• Accounting News Roundup: Ignoring Rules and Seattle’s Income Tax | 10.11.17

    By | October 11, 2017

    Ignoring rules

    The other day I mentioned that it might be fun to work in Tesla’s accounting department since Elon Musk doesn’t seem too hung up on things like production estimates or sales projections. And as fun as playing fast and loose with numbers might be, it pales compared to Uber’s laissez-faire attitude about the law. This Bloomberg story has the details:

    Salle Yoo, the longtime legal chief who will soon leave the company, encouraged her staff to embrace [former CEO Travis] Kalanick’s unique corporate temperament. “I tell my team, ‘We’re not here to solve legal problems. We’re here to solve business problems. Legal is our tool,’” Yoo said on a podcast early this year. “I am going to be supportive of innovation.”

    From Uber’s inception, the app drew the ire of officials. After a couple years of constant sparring with authorities, Kalanick recognized he needed help and hired Yoo as the first general counsel in 2012. Yoo, an avid tennis player, had spent 13 years at the corporate law firm Davis Wright Tremaine and rose to become partner. One of her first tasks at Uber, according to colleagues, was to help Kalanick answer a crucial question: Should the company ignore taxi regulations?

    What a fun question. Don’t misunderstand; I don’t recommend anyone run an accounting department on a premise of ignoring rules. You wouldn’t be running that accounting department very long.

    As for Uber, they did ignore the tax regulations, and a bunch of other things too, which has led to a pile of legal problems.

    SALT

    Living in a state with no income tax has a certain novelty. Even though you know you’re coughing up money somewhere else to make up for it, not seeing state income taxes withheld on your W-2 provides a certain sense of satisfaction, deserved or not.

    Anyway, Washington is one of the states that doesn’t impose an income tax. That is, until the Seattle City Council passed an ordinance earlier this year that would tax on high-earners. As you can imagine, this has met some resistance, and the details are of a nature that only a tax nerd can love:

    Given Seattle’s legal landscape, in order for the tax to stand it will have to overcome three main legal hurdles. First, a state law enacted in 1984 restricts cities from levying a tax on net income. Second, Article VII, Section 9 of Washington’s state constitution requires taxes levied by cities to be uniform within a class of property, thus, only taxing income over a certain threshold violates this restriction. Also under Article XI, Section 12, the state legislature must expressly grant the authority to a city to impose a tax; the legislature has not given Seattle this authority to impose an income tax.

    The counterarguments are also wonderfully tedious. For example, Seattle says that this new tax is on “total personal income, not net income” and therefore the ’84 law is inapplicable. The city also believes that income is not property, thus spiking the second argument. Finally, because income is not property, Seattle says it can impose the tax since it has been “granted broad authority to enact non-property taxes.”

    I’m not one to make predictions, but I can’t see Seattle’s arguments holding up. They might be legally valid, but inertia might have a role in all this. The battle over the income tax in Washington is has been contentious for a long time, despite the fact the state has one of the most regressive systems in the country. These things take on a life of their own after awhile.

    Accountants behaving badly

    You know how we talk about those accountants who don’t care one iota about who their victims are? We have a new poster child:

    A former accountant was sentenced Tuesday to up to 15 years in prison for stealing more than a million dollars from the estates of two women who fled Nazi Germany before World War II.

    Richard Doren, 51 years old, was sentenced in Manhattan Supreme Court according to the conditions of deal arranged in June and September, when he pleaded guilty to grand larceny charges. He will have to repay the more than $1.7 million that he stole.

    Prosecutors say Mr. Doren pocketed money he was supposed to be dispersing to the relatives of the two women. Then, while he was out on bail, Mr. Doren swindled a plastic surgeon out of more than $500,000, prosecutors said.

    “He betrayed my trust,” Dr. David Rapaport, the plastic surgeon, told the judge. “He stole from the estate of Holocaust survivors and now stole from me.”

    I sympathize with any victim of accountant crime, of course, but a Manhattan plastic surgeon latching himself onto the plight of Holocaust survivors. You’re not that sympathetic, pal.

    Previously, on Going Concern…

    Grant Hutchinson wrote about the positive effect remote accountants can have on a business.

    I mentioned a South African Central Banker who’s not too concerned about KPMG’s troubles.

    In Open Items, someone is asking about browsers and email at EY, and this thread concerns changing offices before starting with a Big 4 firm.

    In other news:

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    • Adam Hill

      Thank you Cascade Mountains, you glorious bastards.