Anna Bernasek has an essay in the New York Times' Special Tax Section today on whether individual and corporate tax returns in America should be public. We believe that at least corporate tax records in Washington State and nationally should be made public.
Which brings us to the present. In the wake of accounting scandals and corporate earnings frauds of recent years, not to mention aggressive tax avoidance schemes, some experts say we should bring back corporate tax disclosure.
“You can’t look at a financial statement and tell how much tax is remitted,” Professor Slemrod said. “Corporations can report high income to the public while they report low income to the I.R.S. and pay little tax.”
He said that public disclosure of corporate tax returns could enhance financial market efficiency, provide regulators and researchers with important data and increase tax compliance and pressure for tax reform. Opponents say such measures would compromise business secrets and might be confusing to investors, who would have to figure out how to reconcile tax figures with annual reports and earnings figures.
Privacy protections in Washington has also been at issue in proving Microsoft's Reno, Nevada tax evasion. It's at issue in the denial of our public records request by the Department of Revenue and was clearly described by the department's spokesman in a recent Seattle Weekly article on tax exemptions:
We can't tell you who specifically gets how much in official Washington tax breaks. That's a secret, says DOR spokesperson Mike Gowrylow. "State law prohibits us from discussing the tax situation of any particular company," he says."Just like the IRS won't give me your tax return if I ask them for it."
You don't have to look much further than the Office of Financial Management's own analysis of HB3176 for evidence of Microsoft's Nevada tax practice with regard to the royalty tax...see page 3
Royalty income is not apportioned in this state. Rather, royalties are allocated to the domicile of the taxpayer. Businesses that are domiciled outside of Washington, but authorize the use of their intangible property in Washington, do not pay any B&O taxes in Washington on royalties received from the use of their intangible property in this state. This has led some Washington-domiciled taxpayers to transfer their intangible assets to wholly-owned subsidiaries whose sole place of business is outside of Washington. Sometimes these subsidiaries are domiciled in states, such as Nevada, that do not tax income from the use of intangibles.
Translation: Microsoft's headquarters is in Washington State. It created and authorizes a Nevada subsidiary, Microsoft Licensing GP, to record revenue from its royalty-based licensing activities (about 1/3 of its revenue).
What's maddening is that the Department of Revenue won't provide a complete explanation for why it won't challenge this abusive tax transaction's accounting. That's what we're hoping to learn more about with our records requests.