What’s the Hold Up? DC Mayoral and Council Inaction Will Make DC’s Budget Problems $22 Million Larger

February 23rd, 2011 | by Jenny Reed

Why would the Mayor and Council want to continue to let corporations avoid paying business income taxes to DC and instead put local business and taxpayers on the hook for picking a $22 million tab in lost corporate tax revenue?

We have no idea.  But it is exactly what will happen if the Mayor and Council fail to follow through on an important tax reform they passed in September 2009.  The tax reform — known as combined reporting — removes a weakness in DC’s tax system so that corporations would be required to pay their fair share of taxes to the District.  Fifteen months later, lawmakers still haven’t passed the required legislation to fully implement it.

Why hasn’t the law been implemented yet?  It can’t be because lawmakers don’t know they haven’t implemented it yet.  We’ve written about it, blogged about it, and even made a video on it.  And it can’t be because they don’t have the legislation.  Months ago the CFO drafted the legislation necessary to put this important tax reform on the books (it’s here in case anyone needs a copy of it).

So what’s the hold up?

Right now, corporations like CVS and Starbucks can take advantage of weaknesses in DC’s tax system and shift their DC earned profits to other states with lower — or no — business taxes.  The result is large multi-state corporations often avoid paying their fair share of taxes, while local businesses and taxpayers pick up the slack in lost revenue.

How much slack?  When the law was passed in 2009, the CFO estimated that closing the weakness in our tax system would generate $22 million for FY 2012.  Those funds were built into the projected FY 2012 budget. But nearly fifteen months after combined reporting was passed, the law hasn’t been implemented.  If the Mayor and Council continue to sit idly by, DC’s budget gap will grow $22 million larger – while large corporations continue to avoid paying taxes on their profits earned in DC.

Dr. Gandhi, DC’s Chief Financial Officer, has said that combined reporting is, “…a fair and equitable revenue source for the District…It is being adopted by many states.”  It fact, it has been implemented in 23 of the 45 states that have a corporate income tax, and tax experts agree that it is one of most comprehensive ways states can keep corporations from abusing corporate tax shelters.

Not surprisingly, corporations push back when states try to remove this weakness from their tax systems.  But many of the corporations in DC that would be subject to the new tax reforms — like CVS and Marriott — already have to abide by the rules in other states they operate in.  And it hasn’t proved to be a disincentive to do business there.  In fact, studies show that these corporate tax reforms have not affected states’ economic competiveness.

So we ask again, what’s the hold up?

One Response to “What’s the Hold Up? DC Mayoral and Council Inaction Will Make DC’s Budget Problems $22 Million Larger”

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