North Carolina could recoup $61 million annually if it cracked down on corporate tax shelters, a new report by the N.C. Public Interest Research Group says.
The report looks at corporate tax shelters across the country. It notes that 24 states and the District of Columbia have modernized their codes so that they can tax companies based on the combined earnings of their affiliated businesses.
In North Carolina, that $61 million would be enough to pay the salaries of 1,300 more teachers or cover the in-state tuition and fees for nearly 3,780 students at N.C. State University, a news release from NCPIRG says.
“Tax dodging is not a victimless offense,” Kalila Zunes-Wolfe, a program associate with the organization, says. “When corporations skirt taxes, the public has to make up the difference. That means higher taxes for average taxpayers or cuts to public programs.”
Last year, North Carolina lost close to half a billion dollars due to “the abuse of offshore tax loopholes” in addition to not having a combined reporting law, NCPIRG says.
State Sen. Bob Rucho, a Republican from Mecklenburg and a key author of the legislature’s tax code rewrite, was asked to respond to the report on Thursday. On Saturday, he responded by taking issue with the “unsubstantiated report from some unknown left wing fringe interest group.”
“This interest group demonstrates its ignorance on taxation when they claim a business tax is anything more than a pass thru to the consumers’ cost,” Rucho wrote in an email.
North Carolina’s Department of Revenue has the authority to force multistate corporations to calculate how much they owe in taxes by combining all their revenue in this state and elsewhere. But the Republican-led legislature has put recent restrictions on forced combinations, and the state doesn’t automatically require it.
Some companies put their money in domestic tax shelters, such as in Delaware. Others devise complex structures to lower their state income taxes by paying rent to themselves and tax-free dividends to different entities.
The N.C. Court of Appeals has upheld the right of the state to force combined reporting, in a case involving the parent company of Food Lion. In the past, the state has also successfully fought with Wal-Mart to recover that money.
During debates in the General Assembly in 2011, Democrats called the shelters tax dodges that allow big companies to avoid paying their fair share of taxes. Republicans characterized them as legitimate tax breaks that simply constitute good business practices.