BTC BRIEF: No Rewards for Corporate Tax Avoidance - State Policymakers Should Resist Calls to Extend Lax Corporate Tax Rules to Prior Tax Dodges

By Edwin McLenaghan
Policy Analyst, NC Budget & Tax Center
October 2011

KEY FINDINGS:

  • A recent special report from senior officials with KPMG LLP indicates that promoters of corporate tax shelters want to apply new, lax corporate tax rules retroactively to previous tax years, which would absolve corporations from paying taxes owed on past tax-shelter abuses.
  • Applying North Carolina’s new corporate tax rules retroactively to prior years could put at risk over $400 million in paid and unpaid state corporate tax revenue from prior years. The loss of revenue would trigger a new round of harmful cuts to public schools, community colleges and universities, health care, and other vital state‐funded services.
  • The new corporate tax rules passed by lawmakers in June created significant tax uncertainty for many corporations by dramatically changing the rules under which corporate subsidiaries would need to file a single, joint North Carolina tax return (i.e. a “combined return”).
  • Enacting mandatory combined reporting would steer North Carolina back on a sustainable path and away from a corporate tax system that allows a subset of big, multistate corporations to avoid paying their fair share for the public investments and services that benefit them and all others in the state.
     
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