Somewhere near you there’s a highly paid corporate tax accountant sharpening his pencil, trying to figure out how to stick you with part of his company’s tax bill.
Here in Oregon, the corporate income tax paid for just 4 percent of Oregon’s General Fund in the last two-year budget cycle, down from 14 percent in 1977-79. Who has taken up the slack? You and I.
Aggressive corporate accounting maneuvers are only part of the reason why corporations are bearing less of Oregon’s tax burden. Still, the creative and sophisticated use of loopholes is widely believed to have expanded over the 1990s. The Multistate Tax Commission estimates that corporate tax sheltering schemes cost Oregon about $80 million in 2001.
Some of the schemes used by US corporations involve the creation of shell companies located in tax havens.
Because corporate tax records are exempt from disclosure under Oregon’s public records laws, the Oregon Department of Revenue cannot tell us which Oregon firms have used these sorts of tax avoidance schemes. However, we do know that one company with substantial business in Oregon – Bank of America – employed an aggressive tax avoidance scheme that likely affected us.
Bank of America sent a portion of its assets to a subsidiary it created in Nevada – a state with no corporate income tax. The subsidiary invested the assets and paid dividends back to Bank of America. Since a significant portion of those dividends is tax deductible, the arrangement effectively sheltered a hefty chunk of Bank of America’s income from state taxation. The maneuver appears to have served no other purpose.
According to the Wall Street Journal, Bank of America transferred nearly $9 billion in assets to its subsidiary in Nevada until the bank dissolved the arrangement after the Securities and Exchange Commission and revenue officials in California began questioning its legitimacy. The technique allowed Bank of America to shelter more than $750 million in income, according to the Journal.
Bank of America does substantial business in Oregon. The taxes on some of that $750 million would have helped pay for schools, roads, health care, and other state services that help make doing business in this state profitable.
Someone had to pay for those services. Guess who? Was it Bank of America CEO Kenneth Lewis, who collected $21 million in total compensation last year? Was it one of the corporate tax accountants who plotted the scheme? Or was it you and me?
You got that right.
Michael Leachman is a policy analyst at the Oregon Center for Public Policy