Despite Reports, Canon Not Likely to Incur $7M Tax Penalty for Its Layoffs

Earlier this week, photo rumor sites ran with a story that alleged Canon would face tax penalties due to a recent round of layoffs. That is unlikely to happen.

Those incomplete reports were based on a story from Newsday that alleged Canon USA may have to repay tax incentives it came to with the Suffolk County Industrial Development Agency (IDA). According to an agreement between Canon USA and the IDA, the company would fall out of compliance since it laid off between 100 to 150 jobs (between 9% and 14% of its workforce, according to multiple reports), bringing it under the number of employees specifically called out in the tax abatement agreement (1,081).

The Layoffs

Regarding layoffs, Canon confirms to PetaPixel that there were position “eliminations” but declined to disclose a specific number.

“The decision was made to streamline operations and promote efficiency, achieving the performance levels required to meet our targets and remain competitive in fast-changing industries,” Canon USA’s CEO Isao “Sammy” Kobayashi tells PetaPixel. “These decisions will support the company’s ability to make decisions faster and more agilely. Canon is steadfast in its dedication to long-term sustainability and providing strong support for our customers and partners.”

Those laid off will receive severance, but the CEO did not provide details.

“We have communicated with those affected by the reorganization and are committed to providing thorough, personalized support during this transition. Being a strong and supportive employer has always been a priority of Canon’s leadership. Canon offered its standard, generous severance package for those impacted, which included salary continuation, healthcare benefits continuation, and outplacement services,” Kobayashi continues.

While the company did “eliminate” some positions at its headquarters, Kobayashi says it is hiring elsewhere.

“We have also been working to make specialized hires in several areas, such as the semiconductor sector, which is projected to grow through new and innovative technology,” he says. “We took some actions as part of a strategic plan to position Canon Americas for growth in the years ahead. We need to create a lean and robust organization that leads to profitable growth, and our innovation organization is undoubtedly a part of that plan. Our recent reorganization to drive future growth and innovation will enable us to reinvest and continue meeting our customers’ needs and maintain the highest level of service and technology. Part of that future growth includes investing in new, innovative, profitable markets. We are particularly optimistic about the medical, semiconductor, and commercial print businesses.”

The Tax Abatement

According to the Newsday report, Canon was awarded tax savings when it threatened to close its office and have employees work from home permanently. That savings would come as a tax abatement package that totals $7 million over the next 12 years.

The Suffolk County IDA considers Canon one of its success stories on its website, citing the company’s presence in Melville since 2013 and the IDA’s prior support of property tax abatement, mortgage tax and sales tax exemptions, and assistance with other government agencies. Canon’s threat last year to close its office matters to Suffolk County because a vast majority of Canon’s employees live in Suffolk County and companies, like Canon, must adhere to certain economic growth-driving obligations as part of IDA assistance.

The application document for tax abatement with the Suffolk County IDA, seen by PetaPixel, includes Canon’s full-time employee (FTE) claims and states that Canon could face some sort of penalty if it were to not maintain its FTE obligations. That said, simply laying people off doesn’t necessarily mean anything if Canon just hires new people to replace them before an annual check of its headcount.

The IDA is scheduled to meet with Canon USA leadership later this month to discuss the situation and evaluate the company’s standing.

“The Suffolk County IDA (“Agency”) has been in discussion with Canon U.S.A’s (“Canon”) leadership regarding its reorganization and job retention initiatives in Melville. We will be meeting with Canon’s executive team later this month to discuss their intentions to remain in compliance with their commitments to jobs and investment at their facility. The Agency and its Board of Directors will continue to monitor the situation to ensure they meet their obligations, which take effect in 2025,” Kelly Murphy, the Suffolk County IDA CEO and Executive Director tells PetaPixel in a prepared statement.

While neither the IDA nor Canon commented on the matter, it appears that Canon could recoup the jobs it eliminated through a planned merger with Canon Solutions America, which was previously a Canon USA subsidiary business.

In a report from Long Island Business News (LIBN), the reduction of Canon USA staff took place in preparation for a merger with Canon Solutions America which brings its multiple groups under a single marketing organization.

Additionally, even if Canon needed to renegotiate the terms of its tax incentives with the Suffolk County IDA, the idea that it would need to pay back $7 million is inaccurate. The agreement with the IDA is set to start in January 2025 and it is PetaPixel‘s understanding that no abatement has actually been granted yet, therefore there would be nothing to claw back. At worst, Canon would simply no longer qualify for future tax abatement, although as stated it likely will still qualify thanks to the merger.

Canon USA’s consolidation and internal restructure comes as it struggles with a steady drop in sales over the last 16 years, LIBN reports, despite the profits realized by its Tokyo-based parent company due mainly to the weakness of the yen versus international currencies.

“While Canon enjoyed a successful first half on a global basis, Canon Americas continues to travel down a path that is not sustainable,” Kobayashi writes in a memo, LIBN notes. “…despite our best efforts, we could not achieve as much revenue and profit as the first half last year. Our profitability is hurt by the fact that our operating expenses are too high. Our operating profit ratio is smaller than many of our competitors, leaving us at a disadvantage.”

Story produced thanks to additional reporting by Jeremy Gray