by Mara Lee (Courant)
A rule change for corporate income tax collections in Connecticut died without a vote at the end of the legislative session, but the proposal known as “combined reporting” will be back next year, a finance committee co-chairman said Thursday.
Currently, corporations may choose how they calculate their taxes. About 1,000 use combined reporting, which saved them more than $220 million in 2008.
The proposal, however, would require that all companies report all the profits from subsidiaries as one unit. The companies then would be taxed based on how much of the business is conducted in Connecticut. It’s designed to combat tax minimization strategies used by large companies in which they shift earnings to states that don’t tax them.
When Vermont switched to mandatory combined reporting, corporate income tax collection rose by 20 percent to 25 percent. Maryland is in the process of switching, and estimated a similar increase.
If that pattern held true in Connecticut, revenues would have gone up by $88 million under the new rules.
Four of the six New England states, and 23 states in all, have this system.
Rep. Cam Staples, D- New Haven, the finance committee co-chairman, said the legislature ran out of time to consider combined reporting, but he’s encouraged that it passed the finance committee with strong, if not bipartisan, support.
The legislature passed the proposal in 2003, and it was signed into law, but the law was immediately repealed because businesses complained they’d pay far more than the projections.
“There’ll be a need to raise some new revenue, so I think it will be something that will be up for further discussion,” Staples said.
Steve Bousquets, owner of Steve Bousquets Appliance & TV in Danielson, said he’s disappointed that the bill failed. Bousquets, who has 12 employees, read about how Walmart created a real estate arm that is not subject to state taxes, and has all the stores pay rent to that division. This arrangement reduces profits on paper.
“We’re not a box store or a chain store that has access to high-priced lawyers who can set up a fictitious entity in Delaware,” Bousquets said. His store pays tens of thousands in state corporate income tax, while some much larger companies pay just $250.
He says the bill failed for two reasons — the lobbying clout of large companies, and a lack of awareness of how businesses exploit the differences in state tax laws to minimize their taxes.
He said he raised the issue at a chamber of commerce meeting attended by nine state legislators.
“None of them were aware this loophole existed,” he said.