Reearch Group Says PA. Legislature is Pretending to Close Delaware Loophole, But They Really Aren't

[JPZenger]

http://pennbpc.org/HB-440-Addback-Analysis

To provide political cover for their votes to enact another round of corporate tax cuts, the PA. Legislature is telling everyone that they finally are going to close the Delaware tax loophole. The Delaware Loophole has been successfully closed by many other states - PA is one of the last states who are letting themselves be abused. The Loophole allows thousands of corporations to use subsidiaries to hide their profits in a non-descript office building in Wilmington, and avoid their fair share of PA. taxes.

Excerpt:

"A recent proposal to close corporate tax loopholes that drain millions of dollars annually from Pennsylvania schools, colleges, and other vital services would fall far short of its goal and aggravate our state’s financial problems. While HB 440 aims to prevent corporations from unfairly shifting profits earned in Pennsylvania to Delaware and other low- or no-tax states, it would be ineffective at stopping the practice and even creates new tax loopholes corporations could exploit.

Because the bill’s loophole-closing measure would be largely ineffective, its cuts in corporate tax rates would end up costing hundreds of millions of dollars per year in lost tax revenue and force further cuts to the assets that make Pennsylvania a good place to do business in the first place.

Corporate tax avoidance is a growing problem that leaves PA. companies and individuals who play by the rules to pick up more of the tab. But fixing this must be done carefully, and there are better alternatives than HB 440.

During the last 10 years, many states took steps to close tax loopholes and collect taxes on income earned in-state. They took two approaches: enacting “combined reporting” laws that keep corporations from shifting profits to their operations in other states to avoid taxes; or adopting “addback” laws requiring that fees, royalties and other transactions between related companies, done primarily to avoid taxes, are added back to the companies’ income and taxed. Some states did both. Of the two approaches, combined reporting is the more foolproof, acknowledged by the Multistate Tax Commission the more “comprehensive way of dealing with the Delaware holding company issue."