Senior Vice President for State Fiscal Policy
The House Judiciary Committee will mark up a bill tomorrow that would create vast opportunities for multistate corporations to shelter profits from state corporate income taxes, costing states and localities billions of dollars each year. This comes as states struggle to close gargantuan budget gaps that are the continuing legacy of the recession.
Below is part of what my colleague Michael Mazerov had to say back in April about this damaging bill, the Business Activity Tax Simplification Act (BATSA):
Here’s the basic issue: in the 44 states with corporate income taxes, state laws outline the types of activities a business might conduct within the state that would obligate the business to pay the tax. Federal laws can invalidate those state laws, however, and BATSA proposes to do just that. As our analysis documents, BATSA would allow multistate businesses to have massive amounts of property or large numbers of employees and representatives in a given state or locality and yet still not be liable for the state’s corporate income taxes — or a local business tax. . . .
The Congressional Budget Office estimated that a less restrictive version of BATSA would cost state and local governments $3 billion in revenue annually within five years of its enactment. . . .
In the long run, BATSA’s enactment would prevent states from taxing any corporation that didn’t have a permanent brick-and-mortar facility within their borders. And even for corporations that did have such facilities, BATSA would create numerous opportunities to wall off a large share of their profits in subsidiaries located in other states without income taxes. That means states would lose revenue to pay for schools, health care, infrastructure, and other services and investments essential for a strong economy.
Policymakers and the general public are increasingly concerned about multinational corporations’ ability to shelter profits from federal taxes in foreign tax havens, as the public attention to a recent New York Times story about General Electric shows. It would be unfortunate indeed for Congress to encourage widespread corporate tax avoidance at the state level, especially as states and localities confront such challenges as providing health care to an aging population, bolstering their pension funds, and repairing long-neglected roads and bridges. As it has in past years, Congress should reject BATSA.