Should Virginia Crack Down on Tax-Avoiding Corporations?

Aug 19, 2019

This week, Governor Ralph Northam will outline the state of Virginia’s finances to the House and Senate money committees of the General Assembly. And, opinions are divided about the best way to balance the books.

Major corporations that have subsidiaries in several different states have a lot of tricks up their sleeves to avoid paying taxes.

Chris Wodicka at the Commonwealth Institute says many large companies use account maneuvers and profit sharing to dodge state taxes.

“An example would be if a manufacturing company buys inputs from one of its subsidiaries in another state and pays an artificially high price for that," Wodicka explains. "That would end up reducing their state taxable income in the state of the parent company.”

One potential solution, he says, is known as “combined reporting.” Corporations would essentially report all their income to Virginia — everything from the parent company and everything from all the subsidiaries in other states. That way, a clearer picture would emerge about what they owe Virginia.

Jared Walczak at the Tax Foundation says it doesn’t always work out that way. 

“Because you might have a company that has income and gains in Virginia but has a subsidiary in Maryland that actually posted losses, and you’re bringing the losses in to Virginia, not gains,” he says.

Minnesota, he says, is one example of a state that adopted combined reporting and ended up losing revenue as a result.

This report, provided by Virginia Public Radio, was made possible with support from the Virginia Education Association.