Almost All Large Iowa Manufacturers Are Already Subject to “Combined Reporting” in Other States; Fears of Job Flight from Reducing Corporate Tax Avoidance Are Unwarranted

Publication Date: April 2008

Publisher: Center on Budget and Policy Priorities (Washington, D.C.)

Author(s): Michael Mazerov; Katherine Lira

Research Area: Banking and finance; Business

Keywords: Economic projections; Corporate finance; State budgets; Tax code

Type: Report


Most large corporations consist of a parent corporation and its subsidiaries. Combined reporting effectively treats the parent and most or all of its subsidiaries as a single corporation for state income tax purposes. In doing so, combined reporting nullifies a wide array of tax-avoidance strategies large multistate corporations have devised to artificially move profits out of the states in which they are earned and onto the books of subsidiaries located in states that will tax the income at a lower rate--or not at all.
Some 16 states have used combined reporting for at least two decades and four more have put it into effect in the last four years. Nonetheless, many members of the Iowa legislature appear reluctant to support the governor's recommendation. Representatives of some major multistate corporations doing business in Iowa have expressed opposition to combined reporting, claiming that it will increase their tax liability in the state and/or subject them to difficult and costly tax compliance burdens. Some legislators therefore are concerned that adopting combined reporting will lead to job losses as major employers leave Iowa or reject the state for future investments. For example, State Senator Mark Zieman has written, "Combined reporting for corporations will affect companies, such as CamCar, Norplex, John Deere, Alliant, and many others; this will encourage companies to locate in other states." This study presents compelling evidence that such concerns are unwarranted. It summarizes the results of a careful examination of the states in which the 32 largest Iowa manufacturers (and two smaller ones cited by Senator Zieman) have physical facilities and therefore are subject to the state’s corporate income tax.