Taxing Issues: Combined Reporting

Taxing Issues: A Six part look at issues that hinder Tennessee’s ability to be a just a progressive state.
 

Part I: Combined Reporting

Combined reporting? What’s that? We’ll don’t worry, it’s not quite as boring or complicated as it sounds. It’s actually a loophole that large, multi-state corporations take advantage of to avoid paying all of their taxes.

See, in Tennessee, corporations are not required to show all of their earnings to the state (the loophole). So companies with clever accountants set up subsidiaries (which is basically a P.O. box) in Delaware (A.K.A. Delaware Holding Companies) and these corporations pay themselves rent on property the Delaware subsidiary own in Tennessee, or they pay themselves for the use of the store logo. You get the picture. So come tax-payin' time in Tennessee the corporations only have to show the state of Tennessee what they made in Tennessee and the state has no idea about Delaware. This means that while the corporation could be making huge bucks off of Tennessee, they don’t end up paying all the taxes they owe because they’ve reported all these extra expenses (incurred by paying themselves through the Delaware holding company).

It’s just a fancy shell game that only huge, multi-state corporations can play. A mom and pop shop who only has a couple of stores in Tennessee can’t play this game because they are not multi-state and therefore can’t shift money form one state to another. It’s a tax avoidance scheme that puts all other honest, by –the –rules businesses at a disadvantage. In addition it costs the state about $200 to $300 million dollars a year. How many teachers could TN employee with that kind of dough? How many fire departments could be upgraded? See what we mean?

The good news is that we already know the answer to this problem and it’s really simple. It’s called: COMBINED REPORTING! What that does it make the corporation give a complete picture of their tax accounting for all states which prevents the corporation from hiding a share of their profits (made in Tennessee) in Delaware.  It’s that simple.

So why isn’t this being done already? Well, that’s a great question. A lot of lawmakers don’t see any need to rock the boat with these companies. We can only imagine why. But, the real reason is that the people of Tennessee haven’t given them any reason to close this loophole.  This is where you come in. We need to let our lawmakers know and to put pressure on them that we know about this loophole, we think it’s unfair and we want it closed! How many more windows at the DMV could be open with that money? That’s real hours of your life wasted because the state of Tennessee doesn’t have enough money to hire more staff?  

Let’s force this change and make Tennessee that much better.