A leak in tax shelters?

AuthorBrainerd, Jackson
PositionTRENDS

The corporate income tax has long been a relatively small, though important, portion of state tax revenue. It accounted for 5.4 percent of total tax collections in 2014, down from 7.4 percent in 2007. Revenues are down for several reasons, but the most common revenue drain comes from corporations sheltering profits (done easily these days electronically) in places with favorable taxes--aka tax havens. Along with low, or no, taxes, havens offer privacy, with laws that prevent sharing information about taxpayers. They also usually allow foreign-owned entities to "establish" themselves there without doing much business locally. Havens also often limit local residents from taking advantage of the benefits they offer foreign-owned enterprises.

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Because defining a tax haven is subjective--and no one embraces that label--lawmakers are moving cautiously. To recoup some of the revenue they are losing, several states now require corporations to include in their bottom line not only income from domestic enterprises but also from affiliates incorporated or engaged in foreign tax havens. And, in the last several years, legislators in six states and the District of Columbia have passed additional tax haven laws.

Legislators in Montana and Oregon took the straightforward "blacklist" approach, which identifies and names specific tax havens and...

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