May 27, 2014

Tanzi bill would close corporate tax loophole

STATE HOUSE – Rep. Teresa Tanzi is pushing for legislation to close a loophole that large, multi-state and international corporations exploit to avoid paying state taxes in Rhode Island.
Representative Tanzi (D-Dist. 34, South Kingstown, Narragansett) is sponsoring legislation (2014-H 7739) that would stop multi-state or multi-national corporations from dodging state taxes by hiding their Rhode Island profit in a shell corporation or other out-of-state entity that is not subject to Rhode Island taxes.

Representative Tanzi’s legislation would enact “combined reporting” in Rhode Island, which would require corporations that have businesses in other states or countries to combine all their subsidiaries as a single entity and then pay taxes to Rhode Island based on the percentage of net business profit or loss generated by its operations in this state.

The bill, which had a hearing before the House Finance Committee last week, would put an end to a trick that large corporations use to evade the taxes that homegrown businesses pay, eliminating an unfair advantage that hurts small business.

“The fundamental justification for combined reporting is a robust corporate tax that can’t be gamed by aggressive corporate tax planning and that creates a level playing field between big multi-state corporations and smaller, local corporations,” said Representative Tanzi.

A study by the Department of Revenue presented to the General Assembly in March showed that multi-state companies would have paid more in corporate taxes if combined reporting were in place.
“This study provides evidence that Rhode Island has been losing vital corporate income tax revenue because we have left the door open for companies to aggressively use tax avoidance strategies. Once again, I have introduced legislation that would mandate combined reporting in Rhode Island and help level the playing field between large, multi-state corporations and smaller, local companies,” said Representative Tanzi.

Combined reporting is required in the District of Columbia and 23 states, including Massachusetts, New York, Maine, Vermont and New Hampshire. A majority of states that collect corporation business taxes now require combined reporting to appropriately capture taxes owed in state.
Representative Tanzi said that the adoption of combined reporting is not an effort to raise taxes on big businesses because the corporate tax is supposed to apply to all businesses. Instead, it’s closing a loophole, and leveling the playing field for businesses of all sizes.

“At a time when we are trying to shed our reputation as a difficult state for businesses, we ought to stop big businesses from unfairly exploiting the system to evade the taxes that our local businesses are paying. Combined reporting is fair to all businesses and it would help the state collect the money it’s owed,” said Representative Tanzi.

 The legislation was introduced Feb. 27, and is cosponsored by Rep. Larry Valencia (D-Dist. 39, Richmond, Hopkinton, Exeter), Rep. Christopher R. Blazejewski (D-Dist. 2, Providence), Rep. Frank Ferri (D-Dist. 22, Warwick) and Rep. Jeremiah T. O’Grady (D-Dist. 46, Lincoln, Pawtucket).