By Kimberley Donoghue
PBN Web Editor
PROVIDENCE ‚Äď The Rhode Island Public Expenditure Council said Tuesday that Rhode Island does not have enough data to determine the appropriate form of implementing combined reporting for tax purposes.
The business-backed think tank issued an analysis on combined reporting in response to Gov. Lincoln D. Chafee‚Äôs proposed 2012 budget, which outlines its implementation.
The intent of combined reporting, RIPEC said, is to address tax-planning strategies by multi-state corporations so they gain little or no advantage by shifting profits out of state; to generate additional revenue for the state without raising nominal rates or imposing additional taxes; to ‚Äúlevel the playing field‚ÄĚ between in-state and multi-state corporations; or to lower the overall corporate tax rate in order to become more competitive.
Twenty-six of the 46 states that levy taxes on corporate income use combined reporting, by which a group of related companies combine their income for tax purposes. In New England, Maine, Massachusetts, New Hampshire and Vermont all require combined reporting.
‚ÄúCombined reporting represents a significant change in the structure of the state‚Äôs corporate tax that heretofore has been based on the concept that every individual corporation in a multi-corporate group is taxed as a ‚Äėseparate entity,‚Äô ‚ÄĚ said RIPEC.
‚ÄúAccordingly, policymakers ought to study the proposed change to combined reporting in more depth than they would with regard to less sweeping changes in corporate tax law.‚ÄĚ
RIPEC pointed to three factors that affect combined reporting statues, including: extent, apportionment and the calculation of apportionment.
Rhode Island may have a competitive advantage if it does not require combined reporting, RIPEC said, while recommending a study period in order to generate data on how the requirement would affect businesses.
During the study period, businesses would file two sets of returns, the regular corporate tax income return and a hypothetical return for those that are part of a unitary group.
For the full report, ‚ÄúAn Analysis of Combined Reporting,‚ÄĚ click here.