Rep. Jim Nickels failed, as expected, yesterday with his bill to require combined corporate tax filling by multistate corporations. The use of subsidiary reporting allows accounting tricks that reduce and even eliminate tax liability in Arkansas.
Nickels told the panel his bill would allow small businesses to be treated the same as multi-state corporations.
“It would allow Sherwood Tire to be treated the same as Sam’s and Wal-Mart tire departments,” he said.
Richard Pomp, a University of Connecticut School of Law professor, testified that the bill would levelize the corporate taxation field that currently, under a court order, gives multi-state corporations the right to choose combined reporting in Arkansas.
“You have the worst of all worlds, where multi-state corporations can elect to chose what’s to their advantage,” Pomp said. “I love being in any state where the corporate tax rate is essentially elective.”
Pomp said corporations like Wal-Mart, the nation’s largest retailer, may set up a Delaware subsidiary that owns store buildings. Each corporate store pays rent to the subsidiary, which then provides a tax deduction to the main company, he said.
“You’re picking up all the pieces from Humpty Dumpty and putting him back together again,” he said.
Pomp estimated Arkansas would gain from $38 million to $95 million annually from combined reporting.
“You don’t have to use that money for spending,” he said. “You could use it to reduce the corporate tax rate.”