Revised
September 12, 2007
GROWING NUMBER OF STATES CONSIDERING
A KEY CORPORATE TAX REFORM
By Michael Mazerov
A growing number of states are giving serious
consideration to a major reform in their corporate income taxes long advocated
by state tax experts. The governors of six states — Iowa, Massachusetts,
Michigan, New York, North Carolina, and Pennsylvania — all recommended in 2007
that their states implement this policy, which is known as “combined
reporting.” New York enacted combined reporting legislation retroactive to the
beginning of 2007 as part of the state’s budget bill for FY2007-08. Michigan
included combined reporting in its newly-enacted “Michigan Business Tax,” which
will take effect in 2008. And West Virginia enacted combined reporting as well,
effective with the 2009 tax year.
Most large multistate corporations are composed
of a “parent” corporation and a number of “subsidiary” corporations owned by the
parent. Combined reporting essentially treats the parent and most subsidiaries
as one corporation for state income tax purposes. Their nationwide profits are
combined — that is, added together — and the state then taxes a share of that
combined income. The share is calculated by a formula that takes into account
the corporate group’s level of activity in the state as compared to its activity
in other states.
By requiring corporate parents and subsidiaries
to add their profits together, combined reporting states are able to nullify a
variety of tax-avoidance strategies large multistate corporations have devised
to artificially move profits out of the states in which they are earned and into
states in which they will be taxed at lower rates — or not at all. These
strategies cost the non-combined reporting states billions of dollars of lost
corporate income tax revenue they need to finance essential public services,
like education and health care. Households and small businesses, which do not
have the opportunities or resources to engage in interstate income-shifting, end
up paying higher taxes than necessary to make up for the taxes that large
corporations are able to avoid.
Growing Consideration of Combined Reporting
Sixteen states — slightly more than one third of
the states with corporate income taxes — have mandated and successfully used
combined reporting for decades. (See Figure 1.) Until recently, however, that
group had not expanded at all — not even after the U.S. Supreme Court ruled in
1983 that combined reporting was a fair and constitutional method of taxing
multinational (and, by extension, multistate) corporations.
That inertia is now being overcome. Five states
have enacted combined reporting legislation in the past three years, and serious
consideration of combined reporting is occurring in a number of other states:
- In 2004, Vermont became the first state in
more than 20 years to adopt combined reporting, effective in 2006.
- In adopting a new general business tax in 2006
to substitute for its corporate income tax, Texas also mandated combined
reporting (effective 2008). Although the new tax differs in significant ways
from a traditional income tax, the decision to require combined reporting was
based on the same basic understanding that underlies the inclusion of combined
reporting in state corporate income tax structures — that failure to do so
gives corporations free rein to artificially shift taxable income out of the
state.
- In March 2007, the West Virginia legislature
adopted combined reporting, effective with the 2009 tax year.
- As part of the state budget bill approved in
April 2007, the New York legislature accepted Governor Eliot Spitzer’s
recommendation that the state require combined reporting, retroactive to the
beginning of 2007.
- In July 2007, Michigan Governor Jennifer
Granholm signed into law a new “Michigan Business Tax” to replace the state’s
former “Single Business Tax.” The new tax is a hybrid tax on corporate gross
receipts and corporate profits and mandates the use of combined reporting.
- Four other governors — Governor Michael Easley
of North Carolina, Governor Chet Culver of Iowa, Governor Deval Patrick of
Massachusetts, and Governor Edward Rendell of Pennsylvania — all recommended
as part of their FY08 tax and budget packages that their states adopt combined
reporting. In Massachusetts, combined reporting remains under consideration
by a business taxation study commission that is expected to issue its
recommendations before the end of 2007.
There has also been serious discussion or
consideration of combined reporting in a number of other states in recent years:
- The 2003 Blue Ribbon Tax Reform Commission in
New Mexico recommended that the state adopt combined reporting.[1]
- In a November 2003 report, the Florida Senate
Committee on Finance and Taxation wrote: “There are several changes in the
Florida Income Tax Code that the legislature should consider to prevent
further erosion from tax avoidance strategies by corporations that are taxable
under current law: 1. Adopt combined reporting to nullify the use of passive
investment companies and other corporate tax avoidance strategies. . . .”[2]
- In a March
2003 report, the Ohio Committee to Study State and Local Taxes identified
combined reporting as a policy option for the state worthy of further
consideration. It stated: “Unitary taxation [another term for combined
reporting] is a constitutionally sanctioned tax system that treats corporate
groups as a single business enterprise for income tax purposes. The result is
a more fair tax picture for a business enterprise. This approach reduces many
of the tax planning opportunities that affect the current Ohio tax.”[3]
- Bills to mandate the use of combined reporting
were introduced in 2007 legislative sessions in at least two states in
addition to the six in which the governor recommended it, Maryland (HB 553/SB
393) and New Mexico (HB 535).
A growing number of states are giving serious
consideration to a major reform in their corporate income taxes long advocated
by state tax experts. The governors of six states — Iowa, Massachusetts,
Michigan, New York, North Carolina, and Pennsylvania — all recommended in 2007
that their states implement this policy, which is known as “combined
reporting.” New York enacted combined reporting legislation retroactive to the
beginning of 2007 as part of the state’s budget bill for FY2007-08. Michigan
included combined reporting in its newly-enacted “Michigan Business Tax,” which
will take effect in 2008. And West Virginia enacted combined reporting as well,
effective with the 2009 tax year.
Most large multistate corporations are composed
of a “parent” corporation and a number of “subsidiary” corporations owned by the
parent. Combined reporting essentially treats the parent and most subsidiaries
as one corporation for state income tax purposes. Their nationwide profits are
combined — that is, added together — and the state then taxes a share of that
combined income. The share is calculated by a formula that takes into account
the corporate group’s level of activity in the state as compared to its activity
in other states.
By requiring corporate parents and subsidiaries
to add their profits together, combined reporting states are able to nullify a
variety of tax-avoidance strategies large multistate corporations have devised
to artificially move profits out of the states in which they are earned and into
states in which they will be taxed at lower rates — or not at all. These
strategies cost the non-combined reporting states billions of dollars of lost
corporate income tax revenue they need to finance essential public services,
like education and health care. Households and small businesses, which do not
have the opportunities or resources to engage in interstate income-shifting, end
up paying higher taxes than necessary to make up for the taxes that large
corporations are able to avoid.
A growing number of states are giving serious
consideration to a major reform in their corporate income taxes long advocated
by state tax experts. The governors of six states — Iowa, Massachusetts,
Michigan, New York, North Carolina, and Pennsylvania — all recommended in 2007
that their states implement this policy, which is known as “combined
reporting.” New York enacted combined reporting legislation retroactive to the
beginning of 2007 as part of the state’s budget bill for FY2007-08. Michigan
included combined reporting in its newly-enacted “Michigan Business Tax,” which
will take effect in 2008. And West Virginia enacted combined reporting as well,
effective with the 2009 tax year.
Most large multistate corporations are composed
of a “parent” corporation and a number of “subsidiary” corporations owned by the
parent. Combined reporting essentially treats the parent and most subsidiaries
as one corporation for state income tax purposes. Their nationwide profits are
combined — that is, added together — and the state then taxes a share of that
combined income. The share is calculated by a formula that takes into account
the corporate group’s level of activity in the state as compared to its activity
in other states.
By requiring corporate parents and subsidiaries
to add their profits together, combined reporting states are able to nullify a
variety of tax-avoidance strategies large multistate corporations have devised
to artificially move profits out of the states in which they are earned and into
states in which they will be taxed at lower rates — or not at all. These
strategies cost the non-combined reporting states billions of dollars of lost
corporate income tax revenue they need to finance essential public services,
like education and health care. Households and small businesses, which do not
have the opportunities or resources to engage in interstate income-shifting, end
up paying higher taxes than necessary to make up for the taxes that large
corporations are able to avoid.
Growing Consideration of Combined Reporting
Sixteen states — slightly more than one third of
the states with corporate income taxes — have mandated and successfully used
combined reporting for decades. (See Figure 1.) Until recently, however, that
group had not expanded at all — not even after the U.S. Supreme Court ruled in
1983 that combined reporting was a fair and constitutional method of taxing
multinational (and, by extension, multistate) corporations.
That inertia is now being overcome. Five states
have enacted combined reporting legislation in the past three years, and serious
consideration of combined reporting is occurring in a number of other states:
- In 2004, Vermont became the first state in
more than 20 years to adopt combined reporting, effective in 2006.
- In adopting a new general business tax in 2006
to substitute for its corporate income tax, Texas also mandated combined
reporting (effective 2008). Although the new tax differs in significant ways
from a traditional income tax, the decision to require combined reporting was
based on the same basic understanding that underlies the inclusion of combined
reporting in state corporate income tax structures — that failure to do so
gives corporations free rein to artificially shift taxable income out of the
state.
- In March 2007, the West Virginia legislature
adopted combined reporting, effective with the 2009 tax year.
- As part of the state budget bill approved in
April 2007, the New York legislature accepted Governor Eliot Spitzer’s
recommendation that the state require combined reporting, retroactive to the
beginning of 2007.
- In July 2007, Michigan Governor Jennifer
Granholm signed into law a new “Michigan Business Tax” to replace the state’s
former “Single Business Tax.” The new tax is a hybrid tax on corporate gross
receipts and corporate profits and mandates the use of combined reporting.
- Four other governors — Governor Michael Easley
of North Carolina, Governor Chet Culver of Iowa, Governor Deval Patrick of
Massachusetts, and Governor Edward Rendell of Pennsylvania — all recommended
as part of their FY08 tax and budget packages that their states adopt combined
reporting. In Massachusetts, combined reporting remains under consideration
by a business taxation study commission that is expected to issue its
recommendations before the end of 2007.
There has also been serious discussion or
consideration of combined reporting in a number of other states in recent years:
- The 2003 Blue Ribbon Tax Reform Commission in
New Mexico recommended that the state adopt combined reporting.[1]
- In a November 2003 report, the Florida Senate
Committee on Finance and Taxation wrote: “There are several changes in the
Florida Income Tax Code that the legislature should consider to prevent
further erosion from tax avoidance strategies by corporations that are taxable
under current law: 1. Adopt combined reporting to nullify the use of passive
investment companies and other corporate tax avoidance strategies. . . .”[2]
- In a March
2003 report, the Ohio Committee to Study State and Local Taxes identified
combined reporting as a policy option for the state worthy of further
consideration. It stated: “Unitary taxation [another term for combined
reporting] is a constitutionally sanctioned tax system that treats corporate
groups as a single business enterprise for income tax purposes. The result is
a more fair tax picture for a business enterprise. This approach reduces many
of the tax planning opportunities that affect the current Ohio tax.”[3]
- Bills to mandate the use of combined reporting
were introduced in 2007 legislative sessions in at least two states in
addition to the six in which the governor recommended it, Maryland (HB 553/SB
393) and New Mexico (HB 535).
Corporate Tax Shelters and the Need for
Combined Reporting
Renewed discussion of combined reporting was
sparked approximately five years ago by a rash of court cases in which
non-combined reporting states sought to nullify an abusive corporate tax shelter
to which they are vulnerable. That tax shelter is frequently referred to as the
“Delaware Holding Company” or “Passive Investment Company” (PIC). It is based
on a corporation’s transferring ownership of its trademarks and patents to a
subsidiary corporation located in a state that does not tax royalties, interest,
or similar types of “intangible income,” such as Delaware and Nevada. Profits
of the operational part of a business that otherwise would be taxable by the
state(s) in which the company is located are siphoned out of such states by
having the tax-haven subsidiary charge a royalty to the rest of the business for
the use of the trademark or patent. The royalty is a deductible expense for the
corporation paying it, and so reduces the amount of profit such a corporation
has in the states in which it does business and is taxable. Moreover, the
profits of the Passive Investment Company often are loaned back to the rest of
the corporation, and a secondary siphoning of income occurs through the payment
of deductible interest on the loan. Of course, the royalties and interest
received by the PIC are not taxed; Delaware has a special income tax exemption
for corporations whose activities are limited to owning and collecting income
from intangible assets, and Nevada does not have a corporate income tax at all.
Combined reporting nullifies the PIC tax shelter
because the profits of the subsidiary are added to the profits of the
operational part(s) of the corporate group, eliminating any tax benefit of
shifting profits on paper from the latter to the former. Only Vermont, Texas,
New York, and West Virginia chose to address the PIC problem through combined
reporting, however. All of the remaining states that enacted legislation to
attack PICs chose limited, targeted approaches focusing on just this particular
tax shelter. Many of those bills were so watered-down in the legislative
process by business objections that there is a real question as to whether they
will be effective at all. The answer to this won’t be known for several years
until state corporate tax audits covering the years when the laws went into
effect reveal whether corporations have, as the laws require, stopped deducting
their royalty payments to their PICs.[4]
A recent front-page article in the Wall Street
Journal underscores the need to take a comprehensive rather than piecemeal
approach to the corporate tax avoidance strategies to which non-combined
reporting states are vulnerable.[5]
The article discusses a tax shelter established by Wal-Mart that is analogous to
the PIC but that would not be nullified by the targeted anti-PIC legislation
that some states enacted. Indeed, the article revealed that Wal-Mart set up
this shelter, known as a “captive Real Estate Investment Trust” (REIT), at
approximately the same time it was liquidating its conventional PIC (perhaps
because PICs had become a red flag for state auditors).[6]
Wal-Mart transferred ownership of all its stores to its REIT subsidiary, and the
stores paid tax-deductible rent to the REIT for use of the buildings they
occupied. As with royalty payments for the use of trademarks, the rent payments
had the effect of reducing taxable profits of the stores and shifting the
profits to the REIT. Virtually all states effectively treat the REIT as a
tax-exempt entity — just as the federal government does. And the other Wal-Mart
subsidiary that owned the REIT was only taxable in the state in which it was
based, so the states where Wal-Mart’s stores were located couldn’t reach the
REIT’s profits when those were passed on in the form of dividends to the REIT’s
owner, either.
The Wal-Mart REIT example suggests that when the
comprehensive solution of combined reporting is available, it is simply not
optimal for states to seek to shore-up their corporate income taxes through
targeted attacks on specific tax shelters. The case-by-case approach is inferior
to combined reporting for at least three reasons:
- Highly-skilled and highly-compensated tax
attorneys and accountants are likely to remain at least one step ahead of
under-staffed state revenue departments in devising new mechanisms multistate
corporations can use to minimize their state income taxes in non-combined
reporting states. For example, a recent newsletter from the BDO Seidman
accounting firm that discussed a (rare) New York State court victory against a
PIC assured its clients that:
BDO Seidman can facilitate the replacement of your current Delaware Holding
Company with state tax reducing strategies to fit naturally around your
business operations. Examples of BDO Seidman’s most popular state tax
reducing strategies include:
- Embedded Royalty Company, and
- Effective Use of Transfer Pricing.[7]
- It is labor-intensive, time-consuming, and
costly for states to address these problems on a case-by-case basis. For
example, after the Wisconsin legislature rejected the 1999 call by former
Governor Tommy Thompson to mandate combined reporting, the state revenue
department was compelled to engage in a four-year-long (and still ongoing)
process of auditing and then negotiating individual agreements with 175 banks
to stop tax avoidance based on the use of PICs located in Nevada.[8]
- Some of the targeted legislation aimed at
nullifying particular tax shelters that non-combined reporting states are
vulnerable to may be subject to legal challenge. Several articles have been
written by corporate tax attorneys advising their clients how to attack these
laws on the grounds that they discriminate against interstate commerce; a test
case in Alabama already went against that state.[9]
In contrast, the legality of combined reporting has been upheld twice by the
U.S. Supreme Court.[10]
The corporate income taxes of states that do not
mandate combined reporting are fundamentally flawed because they permit
intra-corporate transactions to affect how much income tax a corporation owes to
a particular state. Attacking specific tax shelters that exploit this flaw is
akin to treating the symptoms of a disease rather than the underlying defect
that causes it.
State Corporate Tax Experts and Newspaper
Editorial Boards Support Combined Reporting
In giving serious consideration to combined
reporting, states are following advice long offered by state corporate tax
policy experts. For example:
- Economist Charles McLure, Deputy Assistant
Secretary of the Treasury Department in the Reagan Administration, has
written: “Failure to require unitary combination is an open invitation to tax
avoidance. (Or — to the extent transfer prices are misstated — is it tax
evasion?) The advent of electronic commerce exacerbates the potential
problems of economic interdependence and manipulation of transfer prices.”[11]
- In a recent paper, George Washington
University professors David Brunori and Joseph J. Cordes wrote: “Our research
shows that requiring combined reporting would help the corporate income tax
become a more significant source of revenue. . . The combined reporting
requirement would severely limit the ability of corporations to use tax
planning techniques such as creating nowhere income and establishing passive
investment companies to avoid state corporate tax liability. . . .”[12]
- In an article in the prestigious National
Tax Journal, Economists William F. Fox, Matthew N. Murray, and LeAnn Luna
wrote: “[W]e argue for combined reporting in all states. This conclusion is
based in part on economic considerations that are independent of any tax
planning opportunities, such as the practical problems associated with
measuring economies of scope across related firms. But combined reporting can
also lessen tax planning distortions based only on corporate form that waste
resources through avoidance and government oversight activities.”[13]
Major
newspapers have also editorialized in support of combined reporting. For
example:
- According to the Wisconsin State Journal:
“Wisconsin should require combined reporting, which demands that a corporation
add together the profits of all subsidiaries in one report so that taxable
profits can be attributed to the states where they belong. Seventeen states,
including neighboring Minnesota and Illinois, require combined reporting.
It’s time for Wisconsin to update its tax laws so that the state budget is not
again left with a multi-million-dollar hole.[14]
- According
to the Des Moines Register: “The appropriate tax rate of business
certainly is debatable, but everyone should agree those companies should pay
the full taxes they owe, and multistate corporations shouldn’t have a tax
advantage over wholly local corporations. Last year [former Governor] Vilsack
proposed combined reporting to lawmakers, but it didn’t get anywhere. . . .
That’s unfortunate. . . . Ensuring taxes are collected by closing a loophole
that’s unfair to Iowa-based businesses should be a bipartisan no-brainer.”[15]
Combined Reporting Is Primarily About
Fairness, Not Revenue
The Des Moines Register editorial just
cited alludes to an important issue. The primary goal of combined reporting is
to create a level playing field for all businesses. It seeks to ensure that
large multistate corporations cannot end up paying income tax at a lower
effective tax rate than small businesses by subdividing themselves into separate
corporations and then manipulating transactions within the overall corporate
group.
Because such manipulations appear to be
widespread and because combined reporting nullifies their tax effects, most
states that have studied the fiscal impact of combined reporting have concluded
that its adoption would raise some additional revenue. In states that need new
revenue sources, requiring combined reporting could certainly make a modest
contribution toward that objective. Most states that have prepared estimates
conclude that the adoption of combined reporting would increase corporate income
tax receipts on the order of 10 to 25 percent.
If a state is considering combined reporting at a
time when it does not need additional revenue, and if it wishes to maintain the
current balance of taxes between businesses and households, it can use the
revenue gained from combined reporting to make offsetting changes in other
business tax provisions to ensure that the overall impact is revenue neutral.
Even if other business tax changes are made to keep combined reporting
revenue-neutral in the short run, its adoption will help to preserve the
long-run revenue-generating capacity of the corporate income tax by nullifying a
wide variety of corporate tax-avoidance techniques.
Combined Reporting and State Economic
Development
As is often the case when changes in tax policy
are put forward that would have the effect of increasing tax payments by some
businesses, the widespread consideration of combined reporting that is now
occurring has brought forth warnings from corporate interests that implementing
the policy would harm the economic prospects of any state doing so.
In fact, combined reporting states are
well-represented among the most economically-successful states in the country.
Since 1990, for example, only 10 states that levy corporate income taxes have
managed to achieve net positive growth in manufacturing employment. Nine of
those ten states — Arizona, Idaho, Kansas, Montana, Minnesota, Nebraska, North
Dakota, Oregon, and Utah — had combined reporting in effect throughout the
1990-2006 period. The governor of the tenth state, Iowa, has proposed adoption
of combined reporting.
Being the state that has used combined reporting
the longest and enforces it most aggressively was not a barrier to California’s
giving birth to Silicon Valley in the 1990s. The presence of combined reporting
has not been a barrier to Intel Corporation’s maintenance of its headquarters in
California and its decision to place the bulk of its expensive chip fabrication
plants in Oregon, Arizona, and Colorado — all combined reporting states. Such
anecdotes and the data on manufacturing employment cited above suggest that the
burden of proof ought to lie with combined reporting opponents to demonstrate
that the policy has a negative impact on state economic growth.
All state and local taxes paid by corporations
represent approximately two to four percent of their expenses on average, and
the state corporate income tax represents on average less than 10 percent of
that 2-4 percent. A state’s decision to adopt combined reporting increases that
small corporate tax load only slightly. The potential influence on corporate
location decisions of state corporate tax policies is simply overwhelmed in most
cases by interstate differences in labor, energy, and transportation costs,
which comprise a much greater share of corporate costs than state corporate
income taxes do and often vary more among the states than effective rates of
corporate taxation. It comes as no surprise, then, that a recent study by
economists Robert Tannenwald and George Plesko, which measured interstate
differences in overall state and local tax costs for corporations in a
particularly rigorous way, found that there was not a statistically-significant
(inverse) correlation between those costs and state success in attracting
business investment.[16]
In other words, higher state and local taxes did not impede business
investment.
Making the Transition to Combined Reporting
Adopting combined reporting is a significant
change in corporate tax policy and necessitates some effort to educate state
personnel and taxpayers alike in the ways in which it differs from the “separate
entity” approach to corporate taxation that still prevails in a majority of
states.[17]
Fortunately, assistance is available to states that wish to make the change to
combined reporting from the Multistate Tax Commission. The MTC is an
organization of state revenue departments whose members include most of the
existing combined reporting states. In recent years, the MTC has promulgated a
model statute for the implementation of combined reporting and a model
regulation spelling out in considerable detail which corporate subsidiaries do
and do not constitute parts of a “unitary business” that therefore must be
included in a combined report.[18]
The MTC also has a staff of corporate income tax auditors who audit large
multistate corporations on behalf of numerous states simultaneously. They are
quite familiar with auditing under combined reporting regimes. A state new to
combined reporting could supplement its auditing efforts with MTC auditors as
its audit staff familiarizes itself with the new approach. States do not need to
be members of the MTC to participate in its Joint Audit Program.
Conclusion
With six governors simultaneously recommending
the adoption of combined reporting and three states enacting it, 2007 could be a
breakthrough year in state corporate tax reform efforts. As policymakers in
non-combined reporting states ponder their states’ ongoing vulnerability to a
variety of aggressive corporate tax shelters — such as Wal-Mart’s “captive REIT”
— and objectively examine the decades-long experience of 16 states with this
policy, the number of states requiring combined reporting seems likely to grow.
[1]
New Mexico Blue Ribbon Tax Reform Commission, table of recommendations,
available at
http://legis.state.nm.us/LCS/bluetaxdocs/BRTRCTableofRecommendations.pdf.
[2]
Florida Senate Committee on Finance and Taxation, Why Did Florida’s Corporate
Income Tax Revenue Fall While Corporate Profits Rose? Available at
www.flsenate.gov/data/Publications/2004/Senate/reports/interim_reports/pdf/2004-137ft.pdf.
[3]
Report of the Committee to Study State and Local Taxes, March 1, 2003.
Available at tax.ohio.gov/channels/research/documents/CSSLT%20Final%20Draft.pdf.
The Ohio corporate income tax is scheduled to be phased out.
[4]
Some 100 corporations were still deducting royalty payments to PICs more than
two years after a Maryland law clamped down on the deductions. See: Kathleen
Johnston Jarboe, “Loophole Still Used Even After Closure,” Daily Record, May 6,
2006.
[5]
Jesse Drucker, “Wal-mart Cuts Taxes by Paying Rent to Itself” Wall Street
Journal, February 1, 2007.
[6]
According to the article cited in the previous note, Wal-Mart set up its captive
REIT structure in the second half of 1996 and liquidated its PIC in February
1997.
[7]
BDO Seidman, LLP, State Tax Alert, May 2005.
[8]
Paul Gores, “Bankers Fear Doyle Cold Shoulder, Some Still Smarting Over Tax
Shelter Issue,” Milwaukee Journal Sentinel, November 15, 2006.
[9]
See, for example: Thomas H. Steele and Pilar M. Sansone, “Surveying
Constitutional Theories for Challenges to Add Back Statutes,” web site of the
Morrison and Foerster law firm, February 23, 2005. The Alabama case, which was
not decided on constitutional grounds, is discussed in Matthew S. Houser,
Christopher R. Grissom, and Bruce P. Ely, “Alabama Judge Rules for Jeans
Manufacturer in Addback Case,” State Tax Notes, January 29, 2007.
[10]
The cases were Container Corporation of America v. California Franchise Tax
Board (1983) and Barclays Bank v. California Franchise Tax Board (1994).
[11]
Charles E. McLure, “The Nuttiness of State and Local Taxes and the Nuttiness of
Responses Thereto,” State Tax Notes, September 11, 2002, p. 851.
[12]
David Brunori and Joseph J. Cordes, “The State Corporate Income Tax: Recent
Trends for a Troubled Tax,” unpublished paper submitted to the American
Institute of Tax Policy, August 15, 2005.
[13]
William F. Fox, Matthew N. Murray, and LeAnn Luna, “How Should a Subnational
Corporate Income Tax on Multistate Businesses Be Structured?” National Tax
Journal, March 2005.
[14]
“Heed Warning to Update Tax Laws,” Wisconsin State Journal, February 2, 2007.
[15]
“First, Close Loopholes,” Des Moines Register, February 20, 2004.
[16]
George A. Plesko and Robert Tannenwald, Measuring the Incentive Effects of State
Tax Policies Toward Capital Investment, Federal Reserve Bank of Boston Working
Paper 01-4, December 3, 2001.
[17]
The key differences between combined reporting and the “separate entity”
approach to state corporate income taxation are discussed in Appendix B of
Michael Mazerov, State Corporate Tax Disclosure: The Next Step in Corporate
Income Tax Reform, February 2007. Available at
www.cbpp.org/2-13-07sfp.pdf.
[18]
The MTC’s model combined reporting statute is available at http://www.mtc.gov/uploadedFiles/
Multistate_Tax_Commission/Uniformity/Uniformity_Projects/A_-_Z/Combined%20Reporting%20-%20FINAL%20version.pdf.
The MTC’s model definition of a “unitary business” for combined reporting
purposes is available on pp. 5-14 of the following document www.mtc.gov/uploadedFiles/
Multistate_Tax_Commission/Uniformity/Uniformity_Projects/A_-_Z/AllocationandApportionmentReg.pdf. |