A recent report (subscription required) by officials with KPMG LLP suggests that a subset of corporations and big accounting firms are likely working behind the scenes to encourage North Carolina lawmakers to absolve some multi-state corporations for past tax-shelter abuses. The result, a new BTC Brief shows, would be to provide a windfall for a few corporations while inflicting major harm on North Carolina’s public investments.
In June, state lawmakers enacted House Bill (HB) 619, placing restrictions on the ability of the NC Secretary of Revenue to shut down abusive corporate tax shelters used by some large corporations to elude paying millions of dollars in taxes owed on profits earned in North Carolina. A recent report by officials with KPMG – a corporate accounting firm with a questionable history on abusive tax shelters – show that advocates of corporate tax dodging may wish to take the bill one step further by extending the new restrictions on tax-shelter abuse to past tax dodges as well.
Amending North Carolina’s new corporate tax rules to apply retroactively to prior tax years could put $400 million in paid and unpaid state corporate tax revenue at risk.
The resulting loss of revenue from such rules would be a job-killer for North Carolina, triggering even more harmful cuts to public schools, community colleges and universities, heath care, and other vital state-funded services that North Carolinians and businesses across the state depend on. Lawmakers must respond accordingly to protect the interests of everyday North Carolinians over big, multi-state corporations.
Recent changes to HB 619 in the recent September session that would allow some corporations and their corporate subsidiaries to voluntarily keep prior tax-filing agreements with the NC Department of Revenue suggest that the biggest proponents of weakening North Carolina’s tax-shelter-abuse enforcement — like the Council on State Taxation — are focused on more allowing some corporations to dodge taxes rather than achieve “tax certainty” as is often claimed.
Allowing multi-state corporations to avoid state corporate taxes gives them an unfair advantage over locally owned business that must pay their taxes, starves public services and investments of needed revenue, and results in North Carolinians and locally owned businesses paying higher taxes to cover corporations’ share.
However, lawmakers could reverse the course by enacting a corporate tax system that makes more sense in today’s modern economy: mandatory combined reporting.
Combined reporting would steer North Carolina back on a sustainable path and away from a corporate tax system that allows a subset of big, multistate corporations to avoid paying their fair share for the public investments and services that benefit everyone in the state — including them.