Editorial

Happy returns

Legislators award a break to some multistate corporations at the expense of regular taxpayers.

June 21, 2011 

It's one of the most oft-repeated complaints heard from average folks hunkered down over their income tax forms every spring. And it goes something like this - minus, shall way say, a few choice adjectives, nouns and adverbs not repeatable in even moderately polite company: "Little folks get stuck. We've got no choice but to pay our share and not too many ways to cut our taxes, because we don't have a money shelter like rich folks do. And the corporations can get away with anything!"

Even though that's the tax season talking, it is true that corporations have many advantages. And if one wishes to carry that last image a little further, it might be said that the Republican-run General Assembly has just handed larger corporations a free pass to do anything and then some, plus a bonus.

The GOP leadership and its members did quite a number on all sorts of regulations pertaining to business in the recently concluded legislative session, lessening oversight of business activities and especially seeking to punish and weaken those in the state Department of Environment and Natural Resources (DENR) charged with regulating polluters. Some business owners who'd had dealings with the department had long complained that the tree-huggers were getting in their way.

A bigger favor

But while DENR was drawing a lot of attention, a perhaps bigger favor at direct expense for taxpayers was being done in an astounding bit of legislative maneuvering. A bill that belongs on Gov. Beverly Perdue's veto list basically makes it easier for multistate corporations to avoid paying taxes in North Carolina.

Those corporations have used various strategies to escape paying a fair share of taxes on money earned in this state - for example, shifting money made in North Carolina and counting it on the books of divisions in other states.

Current law allows the secretary of the state Department of Revenue to order such a company to file a combined tax return covering its operations out of state, if the secretary determines that the company is intentionally trying to avoid North Carolina income tax. The earnings are then apportioned and taxes levied according to the amount of business the company does here. The law withstood a high-profile court challenge from Wal-Mart.

The stakes are significant. The N.C. Budget & Tax Center says that in fiscal 2009-2010, the state brought in more than $400 million in tax revenue from companies that had abused tax shelters and consequently had to file that combined return and pay taxes accordingly. Requiring multistate corporations to pay a fair share also means fairer treatment for competitors based in North Carolina.

Out of pocket

So what's in this GOP-led change now figuratively sitting on the governor's desk? If a business could show (and multistate businesses have armies of lawyers to make that showing) that there was a "reasonable business purpose" in addition to tax benefits to having the corporate structure with the out-of-state transfers of profits, it would be OK. The combined return and the taxes could be avoided.

Here we go with more legislative sleight of hand that is going to wind up costing the taxpayers.

Defenders of the change argue that giving businesses this break will stimulate the economy. House Majority Leader Paul "Skip" Stam, Republican of Apex, even went so far as to say, "Of all the bills we've had this session, this is the jobs bill." That is wishful thinking at best.

A good jobs bill would have been to preserve the 1-cent sales tax hike approved in 2009, which would have brought in around $1 billion and saved thousands of public-sector jobs. A good jobs bill would have invested more, not less, in the job engine of community colleges. Instead, lawmakers continue to convince themselves that pandering to every corporate whim is the best strategy. It's not. It is shortsighted, expensive, unpredictable and unproven.

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