In his opinion piece about mandatory combined reporting (“Corporate tax debate has been misleading,” Nov. 10, 2009) Dick Minzner complains that the public debate on this issue has been misleading. Then he sets out misleading arguments of his own.
Consider this statement: “Most local New Mexico businesses pay no New Mexico corporate income tax.” True — only corporations pay corporate income tax. But what Minzner neglects to mention is that New Mexico businesses do pay income taxes on their profits. The difference is that they are paid as personal income taxes on the business owner’s income tax return.
And even the owners of New Mexico-based corporations that can “eliminate all taxable corporate income by paying themselves salaries and bonuses,” as Minzner writes, are required to pay income tax on those salaries and bonuses when they file their personal returns.
There is no free ride for New Mexico’s small businesses when it comes to paying income tax on their profits. There is no tax law that allows them to shelter that profit elsewhere. Amazingly, they haven’t fled the state en mass, but continue to form the backbone of the state’s economy.
Misleading is one thing, but big sections of Minzner’s piece are simply untrue. Several times he writes that mandatory combined reporting (CR) would allow states to collect taxes on profits that were earned in other states. States are prohibited from doing that. That’s why CR uses a formula to determine how much a corporation owes in taxes to the various states in which it operates.
Though it’s met legal challenges, CR has been upheld by the U.S. Supreme Court. Twice.
Minzner also moans that New Mexico would lose revenue in those years that a multi-state corporation makes no profit. This borders on disingenuous, seeing as though we’re already losing revenue when those corporations do make a profit.
How much revenue that would be is also at issue here. Minzner claims that “proponents’ estimates” are outdated or exaggerated. In fact, the “estimates” are from the fiscal impact reports prepared by the Legislative Finance Committee with information from the state’s Taxation and Revenue Department, and have been lowered some since Senator Peter Wirth first introduced combined reporting several years ago. The estimates were changed to reflect the slowing economy, not because they were flawed.
Minzner also uses the tired mantra that combined reporting could be bad for economic development. He states that “…any corporate family, successful elsewhere and considering opening a New Mexico subsidiary, would have to be willing to pay New Mexico corporate income tax.” What he neglects to mention is that these corporate “families” are willing to do business in other states that collect corporate income tax through CR.
Other western states use combined reporting
Further, this extended family of taxation-crazy states composes the entire Western United States. That’s right. Of the states that collect corporate income taxes, New Mexico is the only one west of the Rockies that does not mandate CR. Even the politically conservative states of Alaska, Arizona, Colorado, Texas and Utah mandate CR. And somehow, they manage to attract the same big-box and chain stores that we do.
According to economist Michael Maserov, between 1990 and 2007 nine of the top 10 states in manufacturing job growth and retention were CR states. (Maserov, a senior fellow at the Center on Budget and Policy Priorities, has also said that the “add-back” statutes that Minzner trumpets don’t really work and are not a good alternative to CR.)
Of course, some multi-state corporations elect to use combined reporting here in New Mexico, even though it is not mandated. Clearly they find it advantageous for some reason. Perhaps they have a greater sense of corporate citizenship. Maybe they prefer it to litigation. New Mexico’s Tax and Rev Department has taken numerous corporations to court for hiding their profits under their mother company’s skirts.
But even after New Mexico won a settlement against Wal-Mart for unpaid income taxes, for example, they didn’t pull up their roots and move on to more tax-friendly states. Apparently there is still enough money to be made in New Mexico to make staying worth their while. While litigation has been a successful way of collecting unpaid taxes, it is an inefficient and expensive way.
Not a new idea
Although several states have mandated combined reporting in recent years, it is not a new idea. It was actively supported by the Multistate Tax Commission in the early 1990s — at a time when Minzner, who was then New Mexico’s secretary of Taxation and Revenue, served as the Commission’s treasurer.
Perhaps he was a vocal opponent of the commission’s collective view. As the state’s chief tax collector, that’s unlikely. Given his talent for spinning the truth (a useful tool for a corporate lobbyist), we may never know.
Pozzebon is executive director of the Santa Fe Alliance, a nonprofit organization of more than 500 locally owned independent businesses and nonprofit members working together to build a local living economy.