|
May 1, 2008 - For immediate release…
Spokespeople are available statewide. Contact the following to arrange interviews:
- Bill Howell, TFT Nashville, 615-751-5011 (off) or 615-289-1397 (cell)
- Kimberly Douglass, TFT Knoxville, 865-687-9600 (off) or 865-705-9205 (cell)
- John Stewart, TFT Board Member, 865-584-3834
Shortfall or Short Sighted? State Officials Stall a Fiscally-Responsible Answer to Budget Woes
At week's end, the state of Tennessee will be $384 million in the hole according to the Funding Board's latest estimate, but members of Tennesseans for Fair Taxation (TFT) call it unnecessary. It is projected to be $585 next fiscal year. "State officials are labeling the situation as a $384 million budget 'shortfall.' Four-hundred million dollars this year and six-hundred million next year is no short fall from anywhere," states Dave McIlwaine, TFT Board Chairperson, "especially when state officials are blocking a fiscally-responsible option that would help fill that hole. It's more like a push down the stairwell."
As the Governor contemplates layoffs and cuts to vital programs, some multi-state corporations are purposely shifting their profits to out-of-state subsidiaries to avoid paying Tennessee's business taxes. One practice is for parent companies to create subsidiaries in Delaware or Nevada that own the parent company's trademarks. Then they 'pay' these subsidiaries for the right to use their own logo, shifting their taxable profits out of Tennessee. This practice is legal and simply exploits gaping loopholes in the Tennessee tax law.
To close a range of corporate loopholes simultaneously, including the Delaware Holding Company loophole, Tennesseans for Fair Taxation (TFT) is pushing the Food and Business Tax Fairness Act (SB3158/HB3182) during this session of the Tennessee General Assembly. In addition to helping with the current shortfall, this legislation would reduce the state food tax from 5.5% to 4.5%.
TFT originally proposed a bill that would use all the revenue recovered from closing the loopholes for the food tax reduction. In response to the increasing shortfall, however, the organization has made clear its willingness to seek a more modest reduction in the food tax so the state can apply the additional funds to vital programs and services.
This week, the Commissioner of the Department of Revenue acknowledged that it is time for some businesses to help address the budget shortfall. His suggested "technical corrections" to the tax code make sense considering companies can apply the Tennessee's tax law to avoid paying for the state resources that help their businesses thrive.
Commissioner Farr is recommending specific loophole closures. "We applaud Commissioner Farr's efforts for several reasons. But one important loophole closer—one that will materially relieve the current fiscal mess, not just nibble around the edges—has been left out," says John Stewart, a board member of Tennesseans for Fair Taxation.
In contrast to Farr's approach that goes after one loophole at a time, the TFT approach fundamentally changes the way businesses report their taxes in the first place. It closes a whole series of loopholes with one simple reform. Instead of requiring the parent company and its various subsidiaries to file separate tax returns, the TFT proposal would require related companies to file a single, unified tax return.
"Companies can still shift their profits back and forth among their subsidiaries. It just doesn't make a difference since they all would report their taxes jointly in the end," states Stewart. "What's more, 21 states representing over half the US economy already require this kind of reporting. It's a simple, common sense solution that works."
By closing the loopholes, these corporations would have to assume the same fiscal responsibility as small, locally-owned businesses that cannot shift their profits out of state. "Closing these loopholes is a matter of fairness to our Tennessee businesses," adds Stewart.
According to the Washington, DC think tank, Center on Budget and Policy Priorities, this filing method would recover some $110 to $250 million of state revenue. Also, the Multi-state Tax Commission estimated that in 2001 alone Tennessee lost between 14% and 32% of profit tax collections to sheltering schemes. In 2008, that would translate to an increase of $148 to $321 million.
"It's clear that Tennessee is ignoring a way to both make a meaningful reduction in the state food tax, while also helping to meet the current budget shortfall," states John Stewart. The food tax reduction in the TFT bill would cost $90 million, leaving the balance to be used for the current shortfall.
Dave McIlwaine charges, "Despite our budget woes, the proposal has been deliberately stalled with fuzzy math. In determining the revenue potential of this bill, the state's office of Fiscal Review relied upon a questionably low estimate from the Department of Revenue." In addition to the Multi-state Tax Commission and Center on Budget and Policy Priority data, TFT points to revenue estimates from 11 other states that have considered combined reporting in the last 5 years. These estimates show gains that are 5 to 12 times what the Department of Revenue claims. Senate leadership has begun to question this estimate and has requested additional information from the Department of Revenue.
"This year's $384 million shortfall is not just the result of bad circumstances in 2008. It's the result of a poorly structured state tax system that is both inadequate and unfair. As a result, a number of public services were already underfunded prior to the shortfall," says Stewart. Among the 50 states, Tennessee is 41st in fourth grade reading proficiency and 47th in fourth grade math proficiency. Worse still, Tennessee ranks 47th for the percent of the population that graduates from high school.
"In the absence of comprehensive economic reform, state officials must consider, or at least not block, this fiscally-responsible option," says Stewart. "This proposal would make a significant and lasting impact on the current budget deficit," adds Stewart. "Calling on companies to pay their fair share, while also reducing the food tax, will move our budget in the direction of being both adequate and fair."
Additional resources and links:
# # #
|
