Arnold: Corporate Tax Evasion is AOK!

A GovernorPhil writer mentioned one of the many bills lost in the clutter that show Arnold's true colors, namely rewarding his friends and political allies. There was another example of that yesterday when the Governor vetoed AB675, the Honest Corporate Tax Reporting Act.

Phil's blog has some commentary on this issue:

Specifically, AB 675 would stop the corporate practice of providing one set of books to shareholders and another set to tax boards, and it would have been a critical deterrent to corporations seeking to hide money in offshore tax havens.

According to the Franchise Tax Board, AB 675 would have been “a significant audit tool,” which “could assist auditors in identifying tax shelter activity and could dissuade some taxpayers from entering in tax avoidance schemes.”

In response to Schwarzenegger’s partisan move on behalf of corporate special interests, Phil said the following:

“Arnold Schwarzenegger piles burdens on middle class families but won’t even lift a pen to sign Democratic legislation to make big corporations pay the taxes they owe and make them accountable to their shareholders and employees.”

This type of double-bookkeeping is standard operating procedure in Hollywood. It's how the studios could claim that Forrest Gump lost money despite grossing over $657 million dollars worldwide. So it should be no surprise that Schwarzengger would sanction such a practice. In fact, he knows how to get around it - as long as it impacts his bottom line:

Consider, for example, the demystification that might emerge from an unrestricted interview with Governor Arnold Schwarzenegger if he were to candidly answer questions about the contract for his last movie, Terminator 3. Here is what he would say if he candidly described the terms in his contract.

Q: Governor Schwarzenegger... How much did you make?

A: That depends on whether you’re asking about guaranteed or contingent compensation. The guaranteed part is “play-or-pay,” of course.

Q. How much was that guaranteed “pay-or-play” fee?

A. $29,250,000.

Q. Plus bus fare...?

A. Actually, yes, the contract did include a perk package to cover essentials. It provided a lump-sum payment of $1.5 million for private jets, a fully equipped gym trailer, three-bedroom deluxe suites on locations, round-the-clock limousines, personal bodyguards--that sort of thing.

Q. So, let’s see--you made $30, 750,000 on this film?

A. Not including my contingent compensation.

Q. And what is that contingent on?

A. The movie reaching what is known as “cash break-even.” According to my contract, once the movie reaches cash break-even, I get a sum equal to 20 percent of the total adjusted gross receipts from every market in the world--including movie theaters, videos, DVDs, television licensing, in-flight entertainment, game licensing, and so forth.

Q. But doesn’t Hollywood accounting famously use smoke and mirrors to make sure movies never reach “break-even”?

A. Of course you hear about that happening to weaker players and girly men, but my contract--thanks to my lawyer, Jacob Bloom--is pretty tough. Take video and DVD sales, for example. Under the standard Hollywood contract, studios only credit the film with a video “royalty” equal to 20 percent of the sales. That means that if DVD sales total $20 million, only $4 million of that is counted towards reaching the break-even point.

Q. And in your contract?

A. The royalty is calculated at 100 percent of total video and DVD sales in determining my cash break-even. So if $20 million worth of DVDs are sold by Warner Brothers, $20 million is counted towards reaching the threshold where I begin collecting my 20 percent.

Q. Of course, you have to depend on the studios to tell you when that point is reached.

A. Not in my case. Jake Bloom--He is brilliant!--built a clause into my contract that triggered my contingent compensation once Daily Variety’s weekly box-office chart showed either that the total domestic box-office receipts had exceeded $155 million or that the world gross had exceeded $380 million.

You should read Edward Jay Epstein's entire explanation of Arnold's T3 contract. It's amazing.

So basically, when it comes to Arnold getting paid, he negotiates a contract that strictly limits corporate shenanigans. When it comes to the state of California getting what they're owed, there are no such limits. Corporations can continue to rip off the state, as long as the governor gets his. And in so doing, he basically says that it's perfectly fine for companies to deceive both shareholders and the government, minimizing their profits for tax assessors and maximizing them for their investors.