This week we have another guest blog from our friend Karla Dennis from Cohesive Tax in California.   

First of all, this missive has nothing to do with the actual Arizona illegal alien law. It takes no stance either way. The people, the courts, and law enforcement will handle that.

But, being a tax strategist, let’s look at the fiscal side of this and the repercussions. 

Cities from San Francisco to New York are declaring boycotts on Arizona and its products (like Arizona brand Iced Tea…which is made in New York). California and other states are placing moratorium on official travel and meetings held in Arizona.

Legal challenges are being raised across the land. “Huge” rallies are being planned for May 1st and 5th to protest. (Actually, the first is the traditional Communist Day which is not a good connection to make.  The fifth is Cinco de Mayo…a big drinking holiday out here that is not even celebrated highly in Mexico.  Either day will not make the point effectively. )

The end product is to economically cripple Arizona into submission. 

So, how effective will this all be? 

Shall we start with the basics? First of all 74% of the nation in the last Rasmussen poll were in favor of the law. Even the lowest percentage, in Arizona itself, showed that 64% favored the new law.  Only 30% in most cases were opposed.  So, the boycott is an uphill battle from the start and is only likely to be counterproductive and embolden other states to follow the Arizona lead since it is popular. 

Most conventions or public meetings are scheduled long in advance. There are deposits that will be lost, extra expense in locating and booking and supplying other locales in other states.  Oh yes, there are also all those angry conventioneers that will also lose lots of money in cancelled and altered flights, hotel reservations, convention fees…if they even decide to go to the new, last minute convention in another state at all!  Someone else’s knee jerk protest is costing lots of people lots of money.  Angry? You bet! But not necessarily at Arizona policy. More likely, the ire will be directed at those who changed the existing meeting plans.  Yes, there will be tax deductions lost, that’s my area of course. 

So, hotels and airlines are really pleased at all this. A few convention centers will also thrive. 

Oh yes, those hotels and convention centers may just be in Arizona…since there may be some cancellations, there may be steep discounts available. One can have a great meeting in a great city like Phoenix for a lot less money! And the claims that so many conventions are being cancelled? Consider that this law passed last Friday. In less than a week, how many major conventions get cancelled outright in the Fifth Largest City in America? The claims ring hollow. 

An official boycott means halting business with the target entity. After the California legislature began saber rattling to declare a boycott, the California Department of General Services, the state’s main procurement arm, quickly identified 73 private companies based in Arizona to which it has awarded contracts. Those contracts were worth a combined $10.3 million in the past year, and included computer manufacturers, human resources companies, a fertilizer maker, a publishing house, janitorial suppliers, and others. Cancelling those suppliers, who represent the best negotiated price, and then renegotiating with higher priced suppliers, in more distant states, will drive prices for the nearly bankrupt California state much higher…all on an emotional tirade. Oh yes, the reason I bring this up is because I am a tax strategist.  Just a reminder: the state doesn’t have money. It buys things via its taxation of the citizens. So, YOU are going to pay much more in taxes because of the legislature’s outrage.  You might just be outraged, too…but in a different direction. 

Now, the main focus of this is something called backlash. If the people who are losing money on cancelled conventions and increased taxes take note of the groups, politicians and cities protesting Arizona and decide to quietly boycott THEM… 

Consider the negative impacts on Los Angeles, San Francisco and New York when travel there and meetings are curtailed. I hear there are some great deals in Arizona right now. And Phoenix just happens to be the fifth largest city in the nation. They can have an impact also. 

The smart money will see that Arizona may have some really great opportunities here. As a tax strategist, all these economic changes brought on by emotional changes creates more business for firms like mine. In the end, it will have little effect beyond the deductions on the tax forms and the amount people end up paying…both now and in the future. 

To Your Success…financially, of course.

Karla Dennis – The Tax Diva


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