Decline in corporate income taxes ends up harming states

Efforts by large corporations to whittle down or completely avoid paying federal corporate income taxes drive down the revenues states collect from corporate income taxes as well. Many states, including Colorado, use federal income definitions and "taxable income" calculated for federal tax purposes as a basis for calculating their corporate income taxes.

A study released last week found that 68 Fortune 500 companies paid no state income tax at all in at least one year from 2008 to 2010. These companies reported a combined  $117 billion in pre-tax U.S. profits over the same time.

The study conducted by the Citizens for Tax Justice and the Institute on Taxation and Economic Policy builds on their November report that found 78 Fortune 500 companies paid no federal income tax in at least one of the past three years.

Of the 280 companies included in the November study, 265 fully reported their state and local income payments.  However, the companies do not disclose their profits and taxes on a state-by-state basis, so the report does not show which companies paid taxes in which states.

The report does show in which states companies are headquartered, the total amount of state income taxes paid and the percentage of total profits that represents. Of the 265 companies in the study, only DISH Network, DaVita and Ball Aerospace have their headquarters in Colorado. Each paid state income taxes every year from 2008 through 2010.

The amount of revenues collected from state corporate income taxes, measured as a percentage of the total economy, is at its lowest level since World War II. Corporate tax cuts enacted by Congress are a major reason for the dropoff in state corporate income tax revenues.  As revenues from corporate taxes decline, states are forced to either cut budgets or to ask others to pay more in taxes.


Article posted on December 14, 2011