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New Jersey currently offers a tax loophole to large multistate corporations – one that hurts New Jersey-based businesses and costs the state money. Through this loophole, large multistate corporations can – on paper – shift profits they make in New Jersey to other states that have lower tax rates or no corporate taxation at all. Corporations often do this by creating “subsidiaries” that exist only for tax purposes.
Other states are combating this charade by adopting a practice called “combined reporting.” Under combined reporting policies, states treat the parent company and subsidiaries of multistate corporations as one entity for state corporate income tax purposes. Companies’ nationwide profits are added together, and states then tax the appropriate share of the combined income. With recent enactment in Rhode Island and Connecticut, 25 out of the 45 states (plus the District of Columbia) that have some form of corporate income taxat...
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New Jersey currently offers a tax loophole to large multistate corporations – one that hurts New Jersey-based businesses and costs the state money. Through this loophole, large multistate corporations can – on paper – shift profits they make in New Jersey to other states that have lower tax rates or no corporate taxation at all. Corporations often do this by creating “subsidiaries” that exist only for tax purposes.
Other states are combating this charade by adopting a practice called “combined reporting.” Under combined reporting policies, states treat the parent company and subsidiaries of multistate corporations as one entity for state corporate income tax purposes. Companies’ nationwide profits are added together, and states then tax the appropriate share of the combined income. With recent enactment in Rhode Island and Connecticut, 25 out of the 45 states (plus the District of Columbia) that have some form of corporate income taxation now mandate combined reporting.
Limiting the ability of profitable multistate corporations to use accounting tricks to dodge New Jersey taxes would help level the playing field for the state’s small and local businesses – and raise up to an additional $290 million a year to help the state pay its bills and make key investments.
