Category Archives: Taxation

Closing the Billion Dollar Loophole: How States Are Reclaiming Revenue Lost to Offshore Tax Havens

Source: Phineas Baxandall, Dan Smith, Tom Van Heeke and Benjamin Davis, U.S. PIRG Education Fund, Winter 2014

From the summary:
Every year, corporations use complicated gimmicks to shift U.S. earnings to subsidiaries in offshore tax havens – countries with minimal or no taxes – in order to reduce their state and federal income tax liability by billions of dollars. Tax haven abusers benefit from America’s markets, public infrastructure, educated workforce, security and rule of law – all supported in one way or another by tax dollars. But they use tax havens to escape supporting these public structures and benefits. Ultimately, ordinary taxpayers end up picking up the tab, either in the form of higher taxes or cuts to public spending priorities.

While much attention is paid to the impact of tax haven abuse on federal revenue, offshore tax havens also reduce state revenue because state tax codes are often tethered to federally defined taxable income. With Congress often gridlocked, states should take action to reduce the impact of offshore tax havens on state budgets.

Montana and Oregon have passed laws to curb offshore tax haven abuse and collect tax revenue that otherwise would be lost. These two states simply treat a proportionate share of the income that corporations book to known tax havens as domestic income for state tax purposes, since it can be reasonably extrapolated that the income arose from business activity in those states.

Other states can also collect some of the revenue lost to offshore tax havens by adopting policies similar to those in Montana and Oregon. Specifically, states must:
– Close the “water’s edge” loophole by mandating that companies include their U.S. profits held in offshore tax havens when calculating taxes. In many states, companies calculate their tax liability based on their income held in subsidiaries incorporated within the water’s edge (that is, within the United States). By declaring a statutory list of tax havens, states can tax corporate profits held in tax havens that lie past the water’s edge.
– Before closing the water’s edge loophole, states must adopt “combined reporting,” which requires corporations to list the profits of all their subsidiaries on their tax forms. Combined reporting provides states with a ready formula that can be applied to tax haven income to determine which portion should be taxable by the state.

To date, 23 states and the District of Columbia have adopted combined reporting requirements, but of these jurisdictions only Montana and Oregon have also closed the water’s edge loophole by creating a statutory list of tax haven countries to be accounted for in corporate combined reports. Montana is now collecting millions of dollars in additional tax revenue and Oregon is poised to do the same with its new law coming into force in 2014.
See also:
Press release

How Much States Lose to Corporate Tax Havens and How They Can Recoup It
Source: Mike Maciag, Governing, February 5, 2014

A recent report finds that states lost $20.7 billion to tax havens in 2011 and tallies how much they can save by closing the offshore tax loophole.

Show Us the Subsidized Jobs: An Evaluation of State Government Online Disclosure of Economic Development Subsidy Awards and Outcomes

Source: Philip Mattera, Thomas Cafcas, Leigh McIlvaine, Kasia Tarczynska, Elizabeth Bird and Greg LeRoy, Good Jobs First, January 2014

From the press release:
All but four states now post at least partial information online showing which companies are receiving economic development subsidies. But the quality and depth of that disclosure varies widely, both among and within states. Three-fourths of major state development programs still fail to disclose actual jobs created or workers trained, and only one in eleven discloses wages actually paid. The best disclosure practices are found in Illinois and Michigan, but even their scores would be near-failing as report card grades. …

… Show Us the Subsidized Jobs rates the reporting practices of 246 key state economic development subsidy programs on how well they disclose online information such as company-specific award amounts, job-creation and wage-rate figures, the geographic location of subsidized facilities, and details on the recipient company and the project. Programs are also evaluated in terms of how easy it is to find and use the online data. Each program is rated on a scale of 0 to 100, and the program scores for each state are then averaged to derive a state score.

The report’s key findings:
– Forty-six states and the District of Columbia provide online recipient disclosure for at least one key subsidy program. This is up from 37 in late 2010 and 23 in 2007.
– The states with the best average program scores are: Illinois (65), Michigan (58), North Carolina (48), Wisconsin (46), Vermont (43), Maryland (42) and Texas (40). The most-improved state is Oregon, which had no disclosure in 2010 and is now in the top ten with an average of 38.
– The four states still lacking online disclosure are: Arkansas, Delaware, Idaho and Kansas.
– Of the 246 programs examined, 135 of them, or 55 percent, have online recipient disclosure (up from 42 percent in 2010). The average score for the programs with disclosure is 39. Only seven programs score 75 or better.
– Of the 135 programs with disclosure, 101 require some degree of job reporting, but only 59 report actual jobs created or workers trained. Only 47 provide any form of wage or payroll data, and only 21 provide wage data on jobs actually created or workers trained.
– Only six states practice consistency by providing online recipient reporting for all of the key programs we examined: Maryland, Michigan, North Carolina, Vermont, Washington and Wisconsin.
– States with disclosure often have major discrepancies in the quality of reporting from one program to another. In Minnesota and Virginia, for example, there is a spread of more than 50 points between their highest and lowest program scores.
– Consistent with our previous state accountability report cards, the existence and quality of subsidy transparency follow no partisan pattern. There are “red” and “blue” states among both disclosure leaders and laggards….
See also:
Executive summary
Table of links to state disclosure websites

The Top 10 Legislative Issues to Watch in 2014 / Plus six trending issues that could be big this year

Source: Ryan Holeywell, Liz Farmer, Mike Maciag, J.B. Wogan, Chris Kardish, Governing, Vol. 27 no. 4, January 2014

For states throughout the country this year, there’s a common theme: a climate of uncertainty coupled with a sense of genuine opportunity. Amid worries about the federal government’s failure to boost funding for infrastructure, many states are taking steps to produce that funding on their own. Congress seems to have stalled—again—in its efforts to reform the immigration system, but states are enacting bills designed to grant new rights to some of their undocumented residents. And after a period in which higher education programs faced dramatic cuts, states are putting money back into those programs—some of them more efficiently than in the past. Here are 10 big issues states will look to tackle in 2014, and six smaller ones they’ll also address. …

Medicaid … Income Tax Revision … Minimum Wage Laws … Public Pensions … Immigration … Safety Net … Higher Education … Employee Compensation … Transportation Funding … Drones …

Trending: 6 More Issues That Could Be Big

Abortion … Fracking … GMOs … Privacy … Social Impact Bonds … Autonomous Vehicles …

Beware of the Tax Shift (Again)

Source: Citizens for Tax Justice, January 22, 2014

Note to Readers: This is the second of a five-part series on tax policy prospects in the states in 2014. Over the coming weeks, the Institute on Taxation and Economic Policy (ITEP) will highlight state tax proposals that are gaining momentum in states across the country. This post focuses on tax shift proposals.

The most radical and potentially devastating tax reform proposals under consideration in a number of states are those that would reduce or eliminate state income taxes and replace some or all of the lost revenue by expanding or increasing consumption taxes. These “tax swap” proposals appeared to gain momentum in a number of states last year, but ultimately proposals by the governors of Louisiana and Nebraska fell flat in 2013. Despite this, legislators in several states have reiterated their commitment to this flawed idea and may attempt to inflict it on taxpayers in 2014. Here’s a round-up of where we see tax shifts gaining momentum: …

Same Sex Marriage: Initial Guidance for Benefit Plan Administration Following United States v. Windsor

Source: Sally Doubet King, Carolyn M. Trenda, and Larry R. Goldstein, Employee Benefit Plan Review, Vol. 68 no. 5, November 2013
(subscription required)

On Aug. 29, the U.S. Department of the Treasury (Treasury) and Internal Revenue Service (IRS) released long-awaited guidance as to how the Internal Revenue Code should be interpreted in light of the June 26, 2013, decision of the United States Supreme Court in United States v. Windsor, __ U.S. __, 133 S.Ct. 2675 (2013). The Court in Windsor held that Section 3 of the federal Defense of Marriage Act (DOMA) was unconstitutional as a deprivation of the liberty of those protected by the Fifth Amendment. The guidance is Revenue Ruling 2013-17 and accompanying Frequently Asked Questions (the Guidance).

The focus of the Guidance is income taxes, but the general principles apply to benefit plans and there are some specific benefit provisions in the FAQs. Here is a summary of the Guidance as it relates to spousal benefits under various types of employee benefit plans. …

Lights, Camera, $$$

Source: Derek Prall, American City and County, January 21, 2014

When it comes to film and TV production, you would probably think of Los Angeles before you think of Shreveport, La. But, due to tax incentives, big-name productions are looking east of the Hollywood Hills, and shooting in non-traditional locations. While production companies save, municipalities can see economic booms.

Chiquita Banks, a Georgia-based tax attorney who helped write the state’s incentive program, says there are four main types of incentives states offer. They are:

Refundable tax credits – After hitting a certain threshold of spending, a production company gets a credit provided by the state. The refundable credit consists of the excess production credits remaining after all income taxes are paid, and are received regardless of income tax liability.

Transferable tax credits – A non-refundable tax credit that a production company can sell to local taxpayers if the credits are not used to offset the company’s tax liability.

Non-refundable tax credits – The state offers credits that can only be used on the production company’s state income tax return or the return of its parent company.

Rebates/Grants – The state offers direct payments to the production company. This is relatively rare, but an example would be the Virginia Governors Fund.

Some states, like Louisiana, Oklahoma and Tennessee use a combination of the above incentives, according to Banks. …
States Ponder Costs, Benefits Of Film Incentives

Source: Julie Rose, NPR, September 24, 2013

…About 40 states offer some sort of incentive to lure Hollywood productions to their precincts. But some have begun to wonder if they’re getting their money’s worth….

Oklahoma Shows How Not to Budget

Source: Citizens for Tax Justice, January 16, 2014

A fascinating analysis published by the Tulsa World reveals how a growing share of Oklahoma’s budget has been put on auto-pilot, and how other areas of the budget have suffered as a result. Despite actually seeing an increase in tax revenues this past year, Oklahoma’s elected officials now have $170 million less to appropriate, and state agencies are bracing for potential cutbacks as a result.

The biggest offender here is one we’ve explained before: the growing trend of funneling general tax revenues toward transportation in order to delay having to enact a long-overdue gas tax increase. …

About half of state revenue is skimmed as share for general fund shrinks
Source: Randy Krehbiel, Tulsa World, January 12, 2014

The issue of direct apportionments gets attention as only about half is left for the state’s general fund….

Offshore Corporate Profits: The Only Thing ‘Trapped’ Is Tax Revenue

Source: Kitty Richards and John Craig, Canter for American Progress, January 9, 2014

From the summary:
Recent investigations have revealed that multinational corporations are stockpiling trillions of dollars in “offshore” income, purportedly trapped overseas because of U.S. corporate taxes. This has created the illusion that there is a large stock of cash somewhere offshore, just waiting to be invested in our struggling economy, if only we could somehow unlock it. For example, House Majority Leader Eric Cantor (R-VA) asserted that “encouraging businesses to bring overseas earnings back home to America will spur investment, economic growth and job creation,” while Cisco Chairman and CEO John Chambers and Oracle President and CFO Safra Catz wrote that “by permitting companies to repatriate foreign earnings at a low tax rate—say, 5%—Congress and the president could create a privately funded stimulus of up to a trillion dollars.”

These arguments are wrong. They are based on a faulty premise; these “trapped overseas” profits are neither overseas nor trapped. It is true that for accounting purposes, multinational corporations keep these dollars off of their U.S. books. But in the real world, the money is often deposited in U.S. banks, circulating in the U.S. economy, and available for a wide variety of domestic investments. For nearly all practical purposes, that money is already here, being put to work in the U.S. economy.

But that does not mean the system is working perfectly. On the contrary, there is in fact something trapped on the balance sheets of U.S. multinationals. But it is not corporate profits—it is federal tax revenue. Profits characterized as overseas for accounting purposes may be little different economically from any other profits, but because of a provision known as deferral, explained in the next section, these profits can accumulate for years, sometimes indefinitely, without being taxed. According to Joint Committee on Taxation estimates, this costs the federal government $50 billion per year, and this cost is growing over time as corporations find ever more creative ways to make their U.S. profits look like offshore income. The problem with these accumulated corporate profits is not that they are “offshore”—it is that they are untaxed. This problem is real and serious….

Property Tax Caps and Citizen Perceptions of Local Government Service Quality: Evidence From the Hoosier Survey

Source: Charles D. Taylor, American Review of Public Administration, Published online before print January 8, 2014
(subscription required)

From the abstract:
This study examines the relationship between property tax caps and citizens’ perceptions of local government service quality using data from the 2008, 2009, 2010, and 2011 Hoosier Surveys conducted by the Bowen Center for Public Affairs at Ball State University. These surveys include questions asking respondents whether the quality of local government services in various categories has improved, declined, or stayed about the same over the previous year. Analysis of these data using generalized ordinal logistic regression indicates that urban residents of counties experiencing relatively large revenue cuts from property tax caps are significantly more likely to report declines in the quality of fire and police protection. Urban and rural residents of high-impact counties are significantly more likely to report declines in the quality of schools. Citizens’ perceptions of road maintenance, which is funded through shared state gas tax revenues rather than property taxes, are not significantly influenced by the impact of property tax caps.

Advancing Economic Opportunities for Business Owners and Job Seekers with Disabilities: A Review of State and Municipal Government Contracting Procurement and Tax Incentive Programs for Disability-owned Businesses

Source: Kathy Krepcio and Jui Agrawal, Rutgers, John J. Heldrich Center for Workforce Development, October 2013

A number of states are using existing policy tools and programs that incentivize the private business community to bolster the employment of people with disabilities, and to encourage opportunities for small business owners and entrepreneurs with disabilities. This report, by Kathy Krepcio and Jui Agrawal, provides an overview of government’s use of these tools to advance socioeconomic goals for disadvantaged populations, including people with disabilities, and to provide broader access to employment opportunities through financial and other assistance to private businesses. It identifies and highlights states and large municipalities that have established and/or expanded existing programs to target and include disability-owned businesses or encourage the hiring of workers with disabilities in the private sector, and provides an overview of their characteristics and features. Finally, this report offers recommendations for encouraging the expansion of these efforts on a broader scale.