Anti-business lawmakers' plan to implement mandatory unitary combined reporting would hinder economic recovery and do little to close the state's budget deficit.

"At a time when Pennsylvania is desperate for revenue, some lawmakers are pushing a piece of legislation that experience shows may not result in increased revenue for the state," said Gene Barr, PA Chamber vice president of government and public affairs.

Combined reporting requires corporations with subsidiaries or affiliates to file a single tax return that lists all of the conglomerate's business activity, rather than treating each subsidiary as a separate entity. It amounts to tax shifting within the business community.

A Council on State Taxation study determined that combined reporting has an uncertain impact on a state's revenues, making it very difficult to predict the revenue effect of adopting the reporting requirement, while a Tennessee study found no statistical evidence that states enforcing combined reporting collect more tax revenues than states that employ separate accounting.

"Combined reporting is a complex issue," Barr said. "What should be easy to understand is that it won't solve the Commonwealth's budget woes, but it will put up a huge red flag for business development."

Barr said lawmakers must make decisions that will help Pennsylvania recover from the recession – such as eliminating the restrictive cap on net operating losses and adopting a single sales factor apportionment formula for the Corporate Net Income tax – not take actions that will make recovery more difficult.

In that regard, the business community welcomes any conversation about lowering Pennsylvania's 9.99 percent Corporate Net Income tax – the highest rate in the nation. However, the 7.99 percent rate by 2013-14 these same lawmakers proposed is not what the Rendell administration's Business Tax Commission recommended when it was charged with determining what it would take to enact combined reporting. The commission recommended reducing the CNI to between 6 percent and 7 percent under that scenario.

Busting the myth about business and tax
Lawmakers also continue to mislead the public about Pennsylvania corporations' tax liability.

Here are some facts:

• Businesses contribute significantly to the Personal Income Tax, which comprises 39.4 percent of the state's General Fund
• Businesses also contribute to the General Fund through the Sales and Use Tax (approximately 38 percent of all revenue generated by the Sales and Use Tax comes from businesses).
• (2007) Over the past five years, revenue figures as reported by the governor's annual executive budget indicate that total corporate tax collections have increased 44 percent, making them the fastest growing component of the budget; Corporate Net Income tax collections increased by 62 percent, more than four times the rate of the sales tax growth
• From 2001 to 2006, the Capital Stock and Franchise tax rate went from 7.49 percent to 5.99 percent, yet collections increased by 18 percent.

"Corporations that have no tax liability include companies that exist simply for liability protection, dissolved corporations and companies that incurred a loss and therefore have no income," Barr stated. "What's more, other states, such as Utah, that have implemented combined reporting have an almost identical level of corporate taxpayers with only zero or minimal payments."

The bottom line is this: the Revenue Department already has the ability to collect taxes from companies they believe are not paying their fair share, and in fact, has done so in the past. Enacting a proposal that economic studies and modeling have shown will negatively impact the economy, and that will not resolve the budget deficit at a time of recession is the wrong direction for Pennsylvania, its residents and its job creators.