AS LEGISLATORS have been working to wrap up the state budget, they have also been seeking agreement on changes in corporate taxes that should bring in more money. Unfortunately, one House-backed proposal could provide the tax avoidance lawyers of multinational corporations a new way to reduce their obligations to the state.
The plan from Governor Patrick and legislative leaders is to close corporate tax loopholes while at the same time lowering the 9.5 percent corporate tax rate. The House would lower the rate to 7.5 percent; the Senate to 8 percent. Both chambers are targeting a loophole that allows firms to duck Massachusetts taxes by shifting profits to subsidiaries in other states without corporate taxes. Between the lower rate and the closed loopholes, state coffers could rise anywhere from $135 million to $297 million in the coming fiscal year, according to the Department of Revenue. In future years, the amount would fall as the rate cuts are fully phased in.
The joker in the deck is a proposal backed by Representative Daniel Bosley of North Adams. It would let big corporations evade state taxes by shifting income to overseas affiliates. In one example,
Bosley says he cannot estimate how much the same provision would cost Massachusetts. But in a letter in April to Senate President Therese Murray, state revenue Commissioner Navjeet K. Bal offered a projection: about $140 million to $170 million. At a time when Massachusetts is trying to keep firms from using other states as safe havens for their profits, it would be self-defeating to open the door to the use of overseas shelters.
As much as corporate leaders say they want transparency and predictability in the tax system, Bosley's provision could well have the opposite effect, judging from the legal wrangles it has caused elsewhere.
Lowering the corporate tax rate is a sensible way to encourage all companies, large and small, to locate and expand in Massachusetts. Closing the loopholes carved out by big corporations' tax attorneys can offset the revenue loss from a lower rate and generate additional funds to cover the rising cost of healthcare, education, and infrastructure maintenance. Plus it is the fair thing to do. It makes no sense at all to negate the benefit of closing some loopholes by creating an entirely new and potentially very costly one. If the conference committee approves the overseas operations provision, Patrick should veto it.
