Corporate Trickery: Rep Claims Big Businesses Dodge State Taxes
Monday, May 30, 2011
Multi-state or multi-national corporations would no longer be able to avoid Rhode Island taxes by keeping their profits in out-of-state entities under legislation being pushed by first-term state Rep. Teresa Tanzi.
The bill, which the House Finance Committee held a hearing on last week, would require what is known as "combined reporting" from these large corporations, meaning they would have to combine all their subsidiaries as a singular entity, and then pay taxes to the state based on the profit or loss of their operations in Rhode Island.
Twenty-three states have already adopted combined reporting, including California, New York and Texas. In New England, only Rhode Island and Connecticut have not moved forward with requiring more transparency from large corporations.
Corporations Evade Taxes
Tanzi maintains that small businesses are hurt by these multi-state and multi-national corporations that use what she calls a "loophole" to evade state taxes. She did not name any specific companies in the Ocean State she feels are tricking the system.
“Mom-and-pop businesses have a hard enough time as it is competing with the resources of big corporations, whose large accounting staffs know how to take advantage of this loophole," she said. "We shouldn’t be giving big companies a break that the little guys don’t have by letting them form shell corporations to skirt state taxes. This bill is about making sure these multi-state corporations are paying their fair share.”
On Wednesday, the Washington District of Columbia Council actually passed a budget that includes combined reporting as well, despite vocal opposition from the business community. Business leaders claim combined reporting only serves to raise taxes on companies that employ hundreds of residents.
Level The Playing Field
But Tanzi (below) says that isn't the case at all. She says she just wants to make it a fair situation for small businesses.
Tanzi says her legislation is supported by both the Washington-based Institute on Taxation and Economic Policy and Rhode Island's Poverty Institute.GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLAST
Tax Expert: Combined Reporting Is The Best Reform
During the hearing, Carl Davis, a senior analyst with the Institute of Taxation and Economic Policy, said corporate tax loopholes do not benefit the Rhode Island economy.
"Simply put, there is no legitimate rationale for preserving tax loopholes that encourage companies to devote their resources to accounting shenanigans but add no economic value to a company or to a state’s economy," Davis said. "Combined reporting – the single best reform available for closing such loopholes – would enhance the long-term viability of the Rhode Island corporate income tax and would have a salutary effect on tax fairness and adequacy in the state."
Davis said combined reporting will be a step in the right direction for Rhode Island.
“The adoption of combined reporting is a vitally important step towards making the Rhode Island tax system more reflective of the modern economy," he said.
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