June 2015

Closing a Corporate Tax Loophole Through Combined Reporting

Nicholas Defiesta

This fact sheet explains that Connecticut's corporate tax structure enable large, multi-state corporations to avoid responsibility for paying their share of state taxes by using an accounting gimmick to shift profits to subsidiaries in other states.

This tax loophole drains state revenues needed for health, education, early care, transportation, public safety, and other public services. It also puts local, Connecticut-based companies at a competitive disadvantage to multi-state companies who can pursue aggressive tax avoidance.

Requiring combined (unitary) reporting would effectively close this loophole. The majority of states with corporate income taxes, including all states in the Northeast, already have mandatory combined reporting, and the vast majority of Connecticut's largest employers (over 85%) already operate in other states with this requirement. Connecticut should adopt combined reporting to restore needed state revenues, bring the state in line with the rest of the Northeast, and create a level playing field for local businesses.

Issue Area:
Budget and Tax