Promoting Fair State Tax Policies

GBA’s advocacy efforts ensure that international companies operating in the United States have access to fair tax policies that promote investment and economic growth.

Combined Reporting, Worldwide Combined Reporting & Tax Haven Blacklists 

States generally determine the corporate income tax base for multi-state corporations using either a separate filing method or some sort of combined reporting methodology. Mandatory worldwide combined reporting, certain combined reporting proposals that lack a true “water’s edge, and tax haven country blacklist bills are tax policies that may disproportionally impact global companies.

Combined Reporting is a type of state income tax filing in which a taxpayer’s state tax liability must be determined by “combining” the income of all companies in a unitary tax filing group to determine the amount of income apportioned to that state. Twenty-three states have adopted some form of combined reporting, but the specifics vary by state as to what companies and types of income would be included in a “unitary group.”

Worldwide Combined Reporting is a type of state income tax filing that requires the inclusion of income from all unitary foreign affiliates, including foreign parent companies. To date, every state with worldwide combined reporting has opted for a true water’s edge option whereby only certain foreign affiliates and certain income may be brought into the combined group. Any state that would pursue worldwide combined reporting without a true water’s edge option would be an outlier in the income taxation of multinationals, potentially creating double taxation of income and inviting retaliation from foreign countries. See helpful talking points developed by GBA about the challenges of imposing worldwide combined reporting. 

Tax Haven Blacklists 

Some states consider legislation creating blacklists of countries defined as tax havens. This approach is another attempt to tax certain foreign-derived income that is not related to a corporation’s operations within a given state. Montana was the only state with a country blacklist approach until Colorado passed one in 2020.

The Role of Tax Treaties

The United States has tax treaties with approximately 70 countries. The objectives of tax treaties are generally to facilitate cross-border trade and investment by eliminating the tax impediments to cross-border flows. One such impediment is the potential for double taxation. It is important to note that States are not technically parties to any tax treaties as they are their own sovereign entities and, thus, are not technically bound by the terms of treaties.

GBA’s Advocacy Efforts
GBA is committed to supporting tax policies that promote fair taxation and encourage international investment in the United States. Some of GBA’s positions include:

  • Supporting tax policies that limit taxable income to what should be attributed to a company’s U.S. operations
  • Supporting water’s edge combined reporting with adequate tax treaty protections
  • Engaging on combined reporting proposals that lack a strong “water’s edge” designation
  • Opposing proposals that do not exclude treaty-protected income
  • Opposing efforts to include income not connected to a company’s activity in the state for determining a company’s unitary group income tax base