Reset: Double taxation, buybacks return, CEO politics, wool woes

By Kevin J. Delaney

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THE VIRUS

The latest virus forecast: The US has had a 34% increase from two weeks earlier, averaging about 64,257 new cases per day and hitting a record of 85,085 daily cases this week. Europe has seen daily cases more than double in the last 10 days. President Emmanuel Macron said France would be fighting the virus at least through next summer. Dr. Anthony Fauci now supports mandating mask wearing.

The business impact, by the numbers: Los Angeles and New York City office occupancy rose slightly to 34.0% and 17.4%, while Dallas leads the ranking with 43.3% occupancy. LinkedIn has seen a four-fold increase since March in the number of listings for remote jobs. American Express said non-travel and non-entertainment spending rose 1% during the third quarter from a year earlier, while travel and entertainment fell about 70%. About 50% of US workers who lost their jobs during the crisis have returned to work

FOCUS ON DOUBLE TAXATION


Some Americans will be facing big tax bills this year from states where they spent very little time living or working. Delaware, Nebraska, New York, and Pennsylvania have traditionally claimed income taxes from people who aren’t residents but work in offices there—and Arkansas and Massachusetts this year joined their ranks. 

  1. This has meant that some workers have had to pay state taxes in two states on the same income. The issue is even more acute this year as people working remotely because of the pandemic will have spent even less time in the states they’re having to pay taxes to. 

  2. This week New Hampshire accused Massachusetts of “attempting to pick the pocket of our citizens” and filed a case with the US Supreme Court over the issue. And New York updated its FAQ documents to make even clearer that it expects remote workers to pay up. 

I spoke with Professor Edward Zelinsky of Cardozo Law School in New York City, a leading expert on double taxation. Zelinsky, who lives in Connecticut, unsuccessfully sued New York state in 2003 because he didn’t believe he should have to pay New York income taxes for days he worked from home. Here are excerpts:

What do individuals need to know?

This is an ongoing and serious problem. Sometimes the tax system of the state where you are resident will give you a credit, but not always, for a variety of reasons. And often when they give a credit it doesn't offset the full impact. New York's taxes are higher. So, for example, if someone gets a credit from a relatively low tax state like Georgia, it doesn't offset. Or if someone is living in a jurisdiction without a tax such as New Hampshire, Florida, Texas, or Tennessee, there's no offsetting credit because there's no local tax. The net result of this is that a lot of people are going to be subjected to double and or higher taxes than they anticipated. This was a serious problem before Covid. Obviously Covid has exacerbated this problem enormously because more and more people are working remotely.

What if an employer reassigns employees living in Connecticut, for example, to subsidiary offices in Connecticut?

Not at all clear that that will work. We do not know again how aggressive New York is going to be. A controlled subsidiary may or may not be respected by New York. The mere existence of a so-called payroll provider, or an employment group—I think New York is going to look through that. I think New York's position would be even if your payroll is a Connecticut payroll, your physical office is still in Manhattan or Brooklyn. And so I would not be confident that solves the problem.

What should the policy be?

The constitution of the United States—the due process and commerce clauses—have been understood to say that states can't reach beyond their borders to tax activity that occurs outside their borders. That is the law…. If I'm in New Hampshire, I'm working in New Hampshire. I'm sending my kids to a New Hampshire school. I'm getting my public policy, my public services from New Hampshire. If I have a heart attack, Massachusetts is not sending an EMT over the border. People have a very good intuitive notion about what is right here, which is you should pay tax on income where you earn it.

For more detail, you can read a full transcript of our conversation.

CONTENT FROM OUR PARTNER McKINSEY & COMPANY

Will we ever feel safe commuting again? Many people, especially in big cities, have shied away from shared transport—planes, trains, and automobiles—since March. McKinsey’s COVID Response Center has been talking regularly to people in seven countries to see how attitudes about safe commutes are shifting, if at all. Check out what they told us.


WHAT ELSE YOU NEED TO KNOW

Another Silicon Valley company courted controversy with its approach to social and political engagement. This time it was Expensify, whose CEO David Barrett on Thursday sent an email titled "Protect democracy, vote for Biden" to  10 million users of the expense management software.

  1. He wrote that another Trump term “will damage our democracy to such an extent, I'm obligated on behalf of shareholders to take any action I can to avoid it.” (You can read the full email here.)

  2. Given the chance to weigh in beforehand, more than two-thirds of Expensify’s employees voted for Barrett to send the email. The company has a flat decision-making structure, where staff can debate such a proposal in Slack and a group of senior employees makes the final call.

  3. But critics said the mass blast to its presumably private customer list crossed a line. Some of Expensify’s 100,000 customer organizations weren’t happy its CEO sent a political message directly to their staff. Barrett said he’s gotten a mix of positive and negative feedback.

  4. A majority of employees say they want CEOs to take stands on controversial political and social issues—but emailing customers’ employees en masse took that to a new level. The more typical corporate message is just “Vote.” 

  5. A lot of companies for the first time are offering employees paid time off to vote or volunteer at the polls. 

One issue where some CEOs are weighing in heavily is California’s Proposition 22. The voter referendum would exempt app-based ride-hailing and delivery companies from new worker classification laws that Uber and Lyft have said would lead them to shut down or shrink operations in California. Polling suggests it will be a tight vote.

That didn’t take long: Stock buybacks and executive pay shenanigans are back. US railroad companies, industrial distributor W.W. Grainger, pool-equipment maker Pentair, and defense giant Northrop Grumman are among those announcing a resumption of share repurchases. 

  1. Companies had largely abandoned buybacks amid crisis uncertainty and belt-tightening. Buybacks also came under bipartisan political fire, particularly because their earlier aggressive use contributed to airlines’ sorry shape. Critics say the repurchases, which can provide short-term financial boosts for executives and shareholders, could be put to better use investing in growth and employees.

  2. Dozens of US businesses have changed their rules to make it easier for executives to get generous bonuses even if their company’s performance has suffered this year. Tactics include ignoring the business’s first-half financial showing. Shifting the rules for performance-based pay to favor top executives amid widespread job losses is perhaps not surprising—but should be.

A few things companies can do to help workers in this time:

  1. Let them roll over any unused vacation days into 2021. Few people managed to take the vacations they dreamed of this year, and companies can at their discretion suspend limits on rolling over days off. Plus time off is one way to fight the increasing worker burnout. (Another group of employees has exhausted time off to deal with remote schooling and family health issues, and needs more paid leave this year.)

  2. Stick to your 401k match. Some companies suspended matching contributions to retirement accounts during the crisis. But 401k matching is a powerful savings incentive—and cost-saving alternatives exist, such as giving flat matching sums rather than percentages.

  3. Help them save for emergencies. UPS is letting workers put up to 5% of their pay into rainy-day savings accounts linked to their 401ks. The idea is to incentivize savings that will help buffer any financial shocks down the line.

The future of work will involve more robots—and should involve more apprenticeships. A new World Economic Forum report found that the pandemic has accelerated companies’ use of automation and technology. 

  1. About 43% of businesses surveyed said they would shrink their workforce due to technology, while 34% said they would expand it due to technology. Administrative tasks, data entry, and accounting are among the areas being increasingly automated. Care-giving and technology-related jobs are growing, for a net employment gain.

  2. A separate report by Opportunity America and the Brookings Institution found that employer-led apprentice programs are effective at promoting economic mobility. Participants in the program studied are screened by employers, split their time between the classroom and work—and earn almost double what their peers do five years after completing it.

Finance is grappling with work from home freedoms—and surveillance. Two senior Morgan Stanley executives are leaving after the bank found they used unauthorized communication channels, including WhatsApp. The company didn’t find any wrongdoing, according to Bloomberg—but felt the need to reinforce its policy amid widespread remote working. 

  1. Banks are surveilling their workers at home, in order to ensure compliance with financial regulations and head off any illegal trading. They’re logging keystrokes, recording calls, and monitoring bathroom breaks in some cases. Roommates and audio listening devices like the Amazon Echo remain challenges.

Here are some of the best tips and insights from the past week for managing yourself and your team:

  1. Create a shadow board of young employees. This committee should include high-potential non-executive staff who bring diverse perspectives to strategic decision-making. Gucci credited its “shadow comex” with helping its turnaround, and Interbrand this year launched a “Horizon Board.”  

  2. Don’t quantify complex tasks. Employers performing sophisticated work are demotivated when their output is being measured in real time, according to a Stanford study. (When the tasks are simple, quantification motivates workers by gamifying it.)

  3. Think before asking “Where are you from?” The question can inadvertently undermine members of minority groups and reinforce unequal power structures. A better question might be “What would you like me to know about you?”


CODA


Sesame Street is social distancing. The Jordan-based puppeteers behind the Middle East version of the children’s show had to film their puppets from their homes during the pandemic lockdown. 

Those outdoor heaters used by restaurants are pretty bad for the environment.  A French energy think tank estimates that a restaurant terrace with five gas heaters operating through the winter will emit as much carbon dioxide as a car driven around the earth three times. The French government in July banned outdoor heating, used by an estimated 75% of Paris restaurants. But it delayed the ban from going into effect until the end of 2021 because of Covid.  

Merino wool prices have plummeted, amid sagging demand for suits and formalwear. Australian merino wool producers are getting half the prices they were 18 months ago, and some are shifting to produce lamb meat. Their usual buyers, Italian wool mills, are mixing lycra in with wool so it can be more easily used for casual wear.

Chewing gum sales are also suffering. They’re down about 20%, according to the maker of Wrigley gum. When people socialize less, and are wearing masks around others, they’re less likely to look to gum to freshen their breath.

The handbook for this new era of business doesn’t exist. We’re all drafting our own as we go along—and now we’d like to start doing so together. You can sign up here to receive this briefing weekly by email. Have a great week!

Reset Work

What companies are doing to navigate remote work, reopen safely, and reset their practices for the long-run.