Tax Analysts Blog

The Recurring Question of Corporate Disclosure

Posted on Jan 8, 2014

A movement is afoot in Illinois (and across the nation) to require more public disclosure of corporate taxpayer information. A bill is pending before the Chicago City Council that would require publicly traded corporations to disclose the amount they pay in state income taxes and the amount they receive in state expenditures when applying for city actions, subsidies, or contracts.

A similar bill is in the Illinois legislature that would require publicly traded corporations to file annual reports with the secretary of state, itemizing information about the corporation, including its taxable base, net income, apportionment factor, net operating loss deduction, individual credits claimed, and any taxes owed. The secretary of state would have to make the information available to the public for two years after the close of the applicable tax year.

Why should only public corporations be required to disclose? Why not private companies as well? Presumably, private companies could benefit from government contracts and economic development subsidies. If these disclosure rules won't be applied across the board, it raises the question whether the real purpose of the rules is to ensure that taxpayers are benefiting from deals with corporations.

Corporations should be held accountable when they enter into deals with state and local governments. But does publicly disclosing a corporation’s income, tax liability, or apportionment factor improve the accountability of that corporation if it received some form of subsidy or economic incentive? It seems unlikely. I’ve argued before, and will argue again, that the underlying goal of requiring the disclosure of corporate taxpayer information rarely has anything to do with increasing accountability. Names are critical to get the public and politicians excited about taxes. Names sell newspapers, after all.

My general objection to requiring the disclosure of corporate tax return information is that it seems unnecessary. State tax authorities and economic development commissions are already receiving a substantial amount of information about corporate taxpayers. They have the ability to do any type of analysis they choose. Given that the information is already available to those who can properly analyze it, why is it necessary to make it public?

Why not instead develop a database of which tax incentives are available, who has received them, and the benefits they provide? For example, the Connecticut Department of Economic and Community Development maintains a website that contains extensive information that is readily available to the public. The department's annual report contains detailed listings of all audit results for companies that received credits, including currently pending job creation audits. It also contains spreadsheets for a variety of programs that list the amount of credit each business received and the number of jobs created. This type of information will effectively inform the public about the economic development programs administered by the state.

There is also a fundamental misconception that lawmakers somehow need confidential taxpayer information. They simply do not. Lawmakers do not need specific taxpayer information to make broad tax policy decisions. And in most instances, making broad tax policy decisions is all lawmakers do. Because lawmakers aren't specialists in tax policy, they make high-level decisions about the overall structure of a state’s tax system, while leaving the administration of that system to state tax authorities or, for incentives, economic development departments.

It's also a mistake to assume that simply because a large corporation is headquartered in a state and makes a large amount of sales, that it should be paying large amounts in state corporate income tax. A corporation’s tax liability depends on numerous factors, none of which would be evident by revealing the corporation’s tax liability or other specific taxpayer information in a vacuum. Likewise, publicly disclosing that information does not further the goal of making corporations accountable when they enter into deals with state or local governments. In fact, the corporation’s tax liability or other specific taxpayer information may be completely arbitrary to whether the corporation held up its end of a deal.

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