Tax Threat 4: Costly Corporate Tax Loopholes
May 29th, 2015
The fourth threat to state revenue outlined in MEPC’s 5 Threats to Mississippi’s Tax System is the erosion of state corporate income taxes through loopholes and tax giveaways. According to legislative research, most corporations operating in Mississippi do not pay state corporate income tax. This was the case even before the recession decreased corporate profits. Many corporations escape taxes by shifting profits to related corporations in other states with lower income taxes or none at all.
One way to end this practice is to require multi-state corporations to report their income from all subsidiaries together, a practice known as combined reporting. This would mean more revenue for Mississippi and would also level the playing field for local businesses that, for the most part, do not have the means to take advantage of transferring income out of state to avoid taxation.
In addition to loopholes, tax breaks designed to benefit certain industries also contribute to the erosion of corporate income tax revenue for the state. These tax breaks are rarely reviewed to determine if they are meeting the intended goals, such as job creation. Oftentimes, data is often not available on how much these tax breaks cost the state. More information is necessary in order to evaluate these expensive tax loopholes.
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