Should States Adopt Combined Reporting?
With state corporate income tax revenues on the decline as a share of total state tax revenues for the past two decades, numerous states have attempted to address corporate tax avoidance strategies. Combined reporting requires multi-state corporations to calculate corporate income taxes based on the entire corporate group’s combined profits resulting from a unitary business function within a given state, including those of all subsidiaries involved. Combined reporting requirements are intended to reduce a corporation’s ability to engage in corporate tax avoidance strategies. Some suggest that this could improve the fairness in a state’s corporate tax system and raise tax revenue without harming the state’s economy.