Tax Reform Group Wants Corporate Loophole Closed, Cut In Sales Tax On Food

A tax reform group is making a last-minute push to get a corporate tax loophole closed. The group wants to use the resulting revenue to lower the state sales tax on food by one percent.

“Tennesseans for Fair Taxation” is calling for “combined reporting” for corporate excise tax. Currently a company operating in Tennessee can take its profits and pay them to a holding company in Delaware for instance, as payment for using logos and trademarks, like the “Toys R Us” giraffe. That reduces the corporate income in Tennessee for the company.

TFT executive director Brian Miller says such “separate reporting” allows some big companies avoid paying from half to all of their excise tax in Tennessee.

“The advantage to combined reporting is that it adds transparency to the tax code because it eliminates the ability of companies to be able to shuffle money around between subsidiaries to avoid paying their fair share.”

Miller says small companies largely agree with him, since they don’t have holding companies elsewhere to shield their own profits.

Last year, the tax reform group proposed an increased cigarette tax to fund a cut in the state sales tax on food, but they were pre-empted by Governor Phil Bredesen, who wanted the increased cigarette tax to fund basic education.

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The bill is SB 3158 Burchett/HB3182 Fitzhugh. The House sponsor, Craig Fitzhugh, chairs the House Finance Committee.

The TFT organization is backing an amendment to the bill which doesn’t yet (April 3) appear in the state data base. The amendment is a re-write.

In the House the bill is still in the Government Operations Committee, from which it will have to escape in order to go to House Finance.

In the Senate, the Senate Tax Subcommittee is expected to take it up April 8.

TFT forecasts that the bill would recoup from $120 million to $250 million in revenues currently lost over the state lines. To reduce the state sales tax by one percent would take about $90 million in new revenues.

Miller says his group has already talked to more than thirty legislators and will try to talk to Bredesen about their idea.

“We’ve actually been …. in conversations with a whole lot of officials up to date. And we actually hope to meet with the governor in the next week or so, but we’ve certainly been in touch with some of his staff, and hope to meet with him soon about this bill.”

Tennesseans for Fair Taxation web site