Honest Corporate Tax Reporting Bill Lands On Schwarzenegger's Desk

by Leroy Baker, Tax-News.com, New York

25 August 2006

California's legislature has passed a bill which aims to prevent corporations from under-reporting profits to reduce the amount of tax that they pay.

The Honest Corporate Tax Reporting Act would require corporations to disclose and explain any differences between profits reported to shareholders and profits reported to the state tax board.

The California Franchise Tax Board has characterized the reporting required in the bill as “a significant audit tool” that “could assist auditors in identifying tax shelter activity and dissuade some taxpayers from entering into tax avoidance schemes.”

Corporations report profits to the California state tax board that are on average 20% lower than the profits they report to shareholders, according to CALPIRG, a public interest advocate group which campaigns for greater levels of corporate transparency.

CALPIRG says that because corporations keep two sets of books, some companies are able to manipulate profit numbers through the use of offshore tax shelters and other tactics.

“While the gubernatorial candidates may spar over whether tax increases are appropriate, they should both agree that California should not be allowing companies to hide profits from the state tax board,” commented Emily Rusch, Advocate with CALPIRG.

“Californians need to be able to trust that taxes are being collected fairly and effectively,” she argued.

Phil Angelides, the Democrat who is hoping to succeed Arnold Schwarzenegger as California's Governor, has proposed a commission to find and eliminate corporate tax loopholes that his campaign has estimated could raise $2 billion for California's state coffers, which are expected to be $4.5 billion in deficit for the next fiscal year.

Angelides claims that a minimum of 46 corporations with incomes of at least $1 billion in 2001 paid no state taxes in that year.

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