DC’s budget situation is not pretty, and it has potential to get even uglier. Just last week, Mayor Gray’s budget office hinted that the gap between revenues and expenses for next year could be $600 million, when we thought it was only $400 million. Considering that Mayor Gray will have no federal stimulus funds left next year, and that he pledged not to dip into the city’s reserves, the challenges are immense.
That is why it seems utterly crazy that that Gray and the DC Council could be making the gap even bigger’ by failing to follow through on an important corporate tax reform the Council adopted in 2009. If they don’t take action soon, the city could lose $22 million in needed tax revenue by allowing big multi-state corporations to continue to avoid paying taxes to the District.
Right now, corporations like CVS and Starbucks are taking advantage of weaknesses in our tax system by shifting profits they make in DC to other states that have lower ‘ or no ‘ businesses taxes. The result? They avoid paying their fair share of DC taxes while local businesses and residents pick up the slack in tax revenue.
This is bad tax policy, and the DC Council seemed to agree 18 months ago, when it passed an important tax reform known as “combined reporting” to prevent this abuse of corporate tax shelters.
The problem is that the Mayor and Council haven’t spelled out the rules and details so that corporations can actually start abiding by combined reporting this year as planned. If they do not act, the $600 million budget hole will grow by $22 million, because the new tax collections from combined reporting already are built into next year’s revenue forecast. It’s worth noting that a majority of states with a corporate income tax use combined reporting, and DC’s Chief Financial Officer Natwar Gandhi endorses it. In fact, Gandhi has made it easy for the Council to take action because his office has drafted the legislation needed to implement this important reform.
There really is no excuse for inaction. Either Mayor Gray, Council Chair Kwame Brown, or Finance Committee Jack Evans should get moving on this right away.
DCFPI reported on combined reporting late last year, we put together a spiffy video, and we wrote about it in our column that appears in the Hill Rag. We will keep following and writing about combined reporting until this important tax protection tool is fully in place.
