Companies should pay taxes on profits made from doing business in Colorado

Sunday, February 28, 2016

By Mike Foote

People and businesses do not usually enjoy paying taxes.  They enjoy it even less when others pay nothing because they get to play by different rules.

Right now in Colorado, the United States and worldwide, some companies avoid paying income taxes by shifting their profits to accounts controlled by offshore subsidiaries incorporated in tax haven countries like Bermuda or the Cayman Islands.  Instead of paying the 4.63 percent corporate rate on profits from sales to Coloradans, these companies pay little or nothing.

Tax haven companies enjoy the benefits of our markets, educated employees, infrastructure, and rule of law but have declined to contribute to those public goods and services, which are paid for with our tax dollars.  This is grossly unfair to all the rest of us — businesses and individuals — who pay their share of Colorado income tax.

Fortunately there is a solution. Along with Rep. Brittany Pettersen and Sens. Matt Jones and Kerry Donovan, I have proposed a bill to require all companies with subsidiary corporations in known tax haven countries to report income attributed to Colorado sales. Just like a company would report income from U.S.-based subsidiaries doing business in Colorado, it would do the same for corporations it has set up in tax haven countries.  All of its reported profit would be subject to Colorado income tax, just like it is for every other company doing business here.

In other words, taxes should be paid where the profits are made. All companies doing business in Colorado should play by that same rule.

Not surprisingly, this idea has encountered some powerful resistance. Companies with overseas shell corporations prefer the status quo. They object to new reporting requirements and cite the complexity of international tax law as an obstacle. But if a multinational corporation can create a tax haven subsidiary and transfer profits to one of its accounts, surely that same multinational corporation can disclose what it did and pay a fair state income tax.

Corporate opponents also speculate that closing this blatant tax loophole will cause companies to leave Colorado, leading to job loss and a reduction in foreign direct investment. They cite no data to back up that claim and none exists to support it.  Keeping the loophole in place actually hurts our competitiveness because it erodes our ability to invest in the kind of infrastructure all businesses need to thrive — services like quality schools for their employees’ children and good roads so their employees can get to work and their products can get to market.

Most businesses in Colorado are responsible actors and pay income taxes on their Colorado profits. Under the current system, however, they are at a competitive disadvantage to companies that do otherwise.

The Colorado Legislature has a responsibility to make sure every company plays by the same rules and not reward those who have the inclination to avoid paying their fair share.

Countries around the world recognize this kind of tax dodging and are working to level the playing field.  Other states in our country have done the same thing.  Colorado should join them.

State Rep. Mike Foote’s House District 12 includes eastern Boulder County. His bill emerged out of the House Finance Committee on a 6-5 party line vote and was forwarded to the House Appropriations Committee. A fiscal note anticipates $50 million in tax collections the first year it’s implemented. 

Link to the article.