Combined Reporting Gets Interim Study

Leveling the playing field for small Arkansas businesses was examined this week during a joint meeting of the state Senate and House committees on revenue and taxation. The Arkansas Small Business Tax Fairness Act, sponsored by Rep. Jim Nickels, 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 taxes are much lower or where there are no taxes at all.

Rep. Nickels introduced this bill-also called combined reporting-during the 2011 legislative session, but it did not have enough support to move on to the full House.

AACF supports this proposal. It would be a big step toward ensuring economic security for all Arkansans. Combined reporting would help level the playing field for small businesses that already live up to their responsibilities and pay their taxes. 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 already have combined reporting laws. That includes our neighbor, Texas, as well as Maine, which Ernst and Young declared the most business friendly state in the union based on its tax laws.

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 million to $95 million annually in lost tax revenues), with little to no cost in implementation.