HAYWARD—Today
CALPIRG joined Assemblyman Johan Klehs in support of the Honest
Corporate Tax Reporting Act (AB 675), which will require corporations
to disclose to the Franchise Tax Board any differences between the
profits they report to shareholders and profits they report to the
state for tax purposes.
“Unfortunately,
too many corporations don’t pay their fair share of taxes, increasing
the tax burden for the rest of us,” said Emily Rusch, Advocate with
CALPIRG. “The Honest Corporate Tax Reporting Act will discourage
companies from hiding profits from the state tax board.”
Corporations
routinely report lower profits to tax agencies than they do to their
shareholders. Through the abuse of double accounting practices,
companies manipulate profit numbers through the use of offshore tax
shelters and other tactics, often overreporting profits to shareholders
and underreporting profits to the state.
For
example, Enron reported to their shareholders that they made $3.625
billion in profits between 1996 and 2000. Yet they reported only a
small fraction of that amount, $76 million, in profits to the IRS over
that same period. Unfortunately, Enron isn’t the only corporation that
has reported widely different numbers to either inflate their profits
to shareholders or hide profits from tax agencies. A Harvard study
found that in 1998, for every $1 in income reported to the federal
government for tax purposes, $1.63 in income was reported to
shareholders.
The
Honest Corporate Tax Reporting Act will shine a light on tricky
accounting, and help ensure California’s Franchise Tax Board is fairly
collecting taxes we need to fund highways, schools, public safety and
other programs. The Act will require companies to submit a tax form
newly required by the IRS, the M-3, to California’s Tax Board as well.
The M-3 requires companies to disclose accounting numbers reported to
shareholders, thereby discouraging companies from underreporting
profits to the Tax Board, and giving California the information we need
to evaluate whether we are collecting taxes fairly from all companies.
“We
urge the Legislature to move quickly to pass the Honest Corporate Tax
Reporting Act. Ordinary Californians need to be able to trust that our
taxes are being collected fairly and effectively from corporations,”
said Rusch.
