administration has decided to go outside the legislative process by expediting a rule proposal that would completely change the law in New Jersey. This new rule, if adopted, would curtail Tesla’s sales operations and jeopardize our existing retail licenses in the state.

"Having previously issued two dealer licenses to Tesla, this regulation would be a complete reversal to the long standing position of NJMVC on Tesla’s stores. Indeed, the Administration and the NJMVC are thwarting the Legislature and going beyond their authority to implement the state’s laws at the behest of a special interest group looking to protect its monopoly at the expense of New Jersey consumers. This is an affront to the very concept of a free market."


Tesla CEO Elon Musk and President Barack Obama

Tesla has been in a battle with many states regarding its direct sales model. The issue is that auto dealerships feel Tesla's new sales model threatens their network, which many other automakers rely on. If other automakers were to follow Tesla's example, it would put the dealerships in a bad spot. The National Automobile Dealers Association (NADA) said that dealerships are necessary to ensure competitive prices for customers, and that it will continue to defend franchise and consumer laws in the states.
 
Tesla CEO Elon Musk, on the other hand, believes that auto dealerships don't do a very good job at selling specialty cars like Tesla's high-end electric vehicles (Roadster, Model S). Hence, he's looking to run his own Tesla stores around the U.S. where he believes his cars will get a fair shot at being sold. 
 
However, the problem for Tesla is that auto dealerships have much deeper pockets -- meaning that they have a lot more to spend on lobbying, and lawmakers will surely side with them when money is involved. 
 
In fact, auto dealers spent $86.8 million on state election races across the U.S. between 2003 and 2012. They also spent $53.7 million on federal campaigns. Tesla, on the other hand, has spent less than $500,000 on both state and federal politics. 
 
Tesla has gone head-to-head with many other states that are protecting auto dealerships, such as Massachusetts, Ohio and New York. 
 
Just last month, it was reported that Ohio Sen. Tom Patton (R-Strongsville) backed a new bill called Senate Bill 260, which aims to prevent Tesla and any other automaker from "applying for a license to sell or lease new or used motor vehicles at retail." Tesla opened its own stores in both Cincinnati and Columbus, as Ohio's current laws allow the automaker to do so. However, Senate Bill 260 would certainly put a stop to it, unless existing stores opened before the bill are deemed safe. 
 
What's interesting is that Patton received at least $42,825 between 2002 and 2013 from state and national auto dealership owners, employees, and political action committees. 

Source: Tesla Motors



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RE: Show me the money!
By Solandri on 3/11/2014 1:49:24 PM , Rating: 5
quote:
The problem is they can vote, not as a single owner votes, but through the population that works for or purchases from said company. Stock holders also get votes, the union workers (if there are any) also get votes.

That's basically what I'm saying. Corporations can't vote, but the individuals who work at or own it can vote. Likewise, corporations shouldn't be taxed, but the individuals who work at or own it should be taxed instead.

The whole mess starts when you get it into your head that the corporation should be taxed as if it were an individual. (Actually the whole mess started when we decided to treat corporations as fictitious persons. That may have been convenient from the standpoint of saving us from having to duplicate a bunch of laws. But it leads to the conceptual problem I'm describing.)


RE: Show me the money!
By aharris02 on 3/11/2014 3:06:49 PM , Rating: 2
Why do you believe corporations shouldn't be taxed?


RE: Show me the money!
By Rukkian on 3/11/2014 3:30:36 PM , Rating: 5
I cant speak for the other poster, but the main reason would be that you take away taxation, and also take away any form of lobbying by them. You can't really keep taxing them and then turn around and say they do not get have a right to representation (taxation without representation).

On top of that, any money that comes out of the corporations ultimately get paid by the people anyways. If you got rid of corporate taxes, pretty much every single company would want to build in the us, and there would be more jobs all the time. Goods would be cheaper, as they are no longer bribing (I mean lobbying) or paying taxes.

I know that some would say that they will not lower prices, but in almost all markets there is somebody else that would sell for less if some corp were trying to charge too much. It would also help to even out the playing field so that smaller companies would be on an equal footing (from a tax and regulation standpoint) with large corps, whereas right now, the benefits all go to larger corps since they can put out the most bribes.


RE: Show me the money!
By aharris02 on 3/11/2014 3:40:40 PM , Rating: 2
That makes sense, but I don't see how we'll get out of the current economic mess and deficit if corporations aren't required to contribute to the fix. The financial services sector in particular did, after all, have a significant hand in causing the situation to begin with.

That said, I think corporations should still be taxed, just at a lower flat rate. I also think there's a an easy solution (see my comment below) to the representation issue, though I doubt it'd ever be adopted by corporations since it drastically reduces their current influence. It'd be up to Congress (good luck) and The People (perhaps, if they decided to care enough) to make it happen.


RE: Show me the money!
By SeeManRun on 3/11/2014 4:55:22 PM , Rating: 2
The reason it won't work is because income made from investing is taxed at a lower rate than income. Also, companies can currently horde their money for the future. If a company is not taxed, then it might make sense for them to not be able to hold money, since that money comes out of the economy. Perhaps all profits every year must go to the share holders unless it will be used in the very near future to re-invest..

Not sure how it would all work, but it would be tough to get done. And I imagine people would get upset when they were told corporations are going to be taxed at 0%, but your sales taxes are going up to 21%. But good news, your wages SHOULD go up.

Also, I think there would have to be some rules regarding subsidiaries in other countries and how income earned elsewhere impacts people here. Right now a company gets a tax break on creating jobs here, but if there were no taxes, why not move your company to Canada and sell the product in the US (if there are some expenses in Canada that are cheaper than the US).


RE: Show me the money!
By Solandri on 3/12/2014 4:21:00 PM , Rating: 3
quote:
The reason it won't work is because income made from investing is taxed at a lower rate than income.

That's a common misconception caused by people misunderstanding graduated income taxes. Say your income is around the national average - $50k/yr. That puts you in the 25% tax bracket, but that doesn't mean you pay 25% of your income in taxes.

For 2014 you get the first $6200 tax-free.
The next $9075 is taxed at 10%.
The next $27825 is taxed at 15%.
The remaining $6900 is taxed at 25%.

Your total taxes are then $6806.25, or 13.6%. You pay less than the minimum 15% capital gains tax on investment income.

The IRS publishes tax stats for each year. If you click on the 2011 stats (upper left corner):
http://www.irs.gov/uac/SOI-Tax-Stats---Individual-...

Scroll over to cell T10. That's the average percent paid in income tax relative to gross income (S10, percent of taxable income, excludes any deductions from your income). It's 13.6% for the country overall. That is, the average (mean) taxpayer pays 13.6% of their income in federal income taxes, which is less than the minimum 15% capital gains tax.

If you scroll down column T, you can see the average income tax rate does not exceed 15% until T23 (19.7%). Row 23 is the $200k-$500k tax bracket. That is, on average (mean), everyone earning less than $200k/yr pays a smaller percentage in income taxes than the capital gains tax. The median (50th percentile - about $50k) is even lower. They pay on average between 7.4% to 8.6% of their income in federal taxes. (My $50k example above came out higher because he didn't have kids, didn't take a mortgage deduction, and didn't contribute to any charities.)

So the tax rate on investment income is twice what the 50th percentile taxpayer pays.

quote:
Perhaps all profits every year must go to the share holders unless it will be used in the very near future to re-invest..

That is the way it works right now. Profits are distributed to shareholders, unless declared retained earnings and kept for future growth and expansion (i.e. future expenses).

quote:
Also, I think there would have to be some rules regarding subsidiaries in other countries and how income earned elsewhere impacts people here.

That's actually what first got me thinking along those lines. The bottom line is you (as a U.S. citizen) have no say in how Antigua or the Bahamas or Ireland structures their taxes. If they don't want to tax corporations or tax them at a very low rate, that's their right.

Successful owners and accountants of companies became successful by being very good at maximizing revenue while minimizing expenses. That's how they see the differing tax rates in different companies - an accounting optimization problem. Eliminate corporate taxes here and you eliminate their incentive to shift funds to shell corporations in those countries. If you read my post below, you can see how it doesn't really matter whether you tax corporations or individuals. Since you're taxing the employees instead, and their employees are in this country, you're still getting the bulk of (if not more) tax revenue than in the current situation.
quote:
Right now a company gets a tax break on creating jobs here, but if there were no taxes, why not move your company to Canada and sell the product in the US (if there are some expenses in Canada that are cheaper than the US).

Well, they wouldn't do that because Canada taxes corporations and the U.S. would not under my proposal.

The main problem I see is actually the opposite. A corporation sets up factories in China to take advantage of the cheap labor there. Then they cook the accounting books to shift most of the profit back to the U.S. (if it had no corporate taxes). That's great for the U.S., but unfairly deprives China of taxes on revenue its workers are responsible for. Basically the situation with Ireland and the EU.


RE: Show me the money!
By Reclaimer77 on 3/12/2014 4:38:17 PM , Rating: 2
This would be much simpler if we just abolished the income tax altogether. The Government was much better behaved, smaller, and Constitutional without it.

The concept of the income tax is immoral, and was entirely Unconstitutional before they amended it. To take a cut of someones earned pay, before they can even see it, is monstrously evil and it's sad that it is something we've just come to accept.

Abolish income taxes. Use tariffs, sales taxes, and other use taxes instead. Return the power to the States.

End the tyranny.


RE: Show me the money!
By Solandri on 3/12/2014 3:26:03 PM , Rating: 2
quote:
That makes sense, but I don't see how we'll get out of the current economic mess and deficit if corporations aren't required to contribute to the fix.

Because it doesn't really make a difference whether you tax corporations or tax individuals.

Say 100% of our government's revenue were individual income taxes. Say there are 100 people in the country earning an average of $50k per year, and paying the government an average of $15k/yr. That is, the government takes in $1.5 million/yr in taxes. And the average guy has $35k/yr in left over spending money.

One day the people get the clever idea of taxing corporations. So they pass a law eliminating the individual income tax, and now 100% of tax revenue comes from corporations. The government is still looking to take in $1.5 million/yr. How do you think the corporations are going to pay for it? That's right - they'll either raise prices or cut wages.

If they cut wages, they have to spread the $1.5 million across the 100 people. That works out to $15k per person. So now nobody pays individual income taxes, but their average pay has been cut to $50k - $15k = $35k per person. Exactly the same as when everyone paid income taxes.

If the companies raise prices, they have to raise them enough to pay $1.5 million. Spread across 100 people, that's an average of $15k per person in price hikes. So the average person now takes home $50k, but it buys the same amount of stuff as $35k used to buy. Exactly the same as when everyone paid individual income taxes.

See, the idea that a corporation is an entity like an individual leads people to make a fundamental logical error. They start to think of it as us (the people) vs them (the corporations). There is no us vs them. There is only us. Corporations are just people who've decided to work together instead of individually. The only contribution to the economy is productivity, and the only source of productivity is people. So whether you tax corporations or individuals doesn't really matter. In the end, you're still diverting 30% of the fruits of your productivity to the government.

(There are certain taxes which have other functions that simple revenue generation. Property taxes discourage people from "sitting" on a property instead of putting it to good use. Sin taxes discourage activity harmful to the overall economy. VATs discourage flipping. etc. So an economy based solely on individual income taxes is probably a bad idea. But whenever possible we should be consolidating taxes to simplify calculation and reduce the cost of collection. The current "tax corporations but allow them to lobby" structure unfairly concentrates power in the hands of the people running the corporations IMHO.)


RE: Show me the money!
By aharris02 on 3/12/2014 5:13:37 PM , Rating: 2
The problem I see with that system is that retained earnings get by scot-free without taxation. This could hinder dividend issuance, but I guarantee it will lead to widespread abuse of corporations by people simply trying to avoid taxation of their income.

What would be done to address that?


RE: Show me the money!
By Solandri on 3/12/2014 5:40:46 PM , Rating: 2
Retained earnings have to be spent at some point to be useful, so I don't see it as a problem. Either it'll pay for new equipment and services, or it'll go into wage increases and new staff, or the company will decide to distribute it to stockholders and it'll become income for them. All that's happened is it gets time-shifted. i.e. if you changed your accounting scale from FY2013 to 2013-2023, it's like it wasn't ever retained - it was all spent in the same time period that you made the revenue (though now you have different revenue which is retained). So in that respect, retained earnings are just an artifact of us deciding an account period for tax purposes should be one year, and the fact that business payments lag revenue receipts.

The main problem I see (and one which I still haven't figured out a clear or easy solution to) is people having the company pay their personal expenses. If you own a company which pays no taxes, and you get the company to lease a personal vehicle for you, pay for your food as a meals expense, and pay for your gas, airline tickets, and hotel in Cancun as a business travel expense, then you're essentially getting those things as "income" without having paid income tax on them. This already goes on, and there are already laws in the books to prevent or discourage it. But it's tough to enforce without having significant insight into the internal operations of the company.


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