Vast Majority of Large New Mexico Corporations are Already Subject to “Combined Reporting” in Other States
Fears of Job Loss from Reducing Corporate Tax Avoidance Are Unwarranted
 See: Michael Mazerov, “State Corporate Tax Shelters and the Need for ‘Combined Reporting’,” Center on Budget and Policy Priorities, October 26, 2007.
 New Mexico Blue Ribbon Tax Reform Commission, table of recommendations, available at legis.state.nm.us/LCS/bluetaxdocs/BRTRCTableofRecommendations.pdf.
 Dick Minzner, former Secretary of the New Mexico Department of Taxation and Revenue and currently a corporate lobbyist, has emerged as the most visible and vocal combined reporting opponent. His writings include: “Combined Reporting: Questions and Answers,” undated, and “ ‘Combined Reporting’ Unfair,” Albuquerque Journal, October 18, 2009. For a response to Minzner’s arguments, see: Michael Mazerov, “Corporate Lobbyist’s Case Against Combined Reporting in New Mexico: A Rebuttal,” Center on Budget and Policy Priorities, November 30, 2009.
 Table 1 also indicates that the ninth and tenth best-performing states in manufacturing job growth were both combined reporting states. Oregon had a small net gain of manufacturing jobs in the 1990-2007 period that rounded down to zero. Minnesota had a small net loss of manufacturing jobs. Table 1 also shows that there were 11 combined reporting states that had better manufacturing job performance than the median state, Alabama, and only 5 combined reporting states that had steeper manufacturing job declines than Alabama.
 According to data published by the Internal Revenue Service, corporations deducted $473 billion in federal, state, and local taxes on their 2005 federal tax returns. This amount represented 2.0 percent of total expense deductions of $23.6 trillion. (The data are available at www.irs.gov/pub/irs-soi/05sb1ai.xls.) Since corporations have a strong financial incentive to deduct from their otherwise taxable profit every state and local tax payment for which they are liable, IRS statistics arguably are the most accurate source of information concerning state and local taxes incurred by corporations.
The Council on State Taxation (COST), an organization representing major multistate corporations on state tax matters, has taken issue with using IRS data to evaluate the relative importance of state and local tax costs in influencing corporate location decisions. (See: Joseph R. Crosby, “Just How ‘Big’ Are State and Local Business Taxes?” State Tax Notes, June 20, 2005, pp. 933-935.) Crosby correctly notes that the line-item for taxes deducted on federal returns omits a major category of state and local taxes paid by businesses — sales taxes paid on equipment and supply purchases. (Such taxes are hidden in other expense line-items in the IRS data.) However, as noted above, the line-item also includes a number of federal taxes paid by corporations that are deductible on federal returns — such as the federal telecommunications excise tax and unemployment compensation taxes for some corporate employees. If one were to add a reasonable estimate of the omitted state and local sales taxes and subtract a reasonable estimate of the inappropriately-included federal taxes, the resulting estimate for total state and local taxes incurred by corporations might not differ significantly from the $473 billion IRS figure for total deducted taxes.
In fact, COST has commissioned its own estimate of the total amount of state and local taxes paid by businesses. The figure for state fiscal year 2006 is $553.7 billion. (See: Robert Cline, Tom Neubig, and Andrew Phillips (Ernst & Young LLP), “Total State and Local Business Taxes, 50-State Estimates for Fiscal Year 2006,” February 2007; available at www.statetax.org/WorkArea/DownloadAsset.aspx?id=67460.) This figure represents the estimated taxes paid by all businesses, not just corporations. But even if one assumed that all of these costs were incurred by corporations and substituted this figure for the IRS data for taxes deducted, it still results in an estimate that state and local taxes represent 2.3 percent of total corporate expenses (of $23.6 trillion) — not significantly different from the 2.0 percent figure arrived at using only the IRS data.
More importantly, COST also takes issue with the use of the $23.6 trillion IRS figure for total corporate expenses used in the denominator. COST argues that the relevant analysis is an examination of the share of total final economic output produced by private businesses that is absorbed by state and local taxes paid by such businesses. COST asserts that using the $23.6 trillion of corporate expenses is inappropriate because that figure includes multiple sales of the same item from (for example) a manufacturer to a wholesaler and then from the wholesaler to a retailer. In contrast, using total U.S. gross state product produced in the private sector (otherwise known as private sector “value-added”) measures the value only of final production.
COST’s preferred denominator of gross state product produced by private businesses might be appropriate for evaluating the total “burden” of state and local business taxes on final production in the economy. It is inferior, however, in evaluating the issue under discussion here — the role played by state and local corporate tax costs in influencing corporate location decisions as compared to the role played by other corporate expenses for labor, energy, and transportation. For each actor in the supply chain described above (manufacturer, wholesaler, retailer), the influence of state and local tax expenses on its location decisions is determined in relation to the other expenses incurred in its business that also vary among locations. How many times its inputs may have been resold prior to its purchase of them and how many times its outputs may be resold prior to reaching their final purchasers is irrelevant in influencing its location decisions. What is true for the individual economic actors is true for the supply chain as a whole. Thus, the relative importance of state and local taxes in influencing corporate location decisions in the overall economy is best illustrated by looking at those expenses as a share of total corporate expenses, not the total value of final corporate production or value-added.
In sum, it is entirely reasonable to argue that state and local taxes have a relatively minor impact on corporate location decisions because they constitute only 2.3 percent or less of total corporate expenses and their potential influence is overwhelmed by interstate differences in labor, energy, transportation, and other costs of production, which account for almost 98 percent of total corporate production expenses.
 The New Mexico Taxation and Revenue Department has estimated that the enactment of combined reporting would, at most, increase corporate income tax receipts by 20 percent prior to the application of revenue-reducing corporate tax credits. See: New Mexico Legislative Education Study Committee Bill Analysis of Senate Bill 389, March 16, 2009.
 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.
 For a detailed description of some of the tax-avoidance strategies to which non-combined reporting states are most vulnerable, see the source cited in Note 1.
 For a recent summary of these studies in the context of Massachusetts’ debate on combined reporting, see: Robert G. Lynch, William Schweke, Nicholas W. Jenny, and Noah Berger, “Building a Strong Economy: The Evidence on Combined Reporting, Public Investments, and Economic Growth,” 2007. Published by the Economic Policy Institute and the Massachusetts Budget and Policy Center, June 2007. Available at www.massbudget.org/BuildingStrongEconomyJune07.pdf.
 See: laser.state.nm.us.
 Native American-owned businesses doing business exclusively on their own reservations are not subject to state corporate income taxes. Many of the hotels not included in the analysis are owned by national chains that likely own hotels in the vast majority of combined reporting states. However, it was not possible to determine in which states the chains actually owned hotels (which would subject the chains to corporate income taxes) and in which states the chains merely franchised hotels (which might not obligate the chains to pay corporate income taxes). In any case, the aim of this study is to demonstrate that the corporations under examination are unlikely to shun New Mexico as a place in which to do business because they are subject to combined reporting in other states. Hotels obviously are among the least likely businesses to flee New Mexico because they cannot provide their services to New Mexico customers without being physically present within the state.