States target firms’ offshore tax havens

Some states are going after multinational corporations which avoid state taxes by stashing some of their earnings in offshore tax havens, an effort aimed at recouping some of the more than $20 billion states lose to such gimmicks each year.

Shifting income to subsidiaries in places like the Cayman Islands or Bermuda, which have minimal or no taxes, allows corporations to avoid U.S. and state taxes on those profits. Congress has been unable to thwart the practice at the federal level, but some states are taking action.

Montana was first about a decade ago, followed by Oregon just last year. Now, Maine is looking at legislation modeled on the Montana law. Minnesota Gov. Mark Dayton, a Democrat, is studying the issue as well.

All but four states collect taxes on corporate income, based on the amount of money a company makes in that state. If a company operates in multiple states, it pays taxes on the amount of income it earned in each one, based on a formula set by state law. Some states also tax a percentage of the profits earned by international firms. But multinational companies that hide earnings in offshore tax havens can avoid paying taxes on that money.

Maine lawmakers are considering a bill that would add 38 known offshore tax havens to the formula of calculating corporate tax collections in the state. “If a big company like Apple sells things in Maine, they should pay a portion of their corporate tax in Maine, even if they have income in Bermuda,” said Democratic Rep. Adam Goode of Bangor, the sponsor of the bill. The Maine Legislature’s Joint Taxation Committee voted 8-5 for the bill last month, and Goode is optimistic the full legislature will follow suit.

Two other states – Alaska and West Virginia – and the District of Columbia require companies with subsidiaries in tax havens to include that revenue in their income tax reporting. But none of those states lists specific tax havens in its tax code, a provision that would make the statutes stronger, according to experts.

Credit: Journal Gazette