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July 8, 2013

The Vanishing Corporate Tax Payer

While all corporations in Virginia benefit from education, public safety, and other services funded, in part, by the corporate income tax, most corporations don’t actually pay it. Some of the biggest, most profitable, multi-state corporations avoid paying up. That may be good for their shareholders, but it leaves the rest of us – including other businesses – to shoulder more of the responsibility and hurts Virginia’s ability to invest in our economy and future.

The corporate income tax is an important source of revenue for Virginia. It generated roughly $860 million in 2012, which is about what the state spent on local law enforcement, including state police, local sheriffs and jails, and Commonwealth’s Attorneys.

But fewer than 10 percent of Virginia businesses are subject to the corporate income tax. Of those, about two-thirds don’t owe corporate income taxes because they didn’t have profits “for tax purposes.” But that doesn’t mean they aren’t making money.

Corporations often are profitable even when they show a net loss for tax purposes. That’s because corporations can make accounting adjustments that obscure profits, like booking future costs of equipment early.

And the proportion of corporations in Virginia that don’t owe any taxes is increasing – despite record profits. Some argue that the recession is to blame for the rising share of corporations with no tax liability, but corporations’ bottom lines have more than recovered in recent years. In fact, corporations’ profits rose to nearly $2.16 trillion in 2012. The previous high was $1.82 trillion in 2006. Yet even with these profits, the share of corporations that aren’t paying corporate income tax has risen in our state.

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While arguments are being made that Virginia should cut corporate income taxes, it’s important to remember that very few corporations are paying them to begin with.

–Massey Whorley, Senior Policy Analyst

Related:
How Would a Corporate Income Tax Cut Hurt Virginia’s Ability to Invest in the Future?

 

The Commonwealth Institute

info@thecommonwealthinstitute.org

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