Corporate Fair Share Taxes Can Help States Support Public Services Amid Federal Cuts

The 2025 Republican megabill showered enormous tax cuts on wealthy households and corporations and financed them, in part, by cutting funding for health coverage and food assistance and pushing costs onto states, threatening their ability to support people and communities. State policymakers should raise revenue to counter the harm from these new budget pressures. One good place to start is by making large corporations pay their fair share.

State policies of corporate tax favoritism allow aggressive global corporations to dodge their tax obligations. Policies tolerating “profit shifting” allow corporations to move taxable profits into shell companies in offshore tax havens, avoiding hundreds of billions of dollars in federal and state tax. Special rules allow corporations to pay no tax even in years when they report huge profits to shareholders. And states often adopt federal tax giveaways even when they only benefit corporations, not the state.

States can no longer afford to ignore corporate tax favoritism. They have an opportunity to stop enabling billion-dollar corporations to deprive residents of vital funding for shared needs like public education, roads and bridges, and clean drinking water. The fiscally prudent path in 2026 is to enact corporate tax fairness reforms to counter cuts in the harmful Republican megabill and better equip states to meet their residents’ needs.

Focusing on the nation’s wealthiest and most powerful corporations, states should:

• Enact worldwide combined reporting to eliminate tax avoidance (or enact an alternative to limit it). Worldwide combined reporting is the gold standard for making billion-dollar corporations pay their fair share. This policy solves the primary problem created by corporate tax avoidance by taxing the state’s share of a global corporate group’s complete profits, regardless of how aggressively it shifts those profits among its affiliates. For some states, a strong policy alternative to worldwide combined reporting is to conform to the federal global intangible low-taxed income (GILTI) rules, which the megabill renamed net CFC taxable income (NCTI). Under this policy, which applies only to U.S.-headquartered companies, roughly 60 percent of profits shifted offshore are subject to taxation. While some states have decoupled from this federal rule, some others tax just 5 percent and still others conform entirely.
• Require meaningful tax payments. It is not unusual for huge global corporations to report enormous profits to shareholders but zero taxable profits to state revenue departments. States have two good corrective policy options:
  • Minimum tax on book income: In response to the problem of inconsistent profit reporting, the Internal Revenue Code imposes an alternative 15 percent tax on profits reported in corporations’ financial statements (“book profits”) that mitigates the damage. This federal corporate alternative minimum tax raises the effective tax rate for some of the largest corporations, but it has loopholes that aggressive corporations can exploit. States should enact a similar (but better designed) “book tax” of their own.

  • Annual caps on use of excess losses and credits: A corporation that loses money in a year can use those losses to reduce or eliminate its taxable income for the year and may even have some losses left over. Those excess losses can be “carried forward” to offset profits in future years and may even zero out their taxes even in boom years.

    This creates untenable revenue volatility for states, making it very difficult to plan for meeting their obligations to the people. Fortunately, states have a simple fix: allow past losses to offset no more than 40 percent of a company’s taxable income each year.

    State tax credits — like those provided to induce corporate investments in research and development — offset tax liability dollar for dollar and present a similar “carryforward to zero out” problem when corporations use leftover credits in future years. The solution is similarly simple: allow a corporation’s tax credit carryforwards to cut no more than 20 percent of its tax bill.

• Stop piggybacking on federal corporate handouts. The Republican megabill included new and expanded corporate tax cuts that could further erode state corporate income taxes. States should decouple from federal rules in the following areas if they haven’t already:
  • Foreign-derived intangible income (FDII/FDDEI), which gives a federal tax break to global corporations that keep their patents and trademarks in the U.S. instead of moving them to offshore tax havens. This poorly designed policy is not state specific and offers no boost to state revenues.
  • Bonus depreciation, which allows corporations to deduct the full cost of new equipment purchases in the first year rather than spreading those deductions over years as the new assets produce value over time. Bonus depreciation is intended to encourage corporate investment, but it applies nationwide, so it won’t influence where companies invest. This giveaway wastes state revenue without attracting business investment to any particular state.

States must stand up to corporate lobbyists who fiercely oppose important policy solutions like those discussed above. These straightforward policies can help raise sorely needed revenues by reducing corporate tax favoritism and increasing corporate tax fairness. That is a win-win.