Excellent hearing on Combined Reporting

A bill that would level the playing field for small businesses in Arkansas was heard in committee today but didn’t have the support to move on to the full House.

House Bill 1495, An Act to Create the Arkansas Small Business Tax and Fairness Act sponsored by Rep. Jim Nickels, was heard in the House Revenue and Tax Committee.
AACF supports it because it would be a big step in the right direction to ensure a fair tax structure in Arkansas. It would close loopholes in the tax code that allow large, multi-state corporations that do business in Arkansas to shift profits from our state to another state to avoid paying income taxes on them. Currently, many large corporations use tax avoidance strategies such as creating subsidiaries in other states where business are much lower or where there are no taxes at all. We hosted Richard Pomp, Alva P. Loiselle Professor of Law at the University of Connecticut, a tax law expert to testify for the bill.

During his testimony, Professor Pomp pointed out that between 1990 and 2007, only eight states with corporate income taxes achieved net positive growth in manufacturing. Seven of those eight states have combined reporting laws in place. Closing the existing loopholes would treat a parent company and its subsidiaries as one entity for tax purposes and allows the state to tax a share of that combined income. Twenty three states, including Texas, already have combined reporting laws.

This bill would have helped to level the playing field for Arkansas businesses, particularly small and in-state businesses that pay their fair share of taxes. Other states with combined reporting have estimated that it prevents the loss of 10 percent to 25 percent of corporate income tax revenue (in Arkansas this could mean as much as $38 to $95 million annually in lost tax revenues), with little to no cost in implementation.

Unfortunately, this bill failed to pass out of the House Revenue and Tax Committee on a voice vote. We’ve supported this legislation for many years and will continue to pursue it in future sessions.

Click here for a brief explanation of combined reporting and a map of states that have adopted it.