Combined Reporting Has Consequences

Lancaster Online recently produced a number of articles concerning Mandatory Unitary Combined Reporting, one of many tax revenue increases offered by Governor Rendell. Combined Reporting did not make it into this year’s budget, but will likely continue to show up in future talks and legislation.

Combined Reporting would require every corporation – jointly with its subsidiaries and all affiliated businesses – to file under one unitary tax return, ostensibly to remove the “Delaware Loophole” and eliminate tax evasion.

The Commonwealth Foundation most recently addressed the topic in its Budget Facts: Corporate Taxes. Highlighting some of the more poignant myths, including the myth that 71% of businesses do not pay corporate income taxes. This is misleading as many of these companies do not make a profit, and are, therefore, not required to pay a corporate income tax. Also, a substantial amount of these companies are no longer in operation, and the proportion of businesses “not paying taxes” is similar in states with combined reporting.

In fact, the tactic is so above-board that several sources interviewed for this story said state officials advise corporations that are leery of Pennsylvania’s high corporate income tax to contact an attorney or accountant about setting up a passive investment company.

And the state already has the power to go after true tax scofflaws:
The Pennsylvania Department of Revenue has audited companies, disallowed expenses for certain payments made to passive investment companies and issued tax assessments, Weyant said.
Pennsylvania is widely viewed as an unfriendly business state and Combined Reporting would strengthen this view, further hurting the business climate and economy.