Opposes Linking Proposal to Debate on Corporate Tax
Rates
(Boston)
MASSPIRG praised the recommendations of the Special
Commission on Corporate Taxes to close tax loopholes, and opposed attempts to
link the reform to lowering of the overall corporate tax rate.
The Commission recommended
closing a number of loopholes – two critical and long overdue ones are commonly
known as Check the Box and Combined Reporting. The Check the Box reform, already
in place in 45 states, simply requires that corporations file as a
consistent corporate form on both Massachusetts
and federal taxes. For example, it prevents companies from declaring themselves
a corporation on their federal returns, but as a partnership in Massachusetts. This reform alone will prevent an estimated
$170 million in corporate tax avoidance. “Imagine declaring yourself a married
homeowner on your federal tax return and a single renter on your state return,
depending on which gets you the better deal,” said Deirdre
Cummings, legislative director for MASSPIRG, “most of us
think it’s just wrong. The IRS and
Department of Revenue wouldn’t let citizens get away with that kind of shell
game; they shouldn’t let businesses either.”
The other loophole-closing reform, called Combined
Reporting, is another significant step towards preventing some of the extreme
tax avoidance practices going on today, while also serving to eliminate a wide
array of potential future loopholes that tax collectors haven’t yet caught
onto.
Combined Reporting will put an end to the elaborate shell
games that some businesses play with out-of-state subsidiaries, avoiding an
estimated $220 million annually in state taxes. These schemes leave in-state
businesses that pay their full share of taxes at a competitive disadvantage. Twenty-two states have adopted combined reporting
laws, including our neighbors in New Hampshire,
Maine, and Vermont. Combined Reporting will put an end
to tricky tax-avoidance transactions between subsidiaries by requiring
affiliated firms to file taxes together and pay taxes based on their combined
in-state business activity.
“When multi-state businesses fail to pay their taxes,
regular households and companies without high-priced accountants end up picking
up the tab,” said Cummings.
“Combined reporting will help Massachusetts companies that currently pay
their taxes but compete against multi-state companies that do not,” said Phineas Baxandall, Senior Analyst for Tax and Budget
Policy for U.S. PIRG, the federation of state PIRGs. “This tax reform does away
with a thousand tax loopholes at once. As more states catch on, fewer companies
will waste their time on sham transactions and subsidiaries. This is a big step
toward fairer state taxes and fairer competition among business.”
Lastly, MASSPIRG argued that the loophole closings stand on
their own merits and should not be linked to other changes in the corporate
income tax rate. “Restoring the integrity of our tax system by closing gaps in
the rules,” said Cummings, “should not be held hostage to separate issues about
the appropriate tax rate.” Likening the situation to current sport scandals,
she continued, “Imagine the uproar if Barry Bonds had told Major League
Baseball that he’d be willing to give up steroids if the home run fences were
moved in far enough.”
