Lawmakers seek to widen corporate tax loophole

Posted June 17, 2011

Sen. Bob Rucho, R-Mecklenburg, lambasted Democratic lawmakers during a Feb. 3, 2011, floor debate, saying they have been fiscally irresponsible.

North Carolina may be struggling to cover a record $2.5 billion budget gap, but that’s not stopping Republican House and Senate leaders from pushing through a last-minute tax change that could cost the state tens of millions of dollars.

Most of House Bill 619 is aimed at restricting the Dept. of Revenue’s ability to go after corporations it thinks are underreporting their North Carolina income. But one eleventh-hour amendment, authored by Sen. Bob Rucho, R-Mecklenburg, would reopen a potentially gigantic loophole state lawmakers closed ten years ago.

The amendment would offer multi-state corporations a legal way to shift their North Carolina income to other states, reducing the corporate taxes they pay into tax coffers here. That loophole is “royalties and trademarks.”

Essentially, a corporation headquartered elsewhere can “charge” its NC operation for the right to use the corporate trademark. That price can be as high as the corporation wants it to be, and can be used to offset any profit the corporation made in North Carolina that year, erasing its tax bill.

Here’s an example of how it works: Suppose I’m Multistate Megastore A, headquartered in Delaware. Our NC operation made $100 million revenue last year. If I charge our NC operation $100 million dollars to use the “Multistate Megastore” trademark, then the NC operation has no profit, and therefore no state tax bill.

After a major clothing chain tried something like this a decade ago, state lawmakers gave the Secretary of Revenue the power to look into “royalty and trademark” payments to see if they actually have economic value. If they’re just a way to move money out of NC, the DOR can go after the corporation for the difference.

House Bill 619 would reopen the loophole by taking away that power.

Canaan Huie with the Dept. of Revenue testified in committee this afternoon the change would cost the state at least $32 million a year, just for agreements the DOR has made in existing trademark cases. Those corporations would no longer have to meet those agreements.

And that estimate doesn’t take into account the many corporations who, seeing an open door, might just start selling their trademarks to their NC entities to lower their tax bills.

Barry Boardman with the Fiscal Research Division couldn’t even offer an estimate of what the measure would cost the state: “It’s very difficult to put a number on that, so we didn’t.”

The House will vote on the measure today.


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  • SARCASTICLES Jun 20, 2011

    How is this considered propaganda? They're working to create yet another loophole for their peeps. Reporting their actions is hardly an attack.....unless, of course, you happen to be one of the people that benefits financially from this latest loot-and-plunder corporate entitlement/welfare handout. You'd have to be ignorant to believe that this could possibly be good for North Carolina's economy. They claim that high corporate taxes are "JOB KILLIN'", but taxes are lower now than they've been in decades...and unemployment is at a record high. Yeah, I see your point....if they get this break, and are allowed to ship all the profits out of the businesses that the NCGOP gave them TAX BREAKS to "Create JOBS JOBS JOBS" with here in NC, that'll get our economy going in the RIGHT direction. "What's good for BUSINESS is good for AMERICA" ;)

  • marktroll Jun 17, 2011

    ilove when people go from republican bashing, to, when its convenient, bashing all legislators.
    dont forget you have already shown your democrat members card here bilzac. LOL

  • BIlzac Jun 17, 2011

    How does the vote count matter?

    I for one think both Democrat and Republican legislators are WAY out of control.

    I suppose those of you writing in support fall into one of two camps:

    1. Republicans proposed it so it must be good

    2. You took no time whatsoever to read what this bill does

    Or perhaps a combination of the two.

    So you all are just fine with companies coming to this state and then adding NOTHING to the tax base because they'll farm their profits out to their corporate headquarters state?


  • marktroll Jun 17, 2011

    House approves the tax loophole amendment, 65-38. it won't cost state $32M b/c they didn't include it in budget forecasts.


  • marktroll Jun 17, 2011

    maybe it means there really isnt much wrong with it. maybe making a few concessions to big business might... gee... i dunno... attract a business or two.
    or maybe this bill is the worst thing ever and the we really are all doomed because of those dirty r's.


  • jbfrazie Jun 17, 2011

    Just because the dems helped pass it in the senate doesn't mean its the most moronic thing they've tried to do yet. Helping big business and screwing the little people. Thats the GOP (and now its seems the dem) way of doing things. We need a third party that doesn't cater to businesses trying to win campaign donations. That will never happen though, so we get to put up with this nonsense from both sides.

  • nathanmbabcock Jun 17, 2011

    Laura failed to mention that the bill passed 47-1 in the Senate. Hmm, that sorta changes the story, doesn't it?

  • WRALSUCKS Jun 17, 2011

    Liberal propaganda masquerading as news.

    WRAL you should be ashamed.

  • josephlawrence43 Jun 17, 2011

    I'm conservative Republican--but I did not help elect these folks for them to do stuff like this!!!!

  • BIlzac Jun 17, 2011


    They're not even being coy about it anymore. Just throwing it right out there in everyone's face.