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State Policy News
CACI Opposes “Tax Haven” Bill that Could Hurt Colorado Companies
The goal of a late bill, HB-1346, scheduled to be heard by a House Committee Wednesday, is to recover income tax due Colorado when multi-national companies, which operate in Colorado, shelter profits generated by their “affiliated corporations” by parking funds in 40 so-called, off-shore “tax havens,” such as Liberia, Malta, Monaco and Vanuatu.
Specifically, the complex proposal seeks to add income from “affiliated corporations” incorporated in tax havens to the income of corporations filing Colorado combined income tax returns. Corporations indirectly owned by a parent C Corporation would be included as part of the affiliated group of corporations.
If the bill is passed by the legislature, voters in November would be asked to approve the referred measure as an amendment to state law to authorize, under TABOR, the State to collect and spend taxes received from corporate income held in tax havens.
The bill is the first item of business for the House Finance Committee when it convenes tomorrow, Wednesday, April 22nd, at 1:30 p.m. in the Legislative Services Building (LSB) Room A.
Loren Furman, CACI Senior Vice President, State and Federal Relations, and Rhonda Sparlin, CACI Tax Council Chair and Partner, RubinBrown, will testify against the bill.
CACI members can listen on-line to the Committee hearing by clicking on the appropriate link.
The bill’s sponsors and advocates
The bill is co-sponsored by Representatives Mike Foote (D-Lafayette) and Brittany Pettersen (D-Lakewood). The bill also has 18 other House Democrats signed on as sponsors, including the Finance Committee Chair, Representative Lois Court (D-Denver). Representative Foote also is vice-chair of the Committee.
One organization supporting the measure is the liberal Colorado Public Interest Research Group, which describes itself as “standing up to powerful interests.” CoPIRG says that small businesses in Colorado “would have to pay up to an extra $3,165 in taxes to make up for the money lost in 2014 due to offshore tax have abuse by large multinational corporations.” CoPIRG asserts that Colorado loses $2.2 billion in tax revenue because of this practice. CoPIRG released a national study on April 14th to bolster its case.
The bill’s sponsors assert that Colorado could reap additional tax revenue in the amount of $150 million yearly over the next two fiscal years, beginning July 1st, according to the bill’s fiscal note. This revenue would be earmarked for K-12 education.
CACI’s objections
At its April 10th meeting, the CACI Tax Council voted to oppose HB-1346 as introduced. The House Finance Committee scheduled the bill for a hearing on Wednesday, April 15th, but then laid it over after CACI expressed concerns about the measure to the bill’s sponsors.
The World Trade Center’s Policy Committee also took an opposed position to HB-1346.
Based on CACI’s concerns, the sponsors agreed to propose the following two amendments:
- Amendment L001: Seeks to remove the expansion of affiliate companies to avoid legitimate Colorado taxpayers from being captured in this bill.
Amendment L002: Removes the additional reporting requirements/disclosure statement by a taxpayer when filing a combined return.
CACI opposes HB-1346 for three major reasons, despite the proposed two amendments that CACI believes still do not resolve the bill’s problems. In brief, HB-1346, in CACI’s view:
- Dramatically changes the current tax reporting system under which businesses have operated for three decades;
- Penalizes legitimate Colorado businesses; and
- Hurts Colorado’s ability to compete with other states when trying to attract foreign investment.
CACI strongly oppose legislation that changes a tax system that has been working for so long and affects thousands of businesses, especially without an exhaustive stakeholder process.
After today, there are only 11 working days in the session. A late bill that seeks to change long-standing, complicated tax policy should not be the legislative equivalent of a “Hail Mary” pass to find money for K-12 education.
Summary of bill as contained in the fiscal note
The bill’s second fiscal note, issued today, summarizes the bill this way:
Summary of Legislation
Conditional on voter approval, HB15-1346 requires corporations filing a Colorado combined income tax return to add income from affiliated corporations incorporated in tax haven jurisdictions. The bill lists jurisdictions that are considered tax havens and requires the Department of Revenue to biennially report to the finance committees in the General Assembly with an update of countries that may be considered tax havens. In addition, the bill allows corporations indirectly owned by a parent C corporation to be included as part of an affiliated group of corporations.
The bill refers a measure to the voters authorizing the state to retain and spend revenue received by the taxation of a corporation’s income that is held in offshore tax havens. If the voters approve this measure, beginning in FY 2016-17 and thereafter, the bill will require the state controller to transfer $150 million from the General Fund to the State Education Fund (SEF).
Background
This bill affects corporations that file a “combined” income tax return. A combined income tax return is a state filing method used by certain groups of affiliated corporations. Colorado law defines an affiliated group as one or more chains of corporations connected through stock ownership with a common parent corporation, where the parent corporation owns more than 50 percent of both the voting and nonvoting stock in each includable corporation.
The combined income tax return is required to report the income of all member corporations that have 20 percent or more of their property and payroll within the United States and that meet three out of six designated tests. By requiring corporations that are incorporated in tax haven jurisdictions to be included in the combined report, HB15-1346 adds income from these corporations to the Colorado corporate income tax base.
Tax havens. There is no precise definition of a tax haven. In general, a tax haven is a country that offers foreign businesses little or no tax liability in a politically and economically stable environment. Tax havens also provide little or no financial information to foreign tax authorities. In addition, they do not require that the foreign business operate within their country to benefit from its tax policies. Tax havens are defined in the bill to include specific countries, such as the Cayman Islands, Liberia, Malta, and Luxembourg.
COST partners with CACI to fight HB-1346
Loren’s work on HB-1346 has been recognized by the Council on State Taxation (COST), a national business-membership organization that focuses on state and local taxes and which has been working with Loren on HB-1346. The following passage was include in COST’s Legislative Alert today.
COST Testimony Update
Following a request from the Colorado Association of Commerce and Industry (CACI), on April 16, COST presented the Colorado House Finance Committee with a letter in opposition to CO H.B. 1346, a bill that would target purported “tax haven” countries for inclusion in the Colorado corporate income tax combined group. The letter notes that tax haven lists are arbitrary and misleading, potentially leading to double taxation of legitimate business activities. The letter also opposes language in the bill that would allow the Department of Revenue to require corporations to submit a domestic disclosure statement upon request.
Through the hard work of Loren Furman from the CACI and letters submitted by COST and the Organization for International Investment (OFII), the bill was held over to work on amendments and attempt to address industry’s concerns. COST is working with CACI on how to best engage in the future should this legislation move forward.
COST’s Legislative Counsel Ferdinand Hogroian was also on hand in Pennsylvania to present testimony to the House Finance Committee on the policy impacts of adopting a combined reporting scheme. Prior to the hearing Chairman O’Neill made it clear that witnesses were not to address any specific legislative proposals currently before the legislature, but rather that we should use our testimony as an opportunity to speak to broad implications of combined reporting as a policy. In accord with our policy statement on the matter, we argued that combined reporting hinders job growth, has unpredictable effects upon state revenue, leads to considerable administrative burdens, and that it creates distortions of income reporting that promote unfairness in the tax system.
For news media coverage of this bill, read:
“Colorado eyes ballot question to collect from corporate tax havens,” Joey Bunch, The Denver Post, April 14th.