Rhode Island missed out on somewhere between $40 and $100 million in 2011 and 2012, according this new report. That’s because in 2011, the General Assembly rejected Gov. Chafee’s idea to implement what is known as “combined reporting” for corporate taxes and instead called for the aforementioned report.
The study found that combined reporting would have earned Rhode Islanders between $23 and $54 million in 2011 and between $21 and $44 million in 2012, depending on the accounting method used. The larger number focuses on just sales while the smaller number also factors in payroll and property. Read the overview here and watch video from last night of state Division of Taxation employees explain it the Senate Finance Committee.
Combined reporting combats the corporate practice of doing business in one state and utilizes the tax advantages of another state. The Institute for Taxation and Economic Policy called combined reporting “the most effective approach to combating corporate tax avoidance.” 23 states and the District of Columbia use combined reporting, including most New England states.
Rep. Teresa Tanzi, a progressive Democrat who represents Narragansett and South Kingstown, has sponsored legislation this year and in the past two legislative sessions that would implement combined reporting.
“The fundamental justification for combined report is a robust corporate tax that can’t be gamed by aggressive corporate tax planning while creating a level playing field between big multistate corporations and smaller, local corporations,” she said in an email to me. “Nonetheless, I am gratified that the study confirmed that Combined Reporting would give a modest boost to revenues that could be used to help the state address its unmet needs, and we now have the numbers to show the advantage certain corporations have.”
Most local businesses would not be affected by combined reporting, according to the study. It found 28 percent were negatively affected and 6 percent experienced a tax advantage.
“Any company that has a large presence here, property and payroll, is not really affected,” state Tax Director Dave Sullivan told the Senate Finance Committee last night. “companies that do not have a big footprint here and have maybe one or two retail outlets here may actually see an adverse affect in tax increases with single sales factor. If all their property and payroll are out of state and they have a significant number of sales because they have, we use the example of big box stores here in this state…”
Massachusetts and Vermont both implemented combined reporting in the same year they lowered their overall corporate tax rate. State tax officials told the Senate Finance Committee both states improved their Tax Foundation rankings after doing so.