Sudden jump in D.C.'s tax revenues helped by action on corporate tax shelters
"A little-noticed part of the story behind DC’s $417 million surplus is that corporate income tax collections jumped substantially in 2012. In fact, it was the largest single-year jump in 20 years. A major factor behind the dramatic increase is that DC’s leaders took steps in recent years – which DCFPI had promoted – to close tax shelters used by large multi-state corporations. The tax reform, known as “combined reporting,” was implemented in the District in 2012."The graph shows the remarkable increase in the tax take. Combined Reporting is one of the two core components of Unitary Taxation. (A combined report on an international basis is a single set of worldwide consolidated accounts in each country where it has a business presence; the other key component of unitary taxation is the apportionment of global profits out to the different jurisdictions to tax at their own rate.)
The DCFI report and associated testimony highlights that Combined Reporting is not the only reason for the tax increases, but it is a significant one.
"Without combined reporting, large multi-state corporations can shift their reported income and profits among various subsidiaries in ways that reduce the profits reported in any given state. Beyond the problem of avoiding taxes, this also creates an unfair advantage over local businesses, which don’t have any way to shift their profits. Combined reporting requires corporations to report the income of all subsidiaries together and then apportion that total income among the states where they do business. It is viewed as the most comprehensive way to close corporate tax shelters, and is now used by 23 states and the District."Now as it happens, the OECD has just published a major new policy report that opens the way for potentially radical changes to the international tax system. We will make sure they see this.
Hat tip: E.J. Fagan.