BTC BRIEF: Shutting Down Corporate Tax Shelters: North Carolina Should Follow the Lead of Other States by Adopting Key Corporate Tax Reform

By Edwin McLenaghan
Public Policy Analyst, BTC
June 2011


  • Large, multi‐state corporations are able to take advantage of tax shelters because most are structured as parent corporations that each own many separate subsidiary corporations in states across the country.
  • Adopting a key corporate tax reform known as combined reporting would require parent corporations and their subsidiaries to “combine” for state tax purposes to file a joint tax return. The profits of the combined corporation would then be apportioned by formula to each state in which the corporation does business according the share of total business activity located in each state.
  • Combined reporting would level the playing field between locally‐owned businesses and multistate corporations at a time when small and mid‐sized businesses are struggling to compete with big corporations. That is because multi‐state corporations can take advantage of the multiple jurisdictions within which they do business and through tax planning set up abusive corporate tax shelters.
  • North Carolina’s share of state tax revenue from the corporate income tax declined by more than all but four states from the late 1980s to the early 2000s. Adopting combined reporting would help to slow this steady erosion of revenue from the state’s corporate income tax.
  • In 2008, 88 percent of all corporate income tax revenue came from corporations with at least some out‐of‐state profits. If multi‐state corporations in the state were able to shelter an additional quarter of their in‐state profits to no‐tax states due to the rising difficulty of restricting tax shelter



PDF icon BTC Brief - Combined Reporting.pdf118.43 KB
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