Rhode Island to adopt fairer tax on multi-state corporations

Tanzi pleased that budget bill institutes combined reporting

STATE HOUSE – The 2015 budget bill that was approved by the House today includes a provision that Rep. Teresa Tanzi has championed for several years to close a loophole that large, multi-state and international corporations exploit to avoid paying state taxes in Rhode Island.

The budget bill (2014-H 7133Aaa) changes the state’s tax laws to institute “combined reporting,” which would require corporations that have businesses in other states to combine all their subsidiaries as a single entity and then pay taxes to Rhode Island based on the percentage of net sales profit or loss generated by its operations in this state.

Without combined reporting, large corporations can shelter their profits in other states and evade the taxes that small businesses pay, eliminating an unfair advantage that hurts small business.

“Combined reporting is a fair method of taxation that eliminates a tax trick that big businesses use to avoid paying state taxes for more unfair advantage over our small, homegrown businesses that pay their share,” said Representative Tanzi (D-Dist. 34, South Kingstown, Narragansett). 

“After introducing combined reporting legislation since 2011, I’m very pleased to see that it will now be implemented, leveling the playing field between big businesses and small ones, and capturing revenue that our state needs and rightfully should have.”

A study by the Department of Revenue presented to the General Assembly in March showed that multi-state companies would have paid more in corporate taxes if combined reporting were in place.

Combined reporting is required in the District of Columbia and 23 states, including Massachusetts, New York, Maine, Vermont and New Hampshire. A majority of states that collect corporation business taxes now require combined reporting to appropriately capture taxes owed in state.

Representative Tanzi said that the adoption of combined reporting is not an effort to raise taxes on big businesses because the corporate tax is supposed to apply to all businesses. Instead, it’s closing a loophole, and leveling the playing field for businesses of all sizes.

“Rhode Island is working hard to shed our reputation as a difficult state for businesses, so it makes sense to close a known loophole and prevent big businesses from gaming the system to evade the taxes that our local businesses are paying. Combined reporting is fair to all businesses and it would help the state collect the money it’s owed,” said Representative Tanzi.