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Creating Greater Taxpayer Certainty for Multi-State Corporations

Today’s Revenue Laws Committee heard a proposal to develop an expedited rule-making process for issues in which multi-state corporations are seeking clarity around their taxes owed in the state of North Carolina.  The stated goal is to create greater certainty for these taxpayers.  Certainty and clarity that has not been considered achieved despite legislative action last year and a Department of Revenue directive issued this fall.

A very simple and efficient way to generate such certainty which hasn’t been fully considered is mandatory combined reporting.  As we have written about here and here, mandatory combined reporting would require all parent corporations and their subsidiaries to “combine” for state tax purposes to file a joint tax return.  The profits of the combined corporation are then apportioned by formula to each state in which the corporation does business according to the share of total business activity that has taken place in each state.  This is a way to create certainty that merits more discussion, especially since the majority of states with corporate income taxes have adopted mandatory combined reporting.

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