A Taxing Approach

Tax officials in at least one state want to ''cookie cut every case,'' writes a reader. More letters to the editor: mistaking greed for ambition; differentiating pay based on relative performance.


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A Taxing Approach

Nice article on state taxes ("Stingers," January). As a Maryland practitioner, CPA, and former Big Four SALT office practice leader, I can tell you that Maryland is going beyond the bounds of Comptroller of the Treasury v. SYL Inc. It is attacking intercompany interest and any intercompany transaction that might result in Maryland tax savings. Maryland is assuming that all holding companies, even those set up for international holding-company purposes, are somehow scamming Maryland. I currently have two cases under appeal. They simply won't listen to those who have not received a Maryland tax benefit from their holding-company structures. They lack the confidence to understand a taxpayer's situation, and want to cookie cut every case.

Joseph Flak

Via E-mail

The man in your January cover story on state taxes is wearing a Rotary International pin. Could it be that he was also applying the Rotary Four Way Test (stated below) to the states' taxing efforts?

Of the Things We Think, Say, or Do:

  1. Is it the truth?
  2. Is it fair to all concerned?
  3. Will it build goodwill and better friendships?
  4. Will it be beneficial to all concerned?

Richard Neely

Chief Financial Officer

Charter Holdings


The total emphasis of your article on state taxes seems to be to make a case for raising taxes, rather than reducing expenses. Why not work on the states' revenue deficits from both directions? Alternatively, the states in straits might look into using a tabula rasa methodology, by appointing a nationwide commission of state revenue authorities to study how states can finance expenses.

Lawrence A. Tillinger


Morristown, New Jersey

Lifting the Ban

In "They Might be Giants" (January) you ask: "It's been nearly two years since Arthur Andersen went under and the Sarbanes-Oxley Act of 2002 was passed. Have the Big Four audit firms changed since then?" Reading that, you might surmise that the American Institute of Certified Public Accountants was in favor of lifting the ban on advertising and solicitation by CPAs.

Yes, it is true that we lifted the ban—in part because of a pending Department of Justice investigation of the AICPA regulations following a U.S. Supreme Court ruling prohibiting similar regulation in the legal profession.

The Department of Justice insisted the ban be lifted on the grounds that regulations restricting advertising limited consumer choice and access to commercial information.

Barry Melancon

President and CEO


New York

Greed or Ambition

In your December 2003 editorial, "The Greed Factor," you suggested that greed fuels capitalism. But you also found it necessary to caution that you were not condemning capitalism or advocating socialism; you were merely tolerating greed as a necessity.

Your caution suggests that you have an underlying definition of greed that the editorial does not own. I think you have mistaken greed for ambition. Ambition can be monitored; greed cannot. It must be rejected immediately. Greed is the red flag that shows ambition has run amuck. It is not greed that fuels capitalism. It is ambition.

Further, I wonder why you are so quick to ditch the "bad-apple" theory. Is it really so incredible that in such a bull market so many people would allow their unmonitored ambition to become self-serving greed? The very fact that you (rightly) call for a monitoring of what you consider to be greed implies that every single person with enough ambition to make progress in the world of business has the capacity to become a bad apple. Why else monitor?

You have not ditched the bad-apple theory nor have you accepted greed as an appropriate fuel to the economy. Greed is not the inevitable byproduct of capitalism. Greed is the inevitable byproduct of people with the potential to become bad apples within the barrel of capitalism.

Ray Adams

Vice President of Administration HR/IT

CCG Investor Relations

Sherman Oaks, California

Learning from the UK

Lori Calabro makes many valuable points in assessing the need for board compensation committees to protect themselves and their stockholders from unfair CEO-pay outcomes ("Above Board," October 2003). While stock options are being replaced with restricted stock, judging from the latest proxy round, the majority of them are still leaving themselves wide open to shareholder suits.

Most U.S. companies base the incentive components of pay on achieving absolute targets, such as share-price growth or earnings-per-share growth. So with the economy improving, it is no wonder that we are seeing double-digit executive-pay growth. But use of absolute targets fails to adequately differentiate pay based on relative performance. A stockholder would be right to ask why compensation committees set target pay levels based on comparisons with like companies, but fail to do so when setting the actual performance targets for final pay determination.

In this regard we can learn a lot from our cousins in the United Kingdom. Voluntary corporate-governance standards established there since the early 1990s require that long-term incentive plans base payouts on performance relative to other companies' performance. A popular measure is relative total shareholder return. So pay is very much correlated with relative performance. As a result, they have largely avoided the executive-pay dilemmas facing us. They have also avoided prospects of its further regulation.

Michael J Robinson

Chief Executive

Performance and Reward

Governance International

San Francisco

It's Academic — Unfortunately

Apparently there's only one way to view the Sarbanes-Oxley Act of 2002 from the "ivory tower." Letters to the editor from academicians regarding "Sticker Shock" (September) unanimously endorsed all sections of Sarbox, no matter what the cost. After the scandals, it's difficult for anyone in the "real world" to deny the need for change, but in the business world, parts of Sarbox—Section 404 in particular—are viewed as overly burdensome.

Oh academia, excuse our frustration, as it results from employing concepts we learned from you! The cost-benefit analysis you taught us in Accounting 101 tells us implementation of Section 404 should be rejected, as the costs far outweigh the benefits (something Congress never considered). How would a company offset the loss of controls covered by Section 404? Your Auditing 101 class instructed us to look for controls that could compensate—mitigate—for the missing controls. Implementing the other sections of Sarbox as well as Securities and Exchange Commission requirements not only compensates, but obviates the need for Section 404 altogether.

Unfortunately, Congress seems to have no interest in revisiting this hastily passed legislation. Unless a grass-roots rebellion takes place soon, the debate over Sarbox will be "academic."

Timothy Walsh


Audit Committee Advisors

Simpsonville, South Carolina


The December 2003 article "Subject to Failure" stated that Morningstar has recommended that plans consider removing the four fund companies named in the Canary Capital settlement. Morningstar's fund analysts made this recommendation to individual retail investors, not to plan sponsors or retirement-plan participants.


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