As our state leaders continue to look for ways to give more and more tax cuts to profitable corporations, these corporations continue to find ways to avoid paying their fair share of taxes. It is a win-win proposition: Heads they win; Tails they still win!
A report released today by the Institute on Taxation and Economic Policy and Citizens for Tax Justice finds that 269 Fortune 500 companies collectively avoided paying $73.1 billion in state corporate income tax between 2008 and 2012. Nine of these multi-state corporations are headquartered in North Carolina and earned more than $51 billion in combined profits during this period.
The nine NC-based multi-state corporations paid an average overall corporate income tax rate of just 3.7 percent, which is well below North Carolina’s 6.9 percent statutory rate at the time. Unfortunately, our state leaders prefer to focus on optics rather than reality.
State leaders passed and Governor McCrory signed a tax plan into law last year that includes huge tax cuts for profitable corporations. A repeated claim by proponents was that the state’s 6.9 percent statutory corporate income tax rate made the state less competitive. The final tax plan includes huge corporate income tax rate cuts while tax loopholes that allow corporations to reduce the amount of taxes paid remain in place.
As profitable corporations exploit tax loopholes and employ crafty accounting to avoid paying their fair share of taxes, we all lose as a result.
Taxes paid by businesses help fund public investments that serve as the foundation of a strong state economy and an attractive business environment – a skilled and educated workforce, quality infrastructure, and an attractive quality of life, for example. Moreover, corporations avoiding paying their fair share mean the rest of us have to pay more.
The report highlights opportunities to better ensure that corporations pay their fair share of taxes – many of which North Carolina has not adopted. Mandating combined reporting, adopting a “throwback rule” to specify how profits for multi-state corporations are allocated in particular instances, maintaining a three-factor apportionment formula (which state leaders are looking to change), and clearly defining “economic nexus” are options for North Carolina highlighted in the report.