AUGUSTA, Maine — Democrats in the House of Representatives on Tuesday advanced a bill aimed at collecting taxes hidden in overseas tax havens by multinational companies such as Apple, Nike and American Express.
Those companies hide corporate profits in low-tax countries such as Antigua, the Bahamas, Luxembourg, Monaco and many others, said Rep. Adam Goode, D-Bangor, who sponsored the bill, LD 1120, An Act to Improve Maine’s Tax Law. The law was given initial approval by the House with an 87-56 vote, and sent to the Senate.
Not a single Republican supported the bill, and a few Democrats opposed it. All the House independents supported the measure.
Multinational companies operating in the U.S. file single, combined tax returns that result in corporate income taxes being paid in each U.S. state in which they sell goods. A company files its combined tax return, claiming a net income including revenue from sales in every state. An apportionment formula is applied, resulting in corporate income tax being paid to each state, proportionate with the amount of goods sold there.
Under Goode’s bill, multinationals would also be made to report corporate income from subsidiaries in roughly 40 foreign countries. Those countries, Goode said, are tax havens — locations where big businesses store their money in an effort to shelter it from tax levies back home.
Apple came under fire last year after congressional investigators said the company had avoided billions of dollars in taxes by using “a web of [international] subsidiaries so complex it spanned continents and went beyond anything most experts had ever seen,” according to the New York Times. A report by Citizens of Tax Justice implicated dozens of other Fortune 500 companies — including Nike, Dell, American Express and the pharmaceutical giant Eli Lilly — in similar offshore schemes.
There’s nothing illegal about such arrangements, but Goode, who is House chairman of the Legislature’s Taxation Committee, said there’s a fundamental question of fairness.
“Small businesses in Maine can’t and don’t do this type of thing,” he said in an interview Tuesday. “There are companies that sell goods in Bangor that should play by the same rules as any small business or working family.”
The Legislature’s nonpartisan budget analysts at the Office of Fiscal and Program Review said that state stands to gain roughly $10 million per two-year budget cycle in reclaimed corporate income tax if Goode’s bill becomes law.
Republicans on the floor of the House blasted the effort, with longtime Taxation Committee member Gary Knight, R-Livermore Falls, calling Goode’s bill “the worst piece of legislation I’ve seen in my eight years” on the committee.
Knight questioned the constitutionality of one state blacklisting countries that have trade agreements with the U.S.
“The U.S. government has made treaties, and we here in Maine are going to go on our own and ignore the treaties our sovereign nation has made with other countries?” Knight said. “I guess it’s a feel-good bill. … We all want everybody who should be paying taxes to pay their fair share. … This bill is not the answer.”
The question of combined reporting of international revenue has been taken up by the U.S. Supreme Court on three separate occasions. In each case, the court ruled that such tax filing requirements were legal.
Republicans also cited the concerns of some in the business world, who said the bill would make Maine less attractive for business investment.
Nancy McLernon, president and CEO of the Organization for International Investment, circulated a letter to lawmakers in which she said “codifying such a list into law would cast doubt as to whether Maine’s tax methodology aligns with international norms and could undermine Maine’s attractiveness as a location for global businesses to grow and create jobs.”
Similarly, the Council on State Taxation said it was unfair to assume a corporation with a business interest in any foreign country was only operating there as a means to avoid paying its tax bill.
Several other states have pursued policies similar to those proposed in Goode’s bill, with Oregon and Montana most closely mirroring its provisions. Dan Bucks was the Montana Director of Revenue when his state passed its tax havens bill.
In a letter to Minnesota lawmakers considering similar legislation last year, Bucks said heard no complaints from businesses after the law took effect in 2004, and said the state’s economy had not been negatively impacted by the inclusion of revenue from the listed countries in corporate tax filings.
LD 1120 faces further votes in the House and Senate.
Follow Mario Moretto on Twitter at @riocarmine.