Business Disclosure Laws Seen as Gaining Momentum Across Nation

Massachusetts taxpayers recently got a rare glimpse at the state tax returns of some big corporations, and what they saw surprised nearly everyone.

Under a new disclosure law, many major companies acknowledged that they paid no more than the $456 minimum tax in 1992, far below the 9.5% corporate tax rate and less than the tax bill of most state residents.

Moreover, some firms that had laid off workers admitted they took a tax credit originally intended to compensate companies for creating new jobs. Analog Devices, a silicon chip firm that made a $2.1-million profit in Massachusetts, paid only $1,367 in taxes after taking $797,000 in credits--even though it was reducing its work force.

Not surprisingly, these disclosures created such a furor among ordinary taxpayers that the Massachusetts business community prevailed upon the state Legislature to take the sting out of the disclosure law. In the future, while their tax payments must still be reported publicly, the names of the corporations will be blacked out.

James Braude, head of Tax Equity Alliance for Massachusetts, a labor-dominated coalition that led the drive for disclosure, said the law was weakened because it demonstrated that some businesses are not paying their fair share of taxes. “It showed there are some serious abuses here, which the Legislature decided to cover up rather than fix,” he said.

Yet while the Legislature’s action was hailed as a victory for business, tax reformers insist it is no more than a temporary setback in what they believe is a burgeoning movement for corporate tax disclosure in many states across the nation, including California.

In Sacramento, Rep. Tom Hayden (D-Santa Monica) authored an unsuccessful corporate tax disclosure bill similar to the Massachusetts provision last year. The California Tax Reform Assn. predicts that a similar measure will be offered again this year.

Nor is the Massachusetts Legislature’s action likely to silence criticism of efforts by many states to lure and retain business by offering lucrative tax breaks. “That’s still a very live issue,” acknowledged Michael Widmer, president of the Massachusetts Taxpayers Foundation, which successfully battled against disclosure.

Referring to Analog Devices’ $797,000 tax credit, Braude said the Massachusetts Legislature still must answer the question: “Can we spend $797,000 in another way that is more likely to create jobs?”

Richard Pomp, a professor at the University of Connecticut Law School, noted that many states are offering special tax credits to lure or keep businesses, even though experts think the revenue losses often outweigh the economic benefits. He said states often see themselves in competition with one another to provide better business tax breaks.

In Massachusetts, tax reformers are questioning the effectiveness of a tax credit enacted in 1991 to encourage research and development activities within the state. While the credit is designed to generate jobs in the long term, the law is murky and does not prohibit firms like Analog Devices from taking advantage of it at the same time that they are laying off workers.

Reformers succeeded in winning enactment of the Massachusetts disclosure law in January, 1993, on grounds that it would enable state legislators to judge the effectiveness of business tax credits. Until it was weakened, the Massachusetts law was the most comprehensive disclosure law in any state.

Although publicly traded corporations are required to disclose their federal tax payments to the Securities and Exchange Commission, most states--with the exception of Arkansas, West Virginia, Wisconsin and Massachusetts--do not require any public disclosure of state taxes.

“Corporations pay over $20 billion yearly in state corporate income taxes,” Pomp said, “but the lack of state disclosure makes it impossible to evaluate the extent to which the corporate tax burden is being allocated fairly or rationally in relationship to measures of profitability.”