MEDIA RELEASE: Bill Headed to Senate Floor Today Would Derail Efforts to Curb Corporate Tax Dodging

HB 619 could cost North Carolina hundreds of millions in revenue for public investments
 
RALEIGH (June 15, 2011) -- A bill approved in the Senate Finance Committee last week and on the calendar of the Senate floor today would be a major step backward in North Carolina’s attempts to rein in corporate tax dodging, experts say.

Since 2001, the NC Department of Revenue has had multiple high-profile successes in fighting corporate tax dodging in the courts. In 2009-10, the Department successfully collected $424 million in revenue from corporations attempting to abuse corporate tax shelters by requiring related corporations to file as a single corporate taxpayer.

Key to the department’s success in curbing corporate tax avoidance have been victories in court cases such as Wal-Mart Stores East v. Hinton, where the state reclaimed $33 million in taxes owed that Wal-Mart had avoided paying by shifting income to a Delaware-based holding company.

The bill before the Senate today (HB 619), however, will make it much more difficult — if not impossible — for the state to curb corporate tax dodging in the future.

Allowing abuse of such loopholes would put locally-owned businesses at a competitive disadvantage by giving big, multi-state corporations a distinct tax advantage.
 
“Even under current laws, keeping up with corporate tax avoidance strategies presents substantial challenges for the Department of Revenue,” said Edwin McLenaghan, a policy analyst with the NC Budget & Tax Center who studies tax policy. “Tracking down corporate tax dodgers often requires years of litigation against companies using illegal tax shelters. This bill would make it even harder to make big out-of-state corporations pay their fair share.”

This bill resurrects a failed strategy tried by the state of New York to define corporate tax shelter abuse.
After losing numerous cases against corporations that were abusing tax shelters to reduce their state corporate income tax liability, New York abandoned this ineffective, piecemeal attempt to curb corporate tax shelter abuse and enacted mandatory combined reporting in 2007.

“Instead of disarming in the fight against corporate tax dodgers, North Carolina should do what most states with a corporate income tax do: close corporate loopholes in a comprehensive manner through mandatory combined reporting,” said McLenaghan.
 
FOR MORE INFORMATION, CONTACT: Edwin McLenaghan, NC Budget & Tax Center,Edwin@ncjustice.org, (919) 856-3192; Alexandra Forter Sirota, Director, NC Budget & Tax Center, alexandra@ncjustice.org, (919) 861-1468; or (919) 801-0465; Jeff Shaw, Director of Communications, NC Justice Center, jeff@ncjustice.org, (919) 863-2402 (office) (503) 551.3615 (mobile).