A Resolution In Opposition To Mandatory Unitary Combined Reporting Exposed

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The Resolution in Opposition to Mandatory Unitary Combined Reporting was adopted by ALEC's Tax and Fiscal Policy Task Force on July 17, 2009, approved by the ALEC Board of Directors on August 27, 2009. According to ALEC's website, the Resolution was amended by ALEC's Tax and Fiscal Policy Task Force at the Annual Meeting on July 30, 2014, and approved by the ALEC Board of Directors on October 11, 2014. (Accessed on 7/8/2015).

CMD's Bill Summary

This Resolution supports a major tax dodge for firms with subsidiaries across state lines known as the "Las Vegas Loophole." If enacted, the measure would allow a corporation to dodge their tax obligation with one state by reporting it as income in a another state. See also "The Use Tax Elimination Act," which would have a similar effect.

Wisconsin passed a combined reporting law in 2009 to close the "Las Vegas Loophole" and generate more revenue for the state. Governor Scott Walker in his 2011 Budget Bill (SB27/AB40) would reverse the 2009 law in conformity with this ALEC resolution, costing the state millions in lost revenue.

ALEC Resolution Text


Many states have adopted, or are considering adopting, mandatory unitary combined reporting ("MUCR") into their corporate tax regimes. MUCR may be is an aggressive reporting method used to determine state taxable income for a group of affiliated corporations. At its most basic level, MUCR treats a group of affiliated corporations engaged in a "unitary business" as a single taxpayer notwithstanding traditional notions of corporate separateness. This treatment results in taxing income earned outside the state. The main rationale for adopting MUCR is closing perceived corporate tax "loopholes." However, instead of closing so-called loopholes, MUCR permits a state to tax income earned outside of its boundaries. Further, MUCR creates additional administrative burdens for reporting corporations and state tax administrators, thereby creating an economic drag on the state economy and an unneeded increase in state government bureaucracy.

Model Resolution

WHEREAS, many states generally compute taxable income separately for each corporation that has taxable presence or "nexus" in the state ("separate reporting"), thereby ensuring that only income earned in the state is taxed in the state; and

WHEREAS, MUCR not only subjects corporate income earned in the state to tax, but may also subject income earned by related, out-of-state corporations to tax, which results in an unjust and overreaching increase to the state's overall tax base; and

WHEREAS, many states are considering the adoption of MUCR as a way to shift the corporate tax burden from local in-state corporations to multi-state corporations, thereby creating an uncompetitive environment that impermissibly interferes with interstate commerce, which unnecessarily creates additional constitutional concerns and also leads to increased tax litigation; and

WHEREAS, the use of MUCR may reflect an incorrect presumption that all business lines of a corporation and its affiliates operate at the same level of profitability in all states, which creates a risk that taxable income may be unfairly apportioned to such state, and

WHEREAS, MUCR imposes multiple compliance burdens and substantial tax litigation, as has been the case in California and Illinois; and

WHEREAS, the MUCR regime, as imposed by some states, hurts US competitiveness by taxing foreign income and thus discouraging investment; and

WHEREAS, MUCR may result in assigning income to companies with in-state losses, and such distortions will likely vary among corporations in similar business lines in a state giving one corporation a competitive advantage over another, thereby creating an unlevel playing field among MUCR "winners" and MUCR "losers"; and

WHEREAS, there are alternative means that states have adopted to combat perceived "abusive" tax planning strategies without many of the adverse consequences of MUCR; and

NOW, THEREFORE BE IT RESOLVED, That ALEC [insert state] opposes MUCR in every instance where the outcome results in an overly burdensome and overreaching method of determining state corporate income tax liability, and encourages legislators in states that have adopted MUCR in such an overly burdensome manner to revise it or re-enact the separate reporting method, as well as encourage legislators in states that are considering a change from separate reporting to an overly burdensome MUCR regime to oppose any such proposal.

Approved by the Tax and Fiscal Policy Task Force on July 17, 2009.

Approved by the ALEC Board of Directors on August 27, 2009.