Wisconsin Council 40
LEGISLATIVE ALERT
AFSCME Green Sheet
Combined Reporting


www.afscmecouncil40.org
 

June 20, 2008                                                                 Volume #30, Issue #18
 

WISCONSIN’S REVENUE PROBLEM: COMBATING CORPORATE TAX AVOIDANCE BY ENACTING “COMBINED REPORTING” FOR WISCONSIN CORPORATIONS - AFSCME members surely are tired of dealing with the fallout of endless state budget deficits, which translate into unfilled job vacancies, staff layoffs, forced overtime, reduced funding for services and more. Deficit budgeting, in sum, means skimping on the vital services that make Wisconsin a great place to live.

Calls for cuts in spending to solve budget deficits are all too common but are short-sighted and overly simplistic. There is another way: Wisconsin should consider new revenue options to provide a fair, progressive alternative to service cuts that would affect the elderly, disabled, children and families.

One such option is to change our corporate tax filing laws to ensure that the corporations are paying what they should pay for the cost of services.

Our current corporate tax laws allow corporations to legally avoid paying income taxes. Here is how they do it: parent corporations report their own income and expenses separately from their affiliates. Corporations such as banks and retailers take advantage of this separate reporting mechanism to place ownership of their affiliates in states that have no income tax.

Therefore, on paper, these parent corporations show less income than what they actually earn. Thus, they owe less in taxes. This is not fair to other taxpayers (such as small business owners and working families) who end up paying more for the services that corporations also depend on and enjoy. It is also not fair to those who need the services which are chronically underfunded.

Some years ago, former Governor Tommy Thompson urged lawmakers to enact a law to implement a system of “combined reporting” of corporate taxes. The law would require combining the income of the parent company as well as all of the affiliates of a corporation to determine their whole tax liability. By combining the income of corporations, the state could hold corporations accountable to the same tax laws that apply to the rest of us.

Recently, Senate Democrats pushed for a “combined reporting” law in Wisconsin. Fiscal analysts report that combined reporting could pump an additional $75 million a year into our state’s treasury. Imagine what $75 million could do for Shared Revenue or for financially strapped counties that are struggling with skyrocketing juvenile corrections, nursing homes and court costs.

Combined reporting would eliminate a legal loophole that corporations exploit to avoid paying their full tax responsibility and for cost of services.

Combined reporting has been adopted by 21 of the 45 states that tax corporations. Close to home, our neighbors in Illinois, Michigan and Minnesota require combined reporting. Michigan is among five states that enacted combined reporting in the past three years to end the practice of corporations exploiting outmoded tax laws to avoid paying taxes.

Combined reporting would not raise tax rates or eliminate deductions, credits or exemptions. Simply put, it would erase an accounting trick that corporations legally, but unfairly, exploit at the expense of the rest of us.

It is time for the Wisconsin Legislature to consider enacting “combined reporting” in this state not only to alleviate our chronic budget woes but to modernize the corporate tax filing system and bring us in line with our neighboring states.

AFSCME supports “combined reporting” legislation and will work to secure passage of this law in the 2009-2010 legislative session. AFSCME leaders across Wisconsin should pressure candidates to take a stand in favor of implementing combined reporting here.