Governor Taft's complaint during budget negotiations that corporations aren't paying their fair share of taxes in Ohio now has some validation in the form of a study by a state-government organization.
The Multistate Tax Commission reports that as much as $12 billion in corporate tax revenue was diverted from state treasuries in 2001 by various forms of borderline-legal tax sheltering.
Ohio, with $378 million lost, was among the states hit hardest. California was the biggest loser, at $1.3 billion.
Devices used by businesses to avoid paying include creation of separate corporations elsewhere with such valuable assets as company trademarks, incorporating offshore in places like Bermuda, and transferring taxable income to jointly owned business units overseas.
Ohio, the study estimates, lost $120 million in revenue to international shelters. Michigan lost $217 million overall, $208 million of that overseas.
The greater inequity, which Mr. Taft and Tax Commissioner Thomas Zaino highlighted in June, is that the percentage of state general revenue contributed by Ohio's corporate franchise tax dropped from 14.7 percent 30 years ago to only 4.6 percent today.
That means non-business taxpayers - Mr. and Mrs. Everyday Ohioan - end up paying a bigger share to run schools and other state operations.
The study took pains to point out that most corporations, notably small businesses that are incorporated, play by the rules and pay up. But according to Steve Westly, California's state controller, “abusive tax shelters” employed by the minority are “a slap in the face to every taxpayer who follows the rules.”
Officials of the multistate commission are encouraging state lawmakers to pass laws to nab cheaters and close tax loopholes that encourage the shelters.
So far, Ohio has taken only a small step. In the budget recently adopted, the General Assembly raised the minimum corporate tax from a shamefully low $50 to $1,000.
It's a start, as we've said before, but the legislature needs to get to work on more comprehensive corporate tax reform. It's only fair.
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