The Tennessee legislature last week passed a resolution directing the state comptroller to conduct an analysis of the revenue effects of instituting combined reporting in the state. If adopted, Tennessee would become the sixth state in five years to enact this reform (a total of twenty-one states currently have combined reporting requirements).
Combined reporting reduces corporate tax avoidance by requiring a corporation operating in multiple states to include all the profits of its subsidiaries in one report. Without combined reporting, companies with out-of-state subsidiaries and sufficient resources are able to make use of creative accounting practices to artificially shift profits to low-tax states. This both reduces Tennessee's revenues and creates an uneven playing field for business. This report from the Center on Budget and Policy Priorities explains in more detail why combined reporting is so important, and highlights some recent trends in states' interest in adopting the measure.
The Tennessee Comptroller's report will be ready by December.