Level Playing Field: Taxation

Corporations that produce and sell goods in multiple states are required to pay state income taxes based on the portion of their profits that can be attributed to each of the states in which they do business.

Unfortunately, many states have adopted regulations and formulas governing how corporations figure their taxes that enable multi-state companies, including major retail chains, to evade paying their fair-share of state income taxes.

This puts small businesses at a competitive disadvantage. Small businesses with all of their operations in one state cannot take advantage of these tax formulas and loopholes. While their big competitors get away with paying state income taxes on only a portion of their profits, small businesses must pay taxes on all of their earnings.

Fortunately, addressing this problem is relatively straightforward. About half of the states have enacted one or both of the reforms below: combined reporting and throwback rules.

• State Corporate Income Taxes 2001-2003
  This February 2005 study by the Institute for Taxation and Economic Policy an d Citizens for Tax Justice documents 252 national corporation's state and local tax payments. The study reveals that 75 of the 252 paid no state income tax in at least one year from 2001-2003 and from 2001-2003 the 252 companies collectively avoided $41.7 billion, nearly two thirds of state corporate income taxes they potentially owed.