Navigating the maze

1011maze

Regulatory burdens cause headaches, confusion and additional time, stress and money for business owners

Story by Lee Marie Reinsch

Ask anyone who’s had a run-in with the state Department of Natural Resources, and they’ll tell you DNR stands for “Department of Neverending Regulations.”

Granted, many edicts placed on business and industry are intended for the good of animal, vegetable and mineral. But many, it would seem, are in place simply to give business owners cluster headaches.

And if you’ve ever torn your hair out over the latest batch of bone-headed red tape, you might even suspect a conspiracy between the government and Rogaine.

“Wisconsin in many instances goes way above and beyond other states and what most people would see as appropriate,” said Jeff Landin, president of the Wisconsin Paper Council. “That makes it much more difficult to be competitive.”

A weak economy isn’t the time to strong-arm businesses with regulations, say representatives from leading northeast Wisconsin industries.

Manufacturing…or just making stuff up?

What drives Wisconsin Manufacturers & Commerce insane: Basically, all of the invisible fairy dust that enables the Wisconsin Department of Revenue to change its mind more often than it changes its tighty-whities.

While WMC’s James Buchen likes to focus on the positive, he’s not that averse to rattling off a few of his beefs about the state’s quirks. One of those is the state Department of Revenue’s little habit of reneging on its rulings, according to Buchen.

“If the Department makes a determination in an audit, it has to stick by that determination. It can’t change its mind on the next audit and decide that the transaction is taxable,” Buchen said.

WMC supports a taxpayer protection proposal that includes, among other things, that the Department of Revenue hold more consistency on its decisions.

“It requires them to issue binding guidance. If they provide written guidance to taxpayers at their request, they have to be bound by it; they can’t just change their minds willy-nilly like they do currently and decide something’s taxable all of a sudden,” said Buchen.

Case in point: A bank decided to set up an investment subsidiary in Nevada, which has no corporate income tax. (What’s earned in Vegas stays in Vegas.) Other banks dug the idea and sought written advice from the Department of Revenue regarding the admissibility of such an arrangement. Other banks followed suit after the Department of Revenue gave its blessing.

“Subsequently, they just changed their mind, decided these people were all bad actors, and they were going after them,” Buchen said of the Department of Revenue.

Although many criticized the banks, it’s beside the point.

“Whether or not you think it was a good idea or sound public policy to (establish branches in states with no income tax), the fact is, the Department of Revenue told them it was OK,” Buchen said. “To me it’s just an example of how the Department shouldn’t be operating.”

Buchen hopes another clump of red tape gets unstuck: the tax on benefits for adult dependent children.

“Under Obamacare, health insurance for dependent children was extended to age 26. Normal healthcare benefits aren’t taxed, but coverage for the extension to dependent children was; we’re trying to get the legislation to extend the tax exemption,” Buchen said.

Buchen said fear of lost revenue probably prompted the decision to tax the added benefits.

“But it’s more of a huge irritant more than a big revenue generator,” Buchen said.

Cooking up les absurdités

What fried the Wisconsin Restaurant Association: The strange byproduct of the streamlined sales tax code forcing pizzerias that offered buy-one, get-one-free pizzas to pay sales tax on the cardboard box from the pizza they gave away, even though they weren’t earning money from the sales of these free pizzas.

“We had members shelling out $1,000 to accountants to calculate what amounted to $15 in sales tax,” said Peter Hanson, director of government relations for the Wisconsin Restaurant Association.

Hanson is pleased that as of July 1 of this year, restaurants don’t have to pay sales tax on the cardboard from free pizza, plenty of other things stick in his craw and the craws of the state’s 19,000 restaurants.

Like the idiosyncrasy in the sales tax law that doesn’t impose tax on items like pies and loaves of bread that some restaurants sell as to-go items. For tax purposes, a mammoth muffin from the bakery case at Perkins counts as a grocery item – that is, it’s not taxed if it’s not for in-store eating.

If a restaurant employee includes a napkin, plastic fork, or anything else that would indicate the item is to be eaten in the restaurant, then it’s considered restaurant food and thus subject to sales tax.

Another of Hanson’s prime peeves: The 2009 Wisconsin Act 20, which gives state courts the ability to impose punitive and compensatory damages on employers found guilty of discrimination. Prior to this act, plaintiffs had to go to federal court to seek punitive and compensatory damages for pain and suffering, loss of companionship, anguish and other non-quantifiables.

“It’s easier and cheaper to file in state court, and what (2009 Wisconsin Act 20) has done is created a situation where attorneys looking to get a third of a big payout start filing new claims and taking on cases they wouldn’t have otherwise because there wasn’t enough evidence to take a case to court or the dollars weren’t big enough for them to take the case on a contingency basis,” Hanson said.

Once such cases are filed, and the employer is faced with the spectre of huge legal fees and possibly a $300,000 payout, the employer is forced to settle for mere tens of thousands of dollars to make the case go away.

And don’t get Hanson started on the oleomargarine thing. For the record, WRA hasn’t taken a hardline stance on that issue.

Mr. Gorbechev, put a sprinkler on that wall!

What gets Associated Builders & Contractors’ knickers in a twist: Wisconsin’s commercial building non-code, which enables individual municipalities to impose stricter mandates than anywhere else in the United States.

“I think most people in our country and in our state feel that we are regulated enough and that if a state creates regulation to build all commercial buildings in the state, that’s probably going to be pretty onerous in and of itself,” said Steve Klessig, vice president of architecture and engineering for Kaukauna-based Keller Inc. and a member of ABC.

In 2001, Wisconsin adopted the International Building Code for commercial buildings with one caveat: Communities can be more stringent than the code. Essentially, that’s meant nothing is guaranteed uniform across the board.

“The reason it becomes onerous for the construction industry, for architects and for building owners, is that we never know what building committee in what town is going to pass one of those rules tomorrow night at their meeting, and it’s almost impossible for us to keep track of who’s passing what rules concerning the building code,” Klessig said.

The campaign his group is leading for a uniform commercial building code doesn’t interfere with a community’s right to create covenants, but pertains to things like materials, size and sprinkler systems.

Senate Bill 32 would eliminate the current patchwork quilt of codes that vary from municipality to municipality and establish a uniform commercial building code for the state, said John Mielke, vice president of Associated Builders & Contractors.

Uniformity has long been the norm for one- and two-family housing, small apartment buildings, and manufactured homes.

“The last bastion left that is not uniform is commercial building, and that is something our organization is promoting this legislative session,” Mielke said.

Building and designing structures that can be built in different parts of the country, using one set of standards, would benefit economic development, Mielke said.

“If Wisconsin is going to be in the place where we realize an economic development – and we all hope that’s right around the corner – one of the things we’d like to do is make sure that when we’re ready for that building to take place, we are situated the best we can be to accommodate that building,” Mielke said. “We think a big part of that will be a uniform commercial building code.”

Paper: Between a rock and a…scissors

Woe to the lowly piece of paper. If it’s not being replaced by pixels and tweets, it’s being accused of stinking up the place. It might seem to those in the biz that its only remaining acceptable use is to print more legislation regulating its manufacture.

“The paper industry is without a doubt the most heavily regulated industry in Wisconsin,” said Wisconsin Paper Council President Jeff Landin.

It’s not necessarily a bad thing, Landin said. “We do impact a lot of areas: we use a lot of water, and our factories have a lot of boilers, so we are putting emissions into the air. We rightly should be impacted by regulations.”

After the PCB drama in the lower Fox River during the past two decades, it might be hard for many to feel sorry for the wafer-thin paper industry. But Landin said his members are encountering more and more regulatory hurdles on both air and water pollutants that they would argue have “little or no impact on the environment.”

An example: The new phosphorous regulations that took effect in July. While the vast majority of phosphorous that goes into lakes, rivers and streams comes from sources difficult to regulate, the cost is being born by a small segment of emitters of phosphorous, Landin said.

“There is still a tremendous amount of phosphorous going into the water. It’s putting tremendous costs on industry and utility companies, which get passed on to homeowners,” Landin said. “At the end of the day, it’s for very little benefit.”

The regulations, which promise to become ever stricter, present a catch 22 for the industry, according to Landin. Paper requires a lot of water – one part fiber to 99 parts water – and most paper mills have their own wastewater treatment facilities. Phosphorous is used to feed the microbes that treat the water.

Wisconsin paper mills do meet the guidelines for minimum phosphorus usage, but the Paper Council fears more stringent regulations not only on phosphorus but boiler emissions will drive paper companies out of the state.

Dairy: Unreasonable records requirements

The big surprise: Paperwork, paperwork, paperwork.

Lest anyone feel like unloading about what a pile of $#&% all these regulations are, please don’t do it in front of a dairy farmer. They have enough recordkeeping to do.

Farmers with lots of livestock need to have nutrient management plans in place, which involves recording where and when and how much animal waste gets spread.

“The regulations are pretty reasonable, but it is a paperwork overload, to tell them where we did it, when we did it, why we did it,” said Daphne Holterman of Rosy-Lane Holsteins near Watertown.

Probably the most challenging regulations are the zoning permits and land-use plans, she said.

“We have to have a conditional use permit in our county to operate our dairy because of the size, and we have to renew that every five years, and right now we are renewing our state DNR permit,” Holterman said. “I suppose some of these regulations are supposed to save farm land, but I haven’t seen much of that.”

She said she and her fellow farmers would probably do 90 percent of what’s required without being told, simply because they’re good stewards of the land.

“You can’t just start farming,” Holterman said. “I think a lot of young people new to farming will be surprised at how many regulations there are.”

Building a new barn or installing a manure lagoon requires permit after permit, and all of the hoops farmers need to jump through can really delay the process, Holterman said.

“It can double the time, just waiting for a permit, then a meeting, then another permit, then waiting for someone to stamp the plans. It works its way through eventually,” she said.

“We have some regulations that annoy us more than they would hinder us,” Holterman said. Many of the regulations, she feels, are more appropriately suited to a factory or business with four walls – things like electrical outlets needing covering, and well-labeled fire exits.

Most farmers are excellent stewards of the land and water, she said. “If we don’t preserve it for the next generation, it won’t be here.”

Lee Reinsch writes and edits from Green Bay.