My testimony today examines the erosion of Rhode Island’s corporate income tax, and the multistate tax avoidance schemes that have contributed to this erosion. In addition, it discusses the single best strategy available to lawmakers seeking to respond to the problem of corporate tax avoidance—mandatory combined reporting. Requiring combined reporting of the income of multistate corporations would help ensure the long-term viability of the Rhode Island corporate income tax. It would also make the corporate tax more equitable—both among businesses and between businesses and individual taxpayers—by eliminating the incentive for multi-state corporations to avoid state income taxes by artificially shifting income from one taxing jurisdiction to another.
A majority of states with corporate income taxes or similar taxes currently require combined reporting—including Massachusetts, New York, and Vermont, each of which were part of a larger wave of states that recently implemented this reform. Two other nearby states—Maine and New Hampshire—have required combined reporting for over two decades.