Colorado Small Businesses Foot $3,165 Bill from Offshore Tax Dodging

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New State Bill Would Close Loophole That Costs Millions


April 14, Denver – As Tax Day approaches, the CoPIRG Foundation released a new study highlighting that small businesses end up picking up the tab for offshore tax loopholes used by many large multinational corporations. The study revealed that the average Colorado small business owner would have to pay an extra $3,165 in taxes to make up for the money lost in 2014 due to offshore tax haven abuse by large multinational corporations. State Representatives Brittany Pettersen and Mike Foote and other advocates joined CoPIRG to highlight a new bill that aims to close a loophole in Colorado that costs the state millions.  

“When large companies shirk their taxes, small businesses get stuck with part of the bill and are put at a competitive disadvantage. Businesses should compete on innovation and the quality of their products, not on the cleverness of their tax attorneys.” said Danny Katz, CoPIRG Director. He spoke in front of a display of notorious tax haven countries like the Cayman Islands and Nauru and pointed to a list of over 300 small businesses who signed a letter calling on elected officials to stop tax haven abuse.

Every year, corporations avoid paying an estimated $110 billion in state and federal income taxes by using complicated accounting tricks to book their profits to subsidiaries in offshore tax havens. The estimated cost to Colorado is $2.2 billion. This leaves small businesses to compete on an uneven playing field, and they, along with the average taxpayer, end up picking up the tab in the form of higher taxes, cuts to public priorities, or bigger deficits.

“As a culture, we pay taxes to make a better living environment for all – from a good education system that develops a good workforce, to a safe and efficient infrastructure,” said Marlene Nuechterlien, owner of Caboodle Gifts in Denver. “It is unfair that huge corporations…are avoiding their taxes by using offshore tax havens. It is unfair that while we’re all paying back into the system that gave us our profits, they are not. They benefit just as much off the public goods our taxes pay for. These loopholes need to be closed.”

At the event, state lawmakers highlighted a new bill, HB15-1346, that would take a big step toward creating a more level playing field in Colorado by closing one of the offshore tax loopholes that costs Colorado millions. The bill, modelled off a similar policy in states like Montana and Oregon, would require corporations to report profits from notorious tax havens so that the state can appropriately calculate the owned taxes. The bill will be heard in the State House Finance Committee on Tax Day.

“When large corporations hide money in offshore tax havens hard-working, middle-class Coloradans are left to foot the bill,” Representative Mike Foote said. “This is about tax fairness and making sure that multinational corporations pay their fair share just like the rest of us.”

“By closing these tax loopholes from big corporations, we can put up to $150 million more into our education system,” Representative Brittany Pettersen said. “We are already underfunding our K-12 system by $880 million and while $150 million won’t solve the whole problem, it’s a step towards meeting our obligation to our schools and our kids.”

In January, two federal offshore loopholes expired, along with a collection of dozens of other tax breaks that overwhelmingly cater to special interests. If Congress takes no action by the end of the year, these two loopholes—the ‘active financing exception’ and ‘controlled foreign corporation look-through rule’—will be gone from the tax code, saving small businesses and ordinary taxpayers more than $80 billion over the course of the next ten years.

“Congress should stand with taxpayers and small business owners by keeping these special interest tax breaks out of our tax code,” said Katz.

Many of America’s largest and best-known corporations use these complex tax avoidance schemes to shift their profits offshore and drastically shrink their tax bill. GE, Microsoft, and Pfizer boast some of the largest offshore cash hoards:

  • General Electric paid a federal effective tax rate of negative 7.3 percent between 2008 and 2014, despite being profitable all of those years. The company received net tax payments from the government. GE maintained 18 subsidiaries in tax havens in 2014, and parked $119 billion offshore. One of the company’s most lucrative loopholes is the ‘active financing exception’, which is poised to expire at the end of the year. GE alone hired 48 lobbyists to push to renew this loophole last year.
  • Microsoft avoided $4.5 billion in federal income taxes over a three-year period by using sophisticated accounting tricks to artificially shift its income to tax-friendly Puerto Rico. Microsoft maintains five tax haven subsidiaries and keeps $92.9 billion there, on which it would otherwise owe $29.6 billion in additional U.S. taxes. 
  • Pfizer paid no U.S. income taxes between 2010 and 2012 because the company reported losses in the U.S. during those years, despite making 40 percent of its sales in the U.S. and earning $43 billion worldwide. In 2014, the company operated 143 subsidiaries in tax havens and declared $74 billion parked offshore, which remains untaxed by the U.S., according to its own SEC filing.

The report recommends closing a number of offshore tax loopholes. Many of these reforms are included in the Stop Tax Haven Abuse Act, introduced by Sen. Whitehouse in the Senate (S.174) and Rep. Doggett in the House (H.R. 297).

Click here for a copy of “Picking up the Tab: Small Businesses Pay the Price for Offshore Tax Havens.”

Click here to see an earlier study showing how states can crack down on offshore tax dodging.