Tax Day Blues? Not for Corporate Wisconsin

You’ve paid your Wisconsin income tax. Wouldn’t it be nice if Corporate Wisconsin did, too?

Take a look at this list of corporate giants. Chances are you paid more in state income tax than did any one of them:
Microsoft
McDonald’s
Merck
PepsiCo
General Electric
Sears.
Budget Rent a Car
Kimberly-Clark
Apple
Boston Market
Deere
Frito-Lay
Kmart
Stokeley-Van Camp
Victoria’s Secret

In fact, chances are you paid more in state income tax than every one of those companies added together! That’s because they pay zero in Wisconsin corporate income tax, according to data obtained from the state Department of Revenue.

Technically speaking, we’re not sure about their 2007 taxes. But we know they didn’t pay in 2005 (the last year for which data are available) nor in the years preceding that. And since Wisconsin hasn’t tightened its tax laws since then, odds are these firms are still enjoying the benefits of Wisconsin profits and Wisconsin services, without paying a penny in Wisconsin income tax.

The best estimate is that big corporations avoid about five hundred million dollars annually in Wisconsin income tax, thanks to a myriad of loopholes. [For details, see the Institute for Wisconsin’s Future report, Revenue Gap: An analysis of corporate tax avoidance, on the web at www.wisconsinsfuture.org.] Each year, more than 60% of the biggest corporations operating in the state pay zero state income tax, says the Department of Revenue.

They don’t pay taxes because of loopholes that let them shift profits among their subsidiaries, allowing profits to escape from Wisconsin to tax-free states. Wal-Mart, for example, has one subsidiary operating its stores and another that owns the stores. The one Wal-Mart firm pays rent to the other, which is structured to be tax-free.

There’s a way to stop the corporate tax scam. “Combined reporting” is the name for the tax reform that would force companies to file tax returns that take into account the profits of all their subsidiaries. Combined reporting is already the law in twenty-one states, and is proven to have no harmful effect on economic growth.

Combined reporting is included in the state Senate’s budget repair bill, now being negotiated by legislative leaders and the governor. It’s a good idea. Closing the loopholes would bring in desperately needed revenue and would also level the playing field for small, in-state firms that pay not only their fair share of taxes but also the taxes that Microsoft and McDonald’s should have paid.

Everyone agrees that a broad tax base makes for a fairer tax system. Closing corporate tax loopholes would be a huge step in the right direction.