New corporate tax rules could put NC revenue, services at risk

Amending North Carolina’s new corporate tax rules to apply retroactively to prior tax years could put $400 million in paid and unpaid state corporate tax revenue at risk, a new report shows.

In June, state lawmakers enacted House Bill 619, placing restrictions on the ability of the NC Secretary of Revenue to shut down abusive corporate tax shelters used by large corporations to elude paying millions of dollars in taxes owed on profits earned in North Carolina. According to a new report by the North Carolina Budget & Tax Center, recent statements by officials with KPMG – a corporate accounting firm with a questionable history on abusive tax shelters – show that advocates of corporate tax dodging may wish to take the bill one step further by absolving corporations from paying taxes owed on past tax-shelter abuses as well.

The resulting loss of revenue from such rules would be a job-killer for North Carolina, triggering even more harmful cuts to public schools, community colleges and universities, heath care, and other vital state-funded services that North Carolinians and businesses across the state depend on for support, the report said. Lawmakers must respond accordingly to protect the interests of everyday North Carolinians over big, multi-state corporations.

“At the very least, lawmakers should refuse calls by a subset of corporations and big accounting firms to weaken corporate tax rules retroactively, which would only result in a windfall for a few corporations and inflict major harm on North Carolina’s public investments,” said Edwin McLenaghan, a policy analyst with the BTC and author of the report.

Attempting to weaken the enforcement of corporate tax-shelter abuses shows that groups such as KPMG are focused on dodging taxes, not achieving tax certainty, the report said. Allowing multi-state corporations to avoid state corporate taxes gives them an unfair advantage over locally owned business that must pay their taxes, starves public services and investments of needed revenue, and results in North Carolinians and locally owned businesses paying higher taxes to cover corporations’ share.

However, lawmakers could reverse the course by enacting a corporate tax system that makes more sense in today’s modern economy: mandatory combined reporting.

“Combined reporting would steer North Carolina back on a sustainable path and away from a corporate tax system that allows a subset of big, multistate corporations to avoid paying their fair share for the public investments and services that benefit them and all others in the state,” McLenaghan said.

To view the BTC Brief, click here.