ORLANDO, FL – Every year, corporations shift U.S. earnings to subsidiaries in offshore tax havens, which enables them to dodge both state and federal taxes. Reforms to end tax dodging in Florida would reduce revenue loss by $1.156 billion, according to a new report.
A Simple Fix for a $17 Billion Loophole, released today by Florida Consumer Action Network (FCAN) Foundation and the Florida Policy Institute, was co-authored by the U.S. PIRG Education Fund, the Institute on Taxation and Economic Policy (ITEP), SalesFactor.org and the American Sustainable Business Council (ASBC), and looks at approaches that Florida can take to address this offshore tax dodging.
“Those who benefit the most from our economy should be paying their fair share, but that is not the case right now, as global corporations continue avoiding taxes through various loopholes,” said Holly Bullard, chief strategy and operations officer at the nonpartisan Florida Policy Institute. “Streamlining Florida’s tax code and reporting requirements could help recover this much-needed revenue, which could then be reinvested in our communities for things like mental health services, K12 education and modernized roads and bridges.”
“When multinational businesses dodge millions in Florida taxes, that money doesn’t come out of a hat. It means either we have less money for public priorities like education or transportation or other taxpayers end up footing the bill,” said Bill Newton, deputy director of FCAN Foundation. “Luckily, there are ways for Florida to even the playing field and recover hundreds of millions for critical services without raising rates.”
For years, some corporations that do business in Florida have dodged taxes by booking profits made in the U.S. to tax havens — the Cayman Islands, for example — that levy little to no tax.
States have the power to use a global picture of a company’s activities in order to determine how many tax dollars a state rightfully should receive. A Simple Fix details how much money each state would recover if it required companies to follow one or more standard procedures, including domestic combined reporting, tax haven list reform and worldwide combined reporting — otherwise known as complete reporting.
Unlike 27 other states and Washington, D.C., Florida does not use combined reporting, which applies a formula to the total domestic business of a company to determine how much income a company should attribute to the state. Instead, Florida allows companies to decide how to allocate their profits (which incentivizes shifting money to low-tax jurisdictions).
Complete reporting expands the combined reporting to include the company’s entire global business in order to close loopholes that allow corporations to hide profits offshore.
“Congress promised to address offshore tax dodging in the 2017 tax package, but it failed entirely,” added Richard Phillips, a report co-author and senior policy analyst with ITEP. “If states were waiting on Washington to fix these problems before, they can’t now. And our report shows that they don’t have to.”
“Our tax system is unfair and inefficient — and federal reform failed to address those concerns,” added Bill Parks, founder of SalesFactor.org. “Complete reporting makes tax return filing easier for small businesses, and ends the grossly unfair advantage larger multinationals currently have on their small business competitors.”
“Right now, responsible businesses pay their fair share of taxes, while others are allowed to dodge and avoid their fair share. That hurts everyone,” said John O’Neill of the American Sustainable Business Council, which has a member network representing 250,000 businesses. “Too many companies have abandoned their moral obligation to pay the full amount they owe for the public services and infrastructure they use in our states. That means other taxpayers, including other businesses, have to pay more.”
Closing loopholes that allow offshore tax dodging would lead to significant revenue gains for most states, totaling $17 billion across the country. By modernizing state tax codes with these simple reforms, Florida could bring in $1.156 billion each year, level the playing field for local businesses that compete with multinational corporations and protect honest taxpayers from picking up the tab for tax dodgers.