Corporate tax loopholes have allowed some of the state’s largest and most profitable corporations to pay almost nothing in corporate taxes. One such tax avoidance scheme, called the "Las Vegas Loophole," allows large, multi-state corporations to artificially shift profits to subsidiaries in states without corporate income taxes, like Nevada. These loopholes diminish revenues that Connecticut needs to maintain schools, health care, public safety, transportation, and other essential services for families, communities, and businesses. They also put local, Connecticut-based companies at a competitive disadvantage to the large multi-state companies that can take advantage of the loopholes.
Monday morning, Finance Committee co-chairman Representative Cameron Staples held a press conference in the Legislative Office Building to call for legislation to ban the worst of these tax avoidance schemes. Joining Rep. Staples at the press conference were several other legislators and also representatives from advocacy organizations Connecticut Working Families, Connecticut Voices for Children and Better Choices for Connecticut.
“While families are struggling, some of our state’s largest and most profitable corporations are shifting millions out of state to avoid paying Connecticut taxes,” said Jon Green, director of Connecticut Working Families. “Average families can’t just invent elaborate shell games like AT&T does. So we all pay more.”
Advocates supported legislation known as ‘combined reporting’ that would stop corporations from shifting Connecticut profits out of state by requiring them to report income from all jurisdictions. Advocates argued that these large, multi-state businesses can afford to pay taxes that support the public services and infrastructure that businesses use.
Connecticut’s business taxes as a share of state economic activity (private sector gross products) are the second lowest in the nation, according to an analysis by the accounting firm Ernst and Young. In 2003, 18 of the largest 100 corporations headquartered in Connecticut paid only $250 in corporate income taxes, according to an analysis by the Legislative Program Review and Investigations Committee.
"Connecticut can no longer afford corporate tax loopholes that put local companies at a competitive disadvantage and drain revenues we need to maintain education, health, transportation, and other essential services for families and businesses." said Jeffrey Tebbs, Research Associate for Tax Policy at Connecticut Voices for Children.
A new study released today concluded that the combined reporting tax reform would not impose unreasonable administrative burdens on Connecticut businesses. The study, conducted by Connecticut Voices for Children and the Yale Law School Legislative Advocacy Clinic, found that more than half of the states with corporate income taxes (23 of 45) already require combined reporting. Further, the study found that 86% of Connecticut's largest employers already operate in states that require combined reporting.
“Enacting combined reporting would take one step forward in making Connecticut's revenue system more accountable, transparent and equitable,” said Maggie Adair, co-chair of the Better Choices for Connecticut coalition. “23 other states have had the common sense to do this and Connecticut should join them.”
One poster child for these corporate loopholes is AT&T. Over a period of three and a half years, the company shifted over $190 million in profits out of state to a subsidiary in Nevada to avoid paying Connecticut taxes. Revelations of this scheme prompted an investigation by Attorney General Richard Blumenthal last year.
Following the press conference, a bill to address corporate tax loopholes (S.B. 485) was one topic at the Finance Committee’s public hearing.
Connecticut Working Families is a coalition of community organizations, labor unions and neighborhood activists who united to fight for a fair economy. Working Families was formed to inject issues like affordable healthcare, living wage jobs and fair taxes into the public debate, and to hold politicians accountable on those issues.
Connecticut Voices for Children is a research-based, policy think tank that works to advance public policies that benefit the state’s children, youth and families.
Better Choices for Connecticut is a community coalition working to help Connecticut make smarter choices on ways to improve the state’s imbalanced revenue system so that it advances opportunity for shared prosperity for all Connecticut residents; preserves services for children, families and the elderly; creates and sustains good jobs; and reinvests in the middle class and our communities.