NC Budget and Tax Center

Report: Corporations are stiffing North Carolina on $373 million in state taxes

We all know that rich shareholders and global corporations find ways to avoid paying their fair share in taxes, often through complex accounting schemes that boggle the mind. That’s why everyone should take heed of a new report showing that a few tweaks to North Carolina’s corporate tax code could stop global companies from dodging an estimated $373 million in state tax obligations.

It turns out that state leaders can ensure that companies pay the proper amount of taxes on income generated from business conducted in their jurisdictions, but existing tax codes at the state level often allow loopholes for smart corporate tax lawyers to exploit. Corporations often use accounting sleights of hand to move income around within the United States and to offshore tax havens, regardless of where the sales and production that created that income took place.

Adopting a policy generally known as “combined reporting” that bases a company’s income tax bill on how much of its activity takes place within a given state would prevent large companies from ducking an estimated $17 billion in state taxes that they are currently avoiding. Here in North Carolina, preventing companies from exploiting domestic tax havens (like Delaware) could bring in an additional $151 million in revenue, and stopping the practice of parking income outside of the United States could net another $222 million.

Global tax avoidance doesn’t just leave the rest of North Carolinians to pick up the tab, it undermines homegrown companies that don’t have a footprint outside of the state. When global corporations hide income in corporate tax havens, they often get a leg up on companies here in North Carolina that actually pay their state taxes in full, making it all the more difficult for smaller enterprises to contend with their global competitors.

Global corporations have already gotten enormous breaks on their federal and North Carolina taxes in recent years which only tilted the economic playing field further in favor of the very wealthy. It’s high time that we compel wealthy shareholders and profitable corporations to reinvest in the county that made them rich in the first place.

As legislators return to Raleigh with a long list of vital public needs to address, and not nearly enough state revenue to do the job, this report provides some invaluable guidance. Preventing large corporations from dodging taxes is a win for mom-and-pop businesses, for resident North Carolina taxpayers, and would make our tax system far more balanced than it currently is.

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