Lawmakers Plot To Stop Corporate Tax Dodgers

NJ.com — January 28, 2016

By Staff Report

Senators Raymond Lesniak, Paul Sarlo and Linda Greenstein joined with small businesses owners, policy researchers, and advocates for tax fairness to announce a plan to help close off corporate tax avoidance practices.

Joining with the Democratic senators in support of the new legislation were representatives from New Jersey Policy Perspective, New Jersey Working Families, New Jersey Citizen Action, New Jersey Main Street Alliance, and small business owners who support closing a loophole that has allowed multistate corporations to avoid their fair share of taxes in New Jersey.

Lesniak, Greenstein and Sarlo have pre-filed for introduction a bill, S-61, which is legislation to enact a "combined reporting" tax law to put an end to the "corporate shell game" that could be costing the state hundreds of millions of dollars in lost revenue each year.

"Some of these highly-profitable companies are exploiting tax laws with a corporate shell game to avoid paying their fair share," said Lesniak, chairman of the Senate Economic Growth Committee. "They exploit the use of subsidiaries or create phantom subsidiaries to 'shift profits' away from New Jersey. By closing this loophole the state could generate as much as $200 million a year. This will help address the fiscal needs of the state."

Combined reporting treats the parent company and subsidiaries of multistate corporations as one entity for state corporate income tax purposes. The entirety of their profits are added together and the state then taxes the share of the combined income generated in New Jersey.

"We need to close these loopholes, capture this revenue, and hold multi-state companies to the same level of accountability as the rest of New Jersey," said Greenstein, who chairs the Senate Law and Public Safety Committee. "When the large corporations don't pay their fair share small businesses and the rest of us are left to make up the difference. This is an issue of fairness and shared responsibility."

The bill updates the New Jersey corporation business tax reporting system to reduce tax sheltering and improve the fairness of income reporting by requiring related corporations to file a combined income report using a reporting system similar to those currently in place in a majority of states. Most large businesses are structured as a "family of corporations" under common ownership and control. This structure facilitates the sheltering of corporate income from taxation through transactions among various related corporate entities.

"This bill improves tax fairness by requiring the multiple organizations that are really one business to determine their income as one business," said Sarlo, chairman of the Senate Budget and Appropriations Committee. "The combined reporting system required by the bill treats a group of interrelated companies as a single company, which will help eliminate the use of tax shelters and other avoidance schemes."

NJ Policy Perspective, a non-profit think tank, released a report citing New Jersey's loss of hundreds of millions of dollars per year in tax revenue due to the gaping loopholes that currently exist in New Jersey's tax laws.

By enacting combined reporting, New Jersey would join 25 other states and the District of Columbia in limiting the ability of multistate corporations to shift profits to other states that have lower tax rates, or no corporate taxation at all. Corporations often do this by creating "subsidiaries" that exist only for tax purposes.

Lesniak pinpointed Exxon as one of the worst offenders.

"This is about more than taxes and accounting tricks," said Lesniak, referring to the oil giant's scarred record of environmental pollution and refusal to provide responsible compensation for clean-up work.

"Exxon's average state tax rate over the most recent five years was 2.2 percent," said Lesniak. "They have contaminated the environment, muscled out a legal settlement that shortchanges the state, all while exploiting this loophole to avoid taxes."

According to the Institute on Taxation and Economic Policy Analysis of SEC Filings, ExxonMobil paid a low tax rate over the past five years, and received a tax rebate from New Jersey in 2014 in the amount of $507,000. This resulted in a -5.6 percent tax rate that year.

Joining in support of the Democratic senators were Sheila Reynertson, from New Jersey Policy Perspective, Analilia Mejia, Executive Director of New Jersey Working Families, Ann Vardeman of New Jersey Citizen Action, Jerome Montes, from New Jersey Main Street Alliance, and Erick Cedano, owner of Fast Photo Plus, a small business in Elizabeth.

For years, many large companies have been using complex tax arrangements to avoid paying money to support government operations. As a result, workers and small enterprises are disadvantaged by tax laws that impose on them a greater share of the burden of providing for society's needs.

Democratic presidential candidate and US Senator Bernie Sanders (I-Vermont) has been on an incredibly bold mission to protect the American people while exposing unfair government tax benefits for the country's most wealthy, greedy, and corrupt.

Top Top | NJCA Homepage | NJCA in the News