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Combined reporting: Tax equity for all Rhode Island businesses

A Guest Column written by state Rep. Teresa Tanzi, Rep. Christopher R. Blazejewski and Rep. Jeremiah T. O’Grady.

With a $295 million shortfall facing our state, the time has come to enact comprehensive reform that closes the loopholes multi-state corporations exploit to avoid paying the same taxes our Rhode Island-owned small businesses are paying. Although several changes were made to curtail corporate tax-avoidance strategies in 2007, the reforms were piecemeal and widely believed to be ineffective as companies quickly found new ways of sheltering their profits.

One of the tricks many multi-state or multi-national corporations use to dodge state taxes is to hide their Rhode Island profit in a “shell” corporation or other out-of-state entity that is not subject to our state’s taxes. In response to this problem, we have introduced legislation that would stop this end-run by implementing “combined reporting” in Rhode Island. Under combined reporting, corporations that have businesses in other states or countries must combine all subsidiaries as a unitary entity and then pay taxes to Rhode Island based on the percentage of net business profit or loss generated by its Rhode Island operations. Under combined reporting, tax liability is determined by the level of corporate in-state activity, not by the sophistication of corporate structure.

The main arguments in opposition to ending the shell game will be simple, vociferous and unfounded. The first claim opponents will make is that combined reporting will create a huge administrative burden on corporations. Additionally, critics will say that corporations will leave the state and go to states without combined reporting, taking their jobs with them. But many of our state’s largest employers are already subject to combined reporting in other states. CVS employs 6,300 people here, and operates in 21 combined reporting states, while Bank of America has 3,500 employees and exists in all 23 combined reporting states. New York, Maine, Vermont and New Hampshire have combined reporting, and Massachusetts joined them in 2009. There are serious ongoing discussions of enacting it in Connecticut as well. The momentum has shifted in New England and the country as a whole, and presently, a majority of states that collect corporation business taxes now use the combined reporting method to appropriately capture taxes owed in state. It is time for Rhode Island to join them.

Through combined reporting, Rhode Island not only stands to reclaim tax revenue from corporations that circumvent the system, but we also stand to level the playing field for our small businesses that play by the rules. Combined reporting is not “raising” a tax on big business; It’s simply stopping them from using a shell game to evade the taxes that our homegrown businesses are paying. It’s fair to all businesses, and it would help the state collect the money that it is owed – money our state needs now more than ever.

Rep. Teresa Tanzi is a Democrat who represents Dist. 34 in South Kingstown and Narragansett. Rep. Christopher R. Blazejewski is a Democrat who represents District 2 in Providence and East Providence. Rep. Jeremiah T. O’Grady is a Democrat who represents District 46 in Lincoln and Pawtucket.

Debra Puleo April 07, 2011 at 12:33 AM
Rep. Tanzi and her pal, Chris Blazejewski are two peas in a pod. They both want to place the final nail in the coffin for Rhode Island's job creators. They are the folks who use the trick words like "closing loopholes" and "modernizing" the tax code. Even if one agreed that our tax laws are in need of revamping, this is certainly not the vehicle with which to do so. Ask any business thinking of expanding or just trying to stay in RI and they will tell you that they adamently oppose combined reporting. Why? It takes more of their profit (evil corporations) and places it into the hands of the State. And we sure know what the State does with it: three days to get a license at the DMV, welfare queens rewarded with more generous benefits than a veteran serving in two wars, and cash for ex-poliitcal hacks to start-up "compassion centers." Don't forget GOrdon Fox's raises at the State House to needy relatives of other hacks. Ms. Tanzi talks a great deal about "fairness" and Main Street. She is completely clueless about the struggles facing people who have no jobs. Yes, some of us are actually employed by the evil businesses she seeks impose further suffering on. And yes, some of us might lose our jobs if combined reporting becomes a reality. Why would we risk it at this time in our state with nearly 18 percent unemployment and people fleeing the state? Get real, Ms. Tanzi... this is not a classroom at Brown Univ. ... it is a real place with real people who need jobs.

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