The Maryland Business Tax Reform Commission met last Thursday specifically to discuss trends in business taxation across the country. During the meeting ITEP offered testimony regarding the wide variety of options policymakers have when seeking to reform their business taxes.

For example, in the past several years, a handful of states, including Ohio and Texas, have completely changed how they tax businesses operating within their boundaries. Other states like California have modified their basic apportionment formulas, while still more continue to offer a variety of tax credits and inducements with the aim of luring or retaining employers.

ITEP's remarks specifically focused on one particular trend: the move to require combined reporting of a corporate group's nation-wide income to state tax authorities. Under combined reporting, a multi-state corporation calculates its income for tax purposes by adding together the income of all its subsidiaries -- without regard to their location -- into one total. That total is then apportioned to the state using the combined apportionment factors of the entities that comprise the corporation.

Without this reform, corporations can use various accounting tricks and sham transactions (which exist only on paper) to shift profits into a state that has no corporate income tax. Simply put, combined reporting represents the most comprehensive option available to states seeking to halt the erosion of their corporate tax bases and to curtail corporate tax avoidance.

Since 2004, seven states have adopted combined reporting. In fact, a majority of the states that levy a corporate income tax of some kind now use this approach to determining the tax liabilities of multi-state businesses. Read ITEP's testimony here on the importance of combined reporting and the gains experienced by states that have enacted the measure.

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