Tom Joseph, Public News Service-PA
HARRISBURG, Pa. – Pennsylvania lost more than $1.4 billion in corporate tax revenue to offshore tax havens in 2011, according to a new report from the U.S. Public Interest Research Group.
The study focuses on a so-called water's edge exemption – meaning that U.S. taxes on income are exempt for money generated inside another country.
Dan Smith, a tax and budget advocate for U.S. PIRG, helped to write the report. He explains that it's as simple as a corporation setting up a post office box in a low-tax country, such as the Cayman Islands, and claiming the exemption.
"That income wasn't made beyond the water's edge,” he says. “It's not like companies are putting up factories or doing research and development in the Cayman Islands."
The report points out that while federal action could be taken to close the loophole, states can do it, too – and Montana and Oregon already have taken that step with bipartisan support.
It also says Pennsylvania could have collected an additional $57 million in taxes in 2012 if the loophole were closed here.
Corporations argue it's perfectly legal for them to keep the profits they make in another country overseas and pay the local taxes.
Smith counters it's also perfectly legal for the states to demand a fair share of the money hidden in known offshore tax havens – and it doesn't take complicated legislation.
"It's literally adding a line to the tax form that corporations already file,” he explains. “And for the corporation, it's just taking something they report to the federal government and adding it in that line."