Main Street killer? Negative impact of proposed tax increase on foreign corporate profits feared
MA would join only two other states - MN and IL both facing potential legal battles
A ten fold increase in the tax on income earned by multi-national corporations with a presence in Massachusetts, could ripple into Main Street businesses if a bill pushed by the same organizations that successfully passed the “millionaires tax” becomes law.
“Less people buying subs at local subs shops” is how John Cantalupo of Ernst & Young, described the threat during an online event today hosted by the Massachusetts Opportunity Alliance.
Only Minnesota and Illinois have a similar 50% foreign income tax rate without what Karl Frieden called an “apportionment” standard, that accounts for the amount of income that could be applied to other jurisdictions.
Advocates predict the tax could generate up to “hundreds of millions of tax dollars each year” according to the Left leaning Massachusetts Budget and Policy Center.
Frieden warned that Minnesota and Illinois could face years of litigation challenging the tax that he called “unconstitutional” based upon the practice of taxing foreign and domestic taxes differently.
Companies heavily dependent on intellectual property, for instance biotech, software, medical technology and defense contractors might consider relocating out of state if the so-called GILTI tax was adopted according to event host Jim Stergios.
“Due to ‘profit-shifting’, a practice common among large, multinational corporations. International profit-shifting involves complex accounting maneuvers that make a corporation’s U.S. profits appear instead on the books of related companies located in offshore tax havens,” Mass Budget claimed in March.
Pointing to a five year job loss trend Stergios said Massachusetts needs to “return to a leadership position…we want that back.”
The Massachusetts Budget and Policy Center analysis does not account for the potential subsequent economic activity that may be discouraged as a result of the higher tax. The current tax is 5% in Massachusetts.
Frieden acknowledged that New Hampshire taxes foreign corporate income at 50%, the same rate proposed by the Raise Up Coalition, but only after accounting for the apportionment factor - the amount of income that could be attributed outside of the taxing jurisdiction.
The proposal before the Massachusetts legislature does not include an apportionment provision, which would significantly reduce the burden of the tax and potentially avoid the long legal battle cueing up in Minnesota and Illinois.