West Virginia appears poised to take a major step forward in combating tax avoidance by large and profitable businesses. Legislation (SB 749) passed last weekend would institute mandatory combined reporting of corporate income beginning in 2009. Combined reporting is widely viewed as the best way to stop businesses from avoiding taxes by shifting income (on paper) from one state to another. Governor Joe Manchin is expected to sign the measure into law.
SB 749 would make West Virginia the third state in four years to put combined reporting into practice, but this progress comes at a price. The same bill would also reduce West Virginia's business franchise tax rate from 0.55 percent to 0.20 percent over the next five years. While combined reporting is expected to generate $33 million per year once fully implemented, the reduction in the business tax rate is anticipated to lose as much as $75 million annually.
For more on combined reporting in West Virginia, see West Virginia Citizen Action Group's recent policy issue brief.