Tax Justice Digest: Democratic Platform — Tim Kaine — Sales Tax on Services

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In the Tax Justice Digest we recap the latest reports, blog posts, and analyses from Citizens for Tax Justice and the Institute on Taxation and Economic Policy. Here’s a rundown of what we’ve been working on lately.

The 411 on the 2016 Democratic Party Platform

Much has been made of the Democrats’ platform. CTJ staff took a look and concluded that the platform represents a “meaningful victory for progressives.” For our full analysis click here.

Tim Kaine’s Record: Largely Progressive With Some Bumps Along the Way

Hillary Clinton’s VP pick Tim Kaine is a sitting senator and former Virginia governor. CTJ took a look at his tax record and concluded that while he has supported progressive tax reform efforts, he’s occasionally taken stances that are at odds with those efforts. Here’s CTJ’s full look at Sen. Kaine’s tax record.

Sales Taxes Should Apply to Services, but Politics Keeps Getting in the Way

ITEP research director Carl Davis writes that loopholes in most state sales tax codes that exempt services like haircuts, carpet cleaning, massages, and swimming pool maintenance make sales taxes less adequate, less sustainable, and less fair. Read Carl’s blog post and find links to ITEP’s latest policy brief on the issue here.

State Rundown Stalemates and Tax Cut Talk

This week’s Rundown features an ongoing stalemate in New Jersey, talk of new tax cuts in Arkansas, “tampon taxes,” and the taxation of fantasy sports. Be sure to check out the What We’re Reading section for new research on public attitudes toward tax and budget issues.

Read the Rundown here.

If you have any feedback on the Digest or tax stories you’re watching that we should check out too please email me

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For frequent updates find us on Twitter (CTJ/ITEP), Facebook (CTJ/ITEP), and at the Tax Justice blog.

State Rundown 7/27: Stalemates and Tax Cut Talk

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This week’s Rundown features an ongoing stalemate in New Jersey, talk of new tax cuts in Arkansas, “tampon taxes,” and the taxation of fantasy sports. Be sure to check out the What We’re Reading section for new research on public attitudes toward tax and budget issues. Thanks for reading the Rundown!

— Meg Wiehe, ITEP State Policy Director, @megwiehe

  • The gas tax stalemate continues in New Jersey after Gov. Chris Christie voiced his disapproval on Monday of a tax package supported by the leaders of the state’s Senate and Assembly. While Gov. Christie’s opposition is focused mainly on the gas tax increase contained in the package, New Jersey Policy Perspective (NJPP) has voiced its disapproval of a different component: the “financially reckless” proposal to repeal the state’s estate tax. As the debate over transportation funding drags on, some observers are now speculating that by canceling construction projects, the state may be opening itself up to breach-of-contract lawsuits.
  • Gov. Asa Hutchison hopes to lead Arkansas in another round of income tax cuts. This week the governor suggested that cutting the state’s top tax rate to 5 percent would make the state “competitive,” despite considerable evidence to the contrary. In reality, the most likely practical effect of such a change would be to increase the regressivity of the Arkansas tax code.
  • New York Gov. Andrew Cuomo signed a bill into law last week that will repeal the state’s so-called “tampon tax,” thereby joining five other states in extending sales tax exemptions for feminine hygiene products. Removing these items from the state’s sales tax base is estimated to reduce New York tax receipts by $10 million per year. Lawmakers in Florida and Illinois, among other states, have also contemplated similar exemptions in recent months.
  • Without a broad-based income tax, Tennessee sometimes finds itself looking for revenue in unusual places. To that end, the state’s new fantasy sports privilege tax took effect this month. The tax sets clear rules for the taxation of daily fantasy sports sites like DraftKings and FanDuel. While five other states also took action this year to regulate and/or tax fantasy sports websites, the topic remains a gray area in most states for the time being.

What We’re Reading… 

  • The Oklahoma Policy Institute released a two-part report this week that outlines proposals to improve the state’s fiscal policies and expand economic opportunity in the Sooner State.
  • The Washington Post reports on a new study revealing public attitudes on how to fund transportation improvements.
  • A new poll shows that Utah voters are willing pay more income taxes to better fund public education.
  • The OECD calls on the G20 to lead reforms that will create more socially equitable tax systems.

If you like what you are seeing in the Rundown (or even if you don’t) please send any feedback or tips for future posts to Kelly Davis at Click here to sign up to receive the Rundown via email

Sales Taxes Should Apply to Services, but Politics Keeps Getting in the Way

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Few proposals generate as much agreement among economists and tax reform advocates as expanding state and local sales tax bases to include purchases of personal services.  While sales taxes typically apply quite broadly to tangible goods, purchases made in the nation’s growing service sector are all too often left out of the tax base.  As things currently stand, most states do not collect tax on sales of haircuts, carpet cleaning, massages, and swimming pool maintenance, to name just a few.  And as we explain in an updated policy brief, these wide ranging exemptions make sales taxes less adequate, less sustainable, and less fair.

Sales taxes should treat all consumers similarly regardless of whether they prefer to spend their money on goods or on services.  But implementing this ideal has proven difficult.  Only a few states—including Hawaii, New Mexico, and South Dakota—currently apply their sales taxes broadly to purchases of both goods and services.  Elsewhere, efforts to tax services have often been met with formidable resistance from exempt industries looking to preserve their preferential treatment.  In Florida and Michigan, for example, lawmakers who approved sales tax base expansions quickly backtracked and repealed those laws following a coordinated pushback from the business community.  Years later in Maine, a legislative attempt to expand the sales tax base was eventually overridden by a voter referendum supported by many businesses.

Even worse than these failures, however, are those cases where sales tax base expansion has been used to fund personal income tax cuts that have worsened the unfairness of state and local tax systems.  On this front, North Carolina is the poster child.  Lawmakers in the Tar Heel State recently managed to extend their sales tax to include more than 40 previously untaxed services such as car repairs and appliance installation, but only as part of a broader shift away from the income tax that loses revenue overall and exacerbates the regressive nature of the state’s tax system.  If an expanded sales tax base represents one step forward for North Carolina, the income tax cuts it partially funded represent at least two steps back.

But the news on the sales tax front hasn’t been all bad.  In 2012, Rhode Island expanded its sales tax base to include pet grooming and taxi fares.  In 2014, the District of Columbia (DC) updated its sales tax to cover bowling alleys, car washes, carpet cleaning, and health clubs, among other services.  The city’s successful inclusion of health clubs within the tax base was a particularly encouraging victory given the high-profile lobbying effort launched in opposition to this so-called “yoga tax.”  And finally in Maine, the sales tax was improved just last year by adding cable TV and satellite radio services to the base.

Progress toward more rational sales taxes is continuing to take place, even if it may not be happening as quickly as some of us would like.

Read ITEP’s Policy Brief: Why Sales Taxes Should Apply to Services 

The Democrats’ New and More Progressive Tax Platform

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The tax-related proposals in the recently released Democratic Party platform represent a meaningful victory for progressives. From advocating for the expansion of poverty-reducing tax credits to condemning corporations that avoid taxation by stashing profits offshore, the provisions outlined in the platform would improve our tax system for ordinary Americans while holding tax-dodging corporations accountable. In terms of tax justice, this year’s Democratic platform is one of the party’s most progressive in modern history.

The tax changes outlined in the pages of the Democratic Party platform would shift taxes away from lower- and middle-income Americans and towards corporations and the wealthy. For instance, the platform proposes a multimillionaire surtax “to ensure millionaires and billionaires pay their fair share” as well as a plan to ask high earners to pay more towards the Social Security fund. Plans to cut taxes for lower-income citizens include expanding the highly effective Earned Income Tax Credit (EITC) to childless workers, indexing the Child Tax Credit (CTC) to inflation, and “tax relief to help the millions of families caring for aging relatives or family members with chronic illnesses.”

Additionally, the platform outlines a plan to increase revenue by cracking down on tax-dodging corporations. The Democrats vow to bring an end to offshore tax havens, which the platform says “corrupt rulers, individuals, and corporations exploit to shelter ill-gotten gains or avoid paying taxes at home.”  The most important anti-tax avoidance measure in the platform is the Democrats’ plan to end deferral, a popular loophole used by corporations to escape paying taxes on profits stashed offshore. Since presidential candidate Sen. Bernie Sanders has been a longtime champion for ending deferral, this addition to the platform represents a major shift towards Sanders’s more progressive position.

Symbolizing the progressive shift of the 2016 platform is the party’s promise to “use the revenue raised from fixing the corporate tax code to reinvest in rebuilding America and ensuring economic growth that will lead to millions of good-paying jobs.” This is a big change from the 2012 Democratic Party platform, which proposed to use funds from the closing of corporate tax loopholes to fund lower tax rates for corporations, many of which pay nothing at all in taxes. CTJ wrote in 2012 that this platform “reveals a party deeply committed to the anti-tax mindset that historically is associated with the Republican Party.” In contrast, this year’s platform emphasized the good that tax-funded public services can do, stating “we are committed to a strong, effective, accountable civil service, delivering the quality public services Americans have every right to expect.”  

While the Democratic Party platform would crack down on corporate tax misbehavior, the 2016 Republican Party platform would reward it. The GOP platform proposed to lower corporate tax rates to be “on par with, or below, the rates of other industrial nations,” ignoring the fact that a multitude of tax breaks and loopholes already enable corporations to pay well below the top tax rate. Additionally, the GOP platform advocates for individual tax evasion by promoting the repeal of the Foreign Account Tax Compliance Act (FATCA), an effective anti-tax evasion measure. Since the Joint Committee on Taxation (JCT) estimated that FATCA will return $8.7 billion that would otherwise have been lost to tax avoidance over the next decade to the U.S, this proposal would stick American taxpayers with the bill for this revenue shortfall through either increased taxation or spending cuts. In sharp contrast to the GOP plan, the Democratic Party’s new tax policy proposals would improve the lives of ordinary Americans by making corporations and the wealthy pay their fair share.

VP Nominee Tim Kaine has Largely Favored Progressive Tax Reform, With Some Deviations

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As the eyes of the U.S. turn to the Democratic National Convention this week, many people will be getting their first look at Hillary Clinton’s recently announced running mate, Sen. Tim Kaine. As one of Virginia’s current senators and the state’s former governor, Tim Kaine has supported progressive tax reform efforts, though he has occasionally taken stances at odds with those efforts—including the repeal of Virginia’s estate tax in 2006.

Kaine’s most recent tax positions appear to be largely in sync with the proposals of the Clinton campaign. Like Clinton, he has favored legislation that would close the carried interest loophole as well as the corporate inversion loophole. Furthermore, Kaine has called for raising roughly one trillion dollars in new revenue over 10 years, which is relatively in line with Clinton’s call for about $1.5 trillion in new revenue.

Most of Kaine’s positions on tax policy as both a member of Congress and governor stand in direct contrast with Trump’s running mate, Indiana Gov. Mike Pence, who has been a longtime advocate of supply-side economics and the tax cuts for the rich associated with that philosophy.

Governor of Virginia

As governor of Virginia, Kaine’s defining tax policy battle was his effort to raise substantial new revenues to put the state’s dwindling transportation funding sources on a more sustainable track. During each of his first three years in office, Kaine proposed raising around a billion dollars per year in transportation funding revenue largely from fees or taxes related to motor vehicles. Ultimately, Kaine’s battle with a notoriously anti-tax legislature resulted in a budget compromise that was not particularly sustainable, depending largely on debt financing and higher traffic fines.

Kaine’s other tax policy moves as governor were more of a mixed bag. Unlike Gov. Mark Warner before him, who wisely vetoed a bill that would have repealed the state’s estate tax, Gov. Kaine enthusiastically signed an estate tax repeal measure in 2006. This decision by Kaine drained valuable revenues from Virginia’s coffers and exacerbated the unfairness of the state’s tax code during a time of growing income inequality. As the Washington Post warned in an editorial leading up to repeal: “scrapping the estate tax — he single most progressive tax levied by government — sends the wrong signal at the wrong time. It sacrifices fairness for the many on the altar of special favors for the few.”

On a more positive note, Kaine did succeed in pushing progressive tax legislation in 2007 that raised the state’s income tax filing threshold substantially and slightly increased the state’s personal exemption. These changes made the state’s tax code somewhat less regressive by providing many low-income individuals with a tax cut.

On his way out of office, Kaine also offered a budget proposal that included a progressive increase in the state’s personal income tax—raising the top tax rate from 5.75 to 6.75 percent—though the idea was never taken seriously by most legislators or by then-incoming Gov. Bob McDonnell.

Senator from Virginia

While Kaine has supported relatively progressive tax policy positions during his time in the Senate, he championed a regressive tax proposal when he first ran for the Senate in 2012. At the time, Kaine proposed that rather than allowing the Bush tax cuts to be repealed for all individuals making over $250,000, they should only be repealed for those making over $500,000. To start, this proposal failed to recognize that allowing the cuts to expire for just those over $250,000 already represented a massive and problematic concession in that it would have meant extending 80 percent of the Bush tax cuts. In addition, the primary beneficiaries of his plan were not those making between $250,000-$500,000, but those making over $500,000. In fact, a CTJ analysis at the time found that 73 percent of the benefit from Kaine’s proposal would have gone to individuals making over $500,000 and 30 percent of the benefit would have gone to those making over one million dollars.

Fortunately, since Kaine was elected to the U.S. Senate, he has taken a distinctly more progressive tack on tax issues. For example, in recent years Kaine has co-sponsored a number of progressive tax proposals, including legislation to expand the earned income tax credit to childless workers, legislation that would curb inversions and legislation to close the carried interest loophole. Perhaps influenced by his time as governor, Kaine has also supported common sense legislation like the Marketplace Fairness Act, which would allow states to collect sales tax more easily from Internet retailers.

The clearest distillation of Kaine’s views on federal tax policy is the 2013 letter he sent to the Senate Finance Committee laying out his general principles on what tax reform should look like. Broadly, the letter calls for Congress to reduce or eliminate tax expenditures as a way to make the tax code simpler, more progressive and economically efficient. In addition, Kaine calls for tax reform to raise about a trillion dollars in revenue over ten years, which he would like to be used as part of a budget deal to reduce the deficit. Kaine also argues that corporate tax reform should raise revenue by closing down offshore corporate loopholes.

While Kaine has not been a leader in the fight for more progressive taxation on the federal level, he has been a consistent supporter of progressive tax legislation.

Why the SEC Needs to Require More Disclosure from Companies

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In 2015, Citigroup reported to the Security and Exchange Commission that it has 21 offshore subsidiary companies, but it reported to the Federal Reserve that it has 140. Similarly, Bank of America reported to the SEC that it has 21 subsidiaries while reporting to the Federal Reserve that it has 109. All told, 27 financial firms report wildly different numbers to the SEC v. Federal Reserve.

So what gives and which reporting is accurate? It turns out that SEC has less stringent reporting rules, requiring companies only to disclose “significant” subsidiaries. It defines significant as comprising 10 percent or more of the company’s assets. The Federal Reserve requires broader disclosure, but only for financial companies. A CTJ comparison of the disclosures revealed big banks and other financial firms collectively are under reporting to the SEC the number of subsidiary companies by a factor of more than seven.

Because Federal Reserve requires subsidiary reporting only for financial firms, it’s impossible to fully know the extent to which other Fortune 500 corporations fail to disclose their subsidiaries. But if financial companies’ reporting practices are representative of other corporations, then it is likely under reporting is pervasive.

This week, the SEC closed its comment period for an exposure draft, which is part of its review of disclosure requirements. CTJ, in written comments, urged the SEC to mandate greater corporate transparency by requiring companies to publically disclose all their subsidiaries. Such a requirement would prevent companies from gaming which subsidies they disclose, and it would provide the public and investors with a clearer picture of how public companies operate.

Another critical failure in SEC disclosure requirements is that companies can avoid specifying how much they owe in U.S. taxes on their “offshore” income by claiming that providing this calculation is not practicable. Eighty-two percent of Fortune 500 companies with untaxed offshore earnings used this loophole to avoid revealing what they would owe in taxes. Because of this, the public and investors are unable to determine whether and to what extent companies are engaging in offshore tax avoidance. A study by the financial firm Credit Suisse found that many large companies, including General Electric and Xerox, could face tax liabilities representing 10 percent or more of their total market capitalization. In other words, SEC rules enable corporations to obscure critical information about the financial health of a company.

As CTJ’s SEC comments note, the best way to bring transparency to companies’ offshore operations would be to require companies to report their tax and related information (such as income, number of employees, revenue, etc.) on a country-by-country basis. Companies already keep track of this information for accounting purposes and will soon have to send this information to the IRS anyway, so reporting it in a SEC filing would require no real additional cost.

For more read CTJ’s full comment to the SEC

2016 General Election: Presidential Candidates’ Plans and Records on Taxes

July 22, 2016 09:17 AM | | Bookmark and Share

Donald Trump

Hillary Clinton

The Distributional and Revenue Impact of Donald Trump’s Revised Tax Plan


The Distributional and Revenue Impact of Hillary Clinton’s Tax Plan


Making Sense of Tax Issues Raised During the First Presidential Debate – September 29, 2016

Trump’s Extensive Tax Breaks Highlight Flawed Economic Development Strategies – September 29, 2016

Tax Code Simplification Not a Goal for Trump or Clinton – August 11, 2016

Donald Trump’s Revised Tax Plan Fails to Answer Hard Questions, Remains a Budget-Busting Giveaway to the Wealthy – August 10, 2016

Trump Child Care Tax Break: Good PR, But Bad Policy That Will Do Nothing for Low-Income Families – August 8, 2016

Donald Trump’s Tax Plan: How to Sell a Dream – July 20, 2016

Ryan’s New Tax Plan Aligns with Trump’s, Though in Some Ways It’s More Extreme – June 29, 2016

Donald Trump’s Nonsense Rhetorical Appeal to Bernie Sanders Supporters – June 23, 2016

Why Donald Trump May Be Hiding His Tax Returns – May 12, 2016

Trump Implies Failure to Effectively Negotiate His Tax Plan Would Be the Best Outcome – May 9, 2016

Donald Trump the Farmer? – April 21, 2016

The Net Effect: Paying for GOP Tax Plans Would Wipe Out Income Gains for Most Americans – March 9, 2016

Trump’s Criticism of Jeff Bezos as a Tax Dodger is Half-Right – December 9, 2015

Donald Trump’s $12 Trillion Tax Cut – November 4, 2015

Brownback on Steroids? Donald Trump’s Plan to Cut Taxes on “Pass-Through” Businesses–And Hedge Fund Millionaires – September 29, 2015

CTJ Statement: Trump Tax Plan Would Cost Nearly $11 Trillion Over 10 Years – September 28, 2015

Bush and Trump’s “Populist” Tax Rhetoric Is All Talk – September 10, 2015

What Trump Gets All Wrong About Immigration and Taxes – August 25, 2015

Donald Trump’s Regressive and Retrograde Tax Plan – June 22, 2015


Making Sense of Tax Issues Raised During the First Presidential Debate – September 29, 2016

Tax Code Simplification Not a Goal for Trump or Clinton – August 11, 2016

Hillary Clinton’s New Tax Proposals: Steps Toward Making the Wealthy Pay Their Fair Share – January 14, 2016

Press Statement: Clinton Tax Reform Proposals Are a Step Toward Tax Fairness – January 12, 2016

Hillary Clinton’s Tax Proposal is Right on Inversions, Wrong on New Tax Cuts – December 11, 2015

Hillary Clinton Would Limit Tax Breaks for the Well-Off to Make College More Affordable – August 19,2015

What We Know About Hillary Clinton’s Positions on Tax Issues – April 11, 2015

Clinton Family Finances Highlight Issues with Taxation of the Wealthy – June 26, 2014

The Clinton-McCain Gas Tax Proposal: Get Half a Tank Free This Summer – May 2, 2008

Who’s Rich? – January 16, 2008

What the Presidential Candidates Are Saying about Taxes: Update – November 30, 2007

Democratic Presidential Candidates Address Fiscal Issues in Debates – September 28, 2007

Battle Only Beginning Over the “Carried Interest” Tax Loophole for Billionaire Fund Managers – October 12, 2007

The Presidential Candidates on Taxes – August 17, 2007

Presidential Candidates Weigh in on Wealthy’s Taxes – June 29, 2007

A Congressional Tax Report Card – October 2006

Hillary Clinton takes on the Bush tax cuts – July 11, 2005

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Utilities Aren’t Paying Their Fair Share

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A new report by Institute for Policy Studies (IPS) finds that the U.S. government is failing to meet clean energy goals due in part to opposition from public utility companies, which account for a third of U.S. greenhouse gas emissions. What’s more, federal and state tax policies that create inefficient business incentives lie at the heart of the problem.

The combined pretax income of 40 profitable public utility companies was $42.95 billion in 2015; however, these companies paid only $1.6 billion in federal and state corporate income taxes. From 2008 to 2012, these 40 utility companies had an effective tax rate of 2.9 percent, the lowest of any industry. The statutory federal tax rate on corporations is 35 percent. If utility companies paid the same effective federal rate as the retail sector, 29.6 percent, and paid the full state rates, the federal and state governments would have a total of $14.06 billion in additional revenue.

How do utility companies get away with paying a single-digit tax rate? Among other tax breaks, the most lucrative loophole utility companies use is accelerated depreciation. This tax break allows companies to deduct the cost of certain capital investments (such as on equipment) from their taxes at a rate faster than those investments depreciate in value. To wit, the 23 utilities companies that paid no federal taxes in 2015 received a combined total of $11.5 billion in tax benefits from depreciation. American taxpayers, on the other hand, are effectively taxed twice on their energy consumption: once at the end of the month when they pay their utility bills, and again to pay for the tax breaks utility companies receive annually. The tax policy problems highlighted by utility companies are just a few of the many problems with our corporate tax structure. Immediate and drastic action is needed to reform our corporate tax code to incentivize public utilities and other companies to work in the interests of the American public.

The ultimate goal of IPS and other environmental advocates is to overcome utility companies’ opposition to clean energy practices. Part of the challenge is that utility companies and their surrogates claim they do not have the funds to invest in clean technology, yet they are among the most profitable and undertaxed corporations in the country.

Rather than letting utilities get away with not paying their fair share, lawmakers should end or reform costly and ineffective tax breaks, such as accelerated depreciation, that allow utility and other companies to pay low tax rates. More broadly, utilities, and all corporations, should be required to report the taxes they pay in each state in which they operate in addition to their federal taxes.

Aaron Mendelson, a CTJ intern, contributed to this report.

Aaron Mendelson, a CTJ intern, contributed to this report

Tax Justice Digest: GOP Platform — New Trump Video — State Taxes

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In the Tax Justice Digest we recap the latest reports, blog posts, and analyses from Citizens for Tax Justice and the Institute on Taxation and Economic Policy. Here’s a rundown of what we’ve been working on lately.

The Most Egregious Tax Policy Proposals in the 2016 Republican Party Platform

At the risk of sounding like a broken record, tax cuts for the rich do not deliver on trickle-down promises. This fact matters little, apparently, as the RNC policy platform includes ill-advised tax cuts that would exacerbate rising income inequality and add to annual federal budget deficits. Read more.

Donald Trump’s Tax Plan: How to Sell a Dream

We keep hearing that conservative economists are working with Donald Trump’s campaign to propose a less costly tax plan—that would still cut taxes for the rich, of course. We’ve yet to see said plan, so Trump’s proposal at the moment still stands. Check out our new explainer video that briefly explores why Trump’s profligate tax cut proposal, which would cost just as much as all discretionary spending, is problematic and unrealistic.  Watch the CTJ video here.

Political Conventions Spark Better Tax Policy

The sharing economy service Airbnb is no stranger to controversy, from equal access for all patrons to customers reporting income earned via the service. A new blog by ITEP research director Carl Davis takes a look at how, in preparation for the Republican and Democratic National Conventions, Cleveland and Pennsylvania took swift action to ensure that their lodging taxes applied to Airbnb apartment and room rentals. Read Carl’s blog post.

CTJ to SEC: Beef Up Reporting Requirements

U.S. banks report to the Federal Reserve far more offshore subsidiary companies than what they report to the Securities and Exchange Commission (SEC). Bank of America, for example, reported to the SEC that it has 21 tax haven subsidiaries, but it reported 109 to the Federal Reserve. The bigger number of the two is likely the truth. BofA and other big banks get away with underreporting subsidiary information to the SEC because the agency allows corporations to forego disclosing certain data if corporations deem it too onerous. SEC today closed its comment period on reporting requirements. CTJ submitted comments. If reading technical comments isn’t your thing, read this recent blog post or this recent report that make a strong, compelling case for why SEC should require corporations to be forthright about their offshore subsidiaries and holdings.  Read CTJ’s comments here.

Pennsylvania Passes Revenue Plan Necessary to Fund State Budget

ITEP senior analyst Aidan Russell Davis shares both the good and bad news from the recent budget agreement reached by Pennsylvania lawmakers. Read Aidan’s blog post.

State Rundown

In this week’s Rundown we highlight state tax news in Alaska, Massachusetts, Mississippi, North Dakota, and Cleveland. Read the Rundown and check out our “What We’re Reading” section here.

Shareable Tax Analysis:


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Comments to the Securities and Exchange Commission on the Business and Financial Disclosure Required by Regulation S-K

July 21, 2016 10:55 AM | | Bookmark and Share

Read the Comment Letter in PDF.

Re: File No. S7-06-16, Business and Financial Disclosure Required by Regulation S-K

Dear Mr. Fields,

The Securities and Exchange Commission (SEC) plays a critical role in our economy as the agency charged with ensuring that our markets operate in a fair, orderly and efficient fashion.[i] We applaud the SEC’s decision to seek public comment on the business and financial disclosures required by Regulation S-K. These disclosures provide investors and the public with information that is absolutely critical to making our economy work.

Unfortunately, the disclosures currently required by Regulation S-K have proven inadequate in providing both investors and the public at large with the information they need to make critical economic decisions. It is with this in mind that we make recommendations for how to improve international tax and subsidiary disclosures.

Citizens for Tax Justice’s Work and SEC Disclosures

Citizens for Tax Justice (CTJ) is a research and advocacy organization focusing on federal, state and local tax policies and their impact upon our nation. Our mission is to give voice to the public interest in the development of our nation’s tax laws.

For more than 30 years, disclosures to the SEC have played a central role in our work examining the corporate tax code and the effective tax rates that major U.S. companies pay. CTJ’s reports have helped shape the public debate around tax reform broadly and the corporate tax code in particular. CTJ’s 1984 report showing that many large multinational corporations had accumulated so many tax breaks that they owed nothing in taxes was a critical driver of the last major tax reform legislation in 1986. In fact, President Ronald Reagan noted in his autobiography that hearing the information contained in the report motivated him to move “full steam ahead” with overhauling the U.S. tax code.[ii]

In recent years, lawmakers across the political spectrum have once again begun serious deliberations into how to reform the tax system as a whole and the corporate tax code in particular. One of the foundational problems both in Congress and in the public debate around the corporate tax code is that neither have adequate information on how much and where corporations are paying taxes. While CTJ and others doing research on the corporate tax code have made do with the disclosures currently required by the SEC, such disclosures have proven lacking in the kind of definitive information that is required to have a robust debate over the current corporate tax code. Perhaps the area of disclosure that has proven both the most important in recent years and the most lacking is in the area of international tax, income and related disclosures, which is what makes it such an appropriate area of disclosure for the SEC to be seeking comments in its Concept Release on S-K disclosure.

The Problem of International Tax Avoidance

The Public Interest

One of the central features of our corporate income tax code is that it allows corporations to defer paying taxes on their foreign income until that income is repatriated back to the United States. When combined with the fact that many countries throughout the world have single digit or even zero tax rates, this provision of the tax code creates an enormous incentive for U.S. companies to avoid taxes by claiming that as much income as possible is earned in these tax haven countries.

According to our analysis of companies’ 10-K forms, Fortune 500 companies disclose having more than $2.4 trillion in earnings offshore that have not been subject to U.S. taxes. Based on the subset of companies that disclose how much they would owe if they were to repatriate these earnings, we estimate that these companies have paid an average tax rate of just 6.4 percent to foreign governments, meaning they owe an estimated $695 billion in U.S. taxes on these offshore earnings.[iii] The fact that companies on average are paying such a low foreign tax rate is evidence of the fact that a substantial amount of these foreign profits are being stashed in tax havens, rather than being productively invested.

Confirming the pervasive use of tax havens by large U.S. multinational corporations, recent data from the Internal Revenue Service show that companies claimed in 2012 that as much as 59 percent of their foreign profits were earned in just 10 infamous tax haven countries.[iv] To be clear, such claims are obviously ridiculous. For example, U.S. corporations claimed in 2012 that they earned $104 billion in profits in Bermuda, which is more than 17 times the size of Bermuda’s entire gross domestic product of $6 billion.

Tax and accounting scholar Kimberley Clausing estimates that the U.S. government loses over $100 billion in tax revenue every year due to international tax avoidance.[v] Given the many pressures on the U.S. budget, lawmakers are appropriately looking at this area of revenue loss as one that it should address as a way to increase both revenue and fairness in the tax code.

One of the barriers to a thorough investigation of how lawmakers should pursue international tax reform has been the lack of company level data that would allow lawmakers to better understand the specifics of companies’ international accounting and related tax avoidance behaviors. What would help inform this policy debate is to require companies to disclose in their 10-Ks more information about their operations and tax provision on a country-by-country basis (more on this below).

Investor Interests

After the financial crisis, governments across the world, responding to mass public pressure, have started to crack down on the tax avoidance behavior of multinational corporations. This crackdown has taken the form of both unilateral actions by individual nations as well as coordinated efforts by the OECD (Organisation for Economic Co-operation and Development) known as the BEPS (Base Erosion and Profit Shifting) Project.[vi] In the United States, lawmakers from across the political spectrum have also suggested substantial changes to the taxation of international profits, which could result in some amount of taxes owed on offshore profits being paid immediately rather than being indefinitely deferred.

Given this context, investors have a high material interest in knowing how exposed the companies they invest in are to increases in taxes on their international profits. Unfortunately, current disclosure requirements do not provide investors with enough information to reasonably estimate the level of taxation a company may face on its offshore earnings in the future. Currently, the SEC only requires companies to report the broad categories of foreign tax provision and foreign income, which obscures the ability of investors to assess how much of a company’s income is being booked to tax haven jurisdictions and thus is potentially subject to higher taxes in the future.

According to a report by financial services company Credit Suisse, the unspecified tax liability potentially facing many large public U.S. companies is not only material, but rather substantial as a percentage of many companies total market capitalization. The report lists more than 14 companies, including companies like General Electric and Xerox, who could face an off-balance-sheet tax liability of 10 percent or more of their total market cap if they paid a 25 percent tax rate on their offshore earnings.[vii]

The best way to allow for investors to account for tax uncertainty going forward in making their investments would be to require companies to report tax and related information on a country-by-country basis.

What Should Be Disclosed

Country-by-Country Reporting

The public and investors would benefit immensely if companies were required to publically disclose tax and related information in their filings to the SEC. Specifically, companies should be annually required to disclose on a country-by-country basis their: profit or loss before taxes; income tax accrued for the current year; revenues from unrelated parties, related parties, and in total; income tax paid (on a cash basis); effective tax rate; stated capital; accumulated earnings; number of employees; and tangible assets other than cash or cash equivalents. Given that taxes are applied at the country level, country-by-country disclosures are the best way to enable investors and the public to fully evaluate the tax position of a given company.

Requiring the country-by-country disclosure specified above would require little if any additional cost to companies because all of this information is already collected for internal accounting purposes. In addition, many larger U.S. corporations will soon be required to provide the Internal Revenue Service (IRS) with a similar set of information as a result of rules recently issued by the agency.[viii]

In addition to country-by-country disclosure, companies should be required to calculate and disclose the aggregate amount they would owe in U.S. taxes upon repatriation of their offshore earnings in all cases, rather than being allowed to avoid disclosing this information if they deem it “not practicable” to do so. Our study of Fortune 500 companies found that 248 companies out of 303 companies (82 percent) that reported having permanently reinvested earnings used the not practicable loophole in order to avoid disclosing how much they would owe in taxes upon repatriation. In other words, this loophole effectively allows most companies to avoid disclosing information that they have likely already have calculated for business purposes and could easily disclose at little to no additional cost.

Less Comprehensive Disclosure Options

While complete country-by-country disclosure mentioned above would be ideal, there are alternative less comprehensive approaches that would still provide the public with some critically needed information.

During deliberations on their own disclosure review, one approach discussed by the Financial Accounting Standards Board (FASB) would be to require companies to disaggregate foreign income and income tax expense of any country that is significant to total tax expense.[ix] While incomplete, this approach would give investors and the public at least some sense of where the company is reporting the bulk of its profits.

An example of how this sort of disclosure would work is the 2016 10-K of Skechers USA Inc.,[x] which began reporting disaggregated income and tax information in response to a letter to the SEC asking for more information on its foreign income.[xi] Besides providing a template, Skechers also provides a test case as to why publishing this information can be very revealing. In its disaggregated disclosure, the company reveals that it reports over a third of its profits as being earned in Jersey, an infamous tax haven, meaning that the company is likely engaging in precisely the behavior that is concerning to investors and the public alike.

Another important approach discussed by FASB would be to require companies to disaggregate their cash income taxes paid, which is currently disclosed only as a worldwide figure. Following the approach mentioned above, companies should be required to disclose income tax paid information by federal, state and significant foreign countries. Even just requiring companies to disclose cash income taxes paid by federal, state and foreign, as is typically disclosed for a company’s income tax expense, would represent a significant improvement upon current disclosures. The reason cash income taxes paid information is so important to disclose is that it provides investors and the public with an alternative and often more accurate way of calculating a company’s effective tax rate for a given year.

Improving Subsidiary Disclosure

One area of disclosure for which the SEC Concept Release appropriately solicits comments is the disclosure of a company’s subsidiaries. Specifically, the Concept Release asks in question 257, “Should we revise Item 601(b)(21) to eliminate the exclusions and require registrants to disclose all subsidiaries?” The answer to this question is an unambiguous yes. Companies should be required to disclose all of their subsidiaries.

The disclosure of subsidiary information in SEC filings is important for a number of reasons. For one, it provides transparency in allowing the public and investors to know if they are doing business with a company that is ultimately owned in whole or in part by another company. Second, providing subsidiary information allows investors and the public to get a clearer view into the offshore operations of a company.

While the current SEC standard requires a company to disclose their “significant” subsidiaries, this standard has proven woefully inadequate according to a number of studies. In the report “Offshore Shell Games 2015”, a study I co-authored that is cited in the SEC’s Concept Release, we summarized numerous examples of major companies which disclosed sudden drops in their number of subsidiaries from one year to the next.[xii] For example, the report notes that Google reported 25 tax haven subsidiaries in 2009, but since 2010 only discloses two, despite the fact that an academic study found that the 23 excluded after 2010 were still in operation. From the perspective of the public and investors, the shift in the number of disclosed subsidiaries may have misleadingly indicated some shift away from the use of tax havens, but the follow-up study proved this to be just a shift in disclosure.

Given the example of Google, there are a number of companies where investors might rightfully be unsure as to whether those subsidiaries being disclosed year to year by a company are accurately demonstrating any kind of shift in offshore operations. For example, Citigroup reported 427 tax haven subsidiaries in 2008, but only 41 in 2014. Similarly, Bank of America reported operating 264 tax haven subsidiaries in 2013, but disclosed only 22 in 2014. Without an extensive and potentially expensive amount of research, there is no way for the public and investors to know whether either of these changes in disclosure represent a genuine change in operation or simply a decision to not disclose a substantial number of subsidiaries from one year to the next.

Additionally, companies may simply not be disclosing many of their major subsidiaries at all. A study by Americans for Tax Fairness found that Walmart has 78 subsidiaries and branches in 15 tax havens, yet none of them were disclosed in their SEC filings. This omission is especially striking given that the company owns at least $76 billion in assets through their undisclosed shell companies in Luxembourg and the Netherlands.[xiii]

Finally, a recent study performed by CTJ found that the number of subsidiaries that companies are required to disclose represent a relatively small subset of a company’s overall subsidiaries. In the study, we compared the number of subsidiaries that a selection of financial institutions disclosed to the Federal Reserve compared to the number of subsidiaries they disclosed to the SEC. Ultimately, the study found that SEC allowed companies to omit over 85 percent of their subsidiaries compared to those disclosed to the Federal Reserve.[xiv] In other words, this study indicates that the current SEC standard only requires companies to report a fraction of their subsidiaries and thus provides investors and the public with a relatively incomplete picture of their operations.

The straightforward solution to the incomplete picture that current SEC requirements provide is to require that companies disclose all of their subsidiaries. This more complete disclosure would provide complete transparency and prevent any kind of gaming of what is disclosed. Given that a company must internally maintain basic ownership and organizational information, providing a list of complete subsidiaries would likely have a negligible cost to companies.

Besides disclosing all of their subsidiaries, companies should also be required to disclose each subsidiary’s name, location, legal entity identifier number and their relation to the parent entity. This information will allow investors and the public to have a clearer understanding of how the company operates and the specific function of individual subsidiaries within it.


Corporate transparency is critical to an efficient and fair marketplace. In order to keep up with the rapid pace of change in our economy, the SEC is right to constantly reevaluate and improve upon its disclosure requirements. The rapid growth of foreign operations and related tax avoidance now necessitates that the SEC adjust by requiring companies to provide additional information on such operations. The offshore operations of these companies have simply become too crucial to our economy at large to remain in the shadows.

Thank you for your careful consideration of these comments.


Robert S. McIntyre
Director of Citizens for Tax Justice


[i] Securities and Exchange Commission, “What We Do,” June 10, 2013.

[ii] Robert S. McIntyre, “Remembering the 1986 Tax Reform Act,” Tax Notes, October, 17, 2011.

[iii] Citizens for Tax Justice, “Fortune 500 Companies Hold a Record $2.4 Trillion Offshore,” March 4, 2016.

[iv] Citizens for Tax Justice, “American Corporations Tell IRS the Majority of Their Offshore Profits are in 10 Tax Havens,” April 7, 2016.

[v] Kimberly A. Clausing, “Profit shifting and U.S. corporate tax policy reform,” Washington Center for Equitable Growth, May 2016.

[vi] Organisation for Economic Co-operation and Development, “About BEPS and the inclusive framework,”

[vii] Credit Suisse, “Parking A-Lot Overseas: At Least $690 Billion in Cash and Over $2 Trillion in Earnings,” March 17, 2015.

[viii] Kelsey Kober, “To Maximize Corporate Transparency, the IRS Must Strengthen its Rules on Country-by-Country Reporting,” Tax Justice Blog, June 14, 2016.

[ix] Financial Accounting Standards Board, “Board Meeting Handout: Disclosure Framework—Disclosure Review, Income Taxes,” March 23, 2016.

[x] Skechers U.S.A. Inc., “10-K Annual Report,” Securities and Exchange Commission, February 26, 2016.

[xi] Matt Gardner, “Skechers’ Sketchy Corporate Tax Disclosure Illustrates Need for Country-by-Country Reporting” Tax Justice Blog, May 1, 2015.

[xii] Citizens for Tax Justice and US PIRG, “Offshore Shell Games 2015,” October 5, 2015.

[xiii] Americans for Tax Fairness, “The Walmart Web,” June 17, 2015.

[xiv]Citizens for Tax Justice, “Lax SEC Reporting Requirements Allow Companies to Omit Over 85 Percent of Their Tax Haven Subsidiaries,” June 30, 2016.

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