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Demand, Not Local Tax Kickback, Drive Custom Touch Job Growth

The City of Madison is helping Custom Touch Homes fleece out-of-town customers with a hidden sales tax kickback. In a deal cut last spring, Custom Touch collects local sales tax on every home it sells, and the city remits half of those collections back to Custom Touch. Madison justifies this kickback as an incentive for Custom Touch to create 50 jobs in three years.

However, Custom Touch needed no such incentive. As suspected, market conditions would have driven Custom Touch to create new jobs without the tax kickback:

Demand for the homes built here has been so great that Scott Larson, co-owner of Custom Touch, said the firm had to find ways to supplement its hired house-moving contacts.

"Essentially, we went into the business ourselves. Today six individuals spend the bulk of their time moving homes built by the firm," said Larson.

...Expansion of the oil exploration fields in North Dakota has created a demand for homes built in Madison, but so has the number of private homes the firm has built over the years.

The mild weather has been a godsend for the firm because they've been able to not only build but also move the completed homes to their ultimate destinations, many of them by utilizing the firm's own house movers [Gale Pifer, "Custom Touch Growth Includes House-Moving," Madison Daily Leader, 2012.01.09].

Can anyone tell me with a straight face that Custom Touch would have declined to jump at the market opportunity presented by the North Dakota oil boom if Madison hadn't agreed to pour a little gravy on its meat and potatoes? It's the demand, stupid.

Particularly galling to North Dakota oil patch residents should be the fact that this unnecessary job incentive program denies struggling North Dakota municipalities desperately needed tax dollars. Dickinson, a town of 17,800, has added 2,300 new housing units. Williston, a town of 14,700, has added 2,000 new housing units. Watford City, a town of 1,700, has added 1,000 new housing units.

This population explosion is straining local infrastructure and public services beyond the breaking point. Crosby, North Dakota, Journal editor Cecile Krimm characterizes the situation as a disaster:

It's time for the state to declare northwestern North Dakota an economic disaster area -- not for lack of jobs or low wages &ndash but a societal disease characterized by skyrocketing rents, an inadequate labor pool and the complete overwhelming of existing public infrastructure.

...Department of Mineral Resources Director Lynn Helms last week threw out a figure of another 50 oil rigs coming on line in North Dakota this winter, which will require an additional 4,600 workers.

That may sound exciting to someone sitting in Bismarck, but from my vantage point it's a little like telling Minot they better prepare for a bigger flood than the one that already swallowed 4,000 homes last year.

Helms is talking about flooding this region with an additional population equivalent to the current populations of Burke and Divide counties COMBINED.

We cannot take anymore [Cecile Krimm, editorial, Crosby Journal, quoted by Chet, "Crosby Journal Editor Calls for 'Economic Disaster' Declaration in the Bakken," North Decoder, 2012.01.04].

Northwestern North Dakota communities need every tax dollar they can get to provide infrastructure and services to their burgeoning populations. Custom Touch used to pay sales tax to the communities where its homes were delivered. Now Custom Touch tells customers they are paying sales tax, but sucks that money back to Madison so it can put half of those public dollars in its own pocket.

I'm sure Custom Touch isn't the only outfit taking advantage of oil boom economics to reap bigger profits while social problems increase. But to claim they need a tax incentive to participate in this boom masks a three-card-Monty mentality. North Dakota's communities need those tax dollars a lot more than Custom Touch and Madison do.


  1. Nick Nemec 2012.01.10

    What does the SD Department of Revenue have to say about this? Doesn't state law dictate the procedures and methods for the collection of sales tax, even if it is local sales tax?

  2. caheidelberger Post author | 2012.01.10

    Last year Custom Touch said they worked out a deal with the Department of Revenue to permit this deal. Madison collects the tax, then funnels the money to the LAIC, which remits the money to Custom Touch for the incentive program. It's probably legal; it's definitely skuzzy.

  3. Nick Nemec 2012.01.11

    This smacks of crony capitalism.

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