South By North Strategies, Ltd.

The N.C. Budget and Tax Center argues for the adoption of “combined reporting” as a way of improving the state’s corporate tax code.

Large corporations are able to take advantage of tax shelters because most are structured as parent corporations that each own many separate subsidiary corporations in states across the country. Without combined reporting, multi‐state corporations are able to shift income earned in one state to related corporate subsidiary in a state without a corporate income tax or with special corporate tax exemptions.
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What combined reporting does is require parent corporations and their subsidiaries to “combine” for state tax purposes to file a joint tax return.  The profits of the combined corporation are then apportioned by formula to each state in which the corporation does business according the share of total business activity located in each state.
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As economist Charles McClure, senior fellow at the conservative Hoover Institution and former Deputy Assistant Secretary of the Treasury under President Reagan puts it, “failure to require unitary combination [i.e. combined reporting] is an open invitation to tax avoidance.” And when multi‐state corporations are able to avoid paying taxes, locally‐owned businesses and residents must make up the difference to pay for the public investments that benefit all businesses and residents in North Carolina.