The State Comptroller’s Office today released an analysis of what the fiscal impact on the state’s corporate income tax revenues would have been if a system of combined reporting had been adopted for the 2006 tax year. The report estimated that state revenues would have increased between $109 to $170 million, had a form of combined reporting been in effect for that tax year. While the report is a starting point for an evaluation of such a fundamental change to our state’s tax system, more years of tax data need to be considered and many questions remain to be answered:
- Tax year 2006 represented the highest level of corporate income taxes ever collected by the state ($868 million) during a robust economy. What would be the impact of combined reporting during the current recession when millions in tax losses could be imported into the state from out of state entities?
- The report documents a massive shift of tax liability between businesses, with 2,418 businesses paying $393 million more in taxes and 1,906 businesses paying $223 million less in taxes. With many corporations paying less taxes under combined reporting, it is clearly not a “loophole closer.” Although results vary within industry group, major winners would by utilities, health care and management, while retail trade, finance and insurance and manufacturing would be net losers.
- What are the characteristics of companies that cause them to pay more or less taxes under a combined reporting corporate income tax system?
The Governor and General Assembly are to be commended for appointing a Business Tax Reform Commission, which is taking an in-depth, multi-year look at combined reporting and other business tax issues. However, much work remains to be done as the Commission evaluates the tax data and tax system alternatives. The General Assembly should resist the urge to increase business taxes in the depth of a recession and let the Commission continue to do their work.
See the report here (pdf).