Costly Tax Loopholes for Schools

By Kenneth T. Murray and Barbara A. Murray

More than 40 states are facing budget shortfalls this year, leaving funding for K-12 public school districts on shaky ground. In a number of states, level funding is a best-case scenario as legislatures face pressure to balance their own budgets.

While the down economy is partially to blame, the other problem legislatures face is that multistate corporations are not paying their fair share of income taxes, resulting in less revenue that can be passed down to your district. By taking advantage of loopholes in the law, these corporations are paying far less than they could -- and should.

How does this happen? If your state uses the “separate entity” method of taxing corporate income, each corporation is treated within its boundaries as a separate “person.” This means that the state does not take into account whether the corporation is related to others. When this occurs, multistate corporations can take legal advantage of several accounting practices to avoid or lessen the corporate income tax.

As school districts and other public entities struggle for funding, tax strategies and gambits such as these deny many states the revenue that is needed. But before you talk to your legislators to demand that these loopholes be closed, here are some examples to study first.

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