California could have picked up $246 million in 2012 if it had closed an offshore corporate tax loophole recently sealed by Montana and Oregon, according to the California Public Interest Research Group (CalPIRG).

The federal government requires that multinational corporations report how profits are distributed among jurisdictions they operate in. California, 22 other states and the District of Columbia have changed their tax codes to include so-called “combined reporting” that uses those reports of in-state and out-of-state subsidiaries and are poised to take advantage of it.

Montana and Oregon simply treat profits that companies book to tax havens as if they were domestic taxable income, CalPIRG explained in its recently released report, “Closing the Billion Dollar Loophole” (pdf). Both states closed the “water’s edge” loophole by creating a statutory list of tax havens to be accounted for in corporate combined reports. They treat a proportionate share of corporate income that is booked to these tax havens as domestic income for state tax purposes.  

California would have been, by far, the largest recipient of tax dollars in 2012 if the states that could take advantage of closing the loophole did so. New York was second at $141.6 million, followed by Texas ($141.5 million), Illinois ($108.2 million), Massachusetts ($79 million), Alaska ($45.8 million), Minnesota ($33 million), Wisconsin ($27.6 million), New Hampshire ($26.1 million) and Kansas ($21.9 million).

Offshore tax havens deprived states of an estimated $20.7 billion in corporate tax revenue in 2011, according to CalPIRG. California lost $3.3 billion to offshore tax havens—not surprisingly, the most lost by any state. Estimates are that the federal government loses $90 billion annually. A 2012 study found that 82 of the top 100 publicly-traded companies in the United States, including 13 that are California-based, keep $1.17 trillion outside the country to avoid taxes.

The 82 companies used 2,686 foreign subsidiaries to shield their revenues, led by Bank of America with 316. General Electric kept the most money in tax havens, $108 billion, followed by California’s own Apple, at $82.6 billion. The top 15 companies accounted for 66% of the $1.17 trillion offshore.

Offshore tax havens have become more popular over the years. A five-year study published last May by Audit Analytics found a 70% increase in money held offshore by companies listed on the Russell 3000.

A lot of this stashing of money in offshore accounts is actually a sleight-of-hand done just for tax reasons. Although the money is technically outside the U.S., more than half is held in U.S. banks or invested in American assets, but booked to foreign subsidiaries, according to a Senate investigation cited by CalPIRG.

The research group did not name names of corporate offenders in its most recent report, but has in others and did in a press release this week.

Pfizer gets a shoutout for making 40% of its sales in the United States over the past five years, but having no taxable income thanks to $73 billion parked in offshore havens through 172 subsidiaries.

–Ken Broder

To Learn More:

California Could Save $246 Million with Simple, Proven Method to Curb Offshore Tax Dodging, New Study Finds (California Public Interest Research Group)

California Companies Dominate List of Those Using Offshore Tax Dodges (by Ken Broder, AllGov California)

Combined Reporting of State Corporate Income Taxes: A Primer (Institute on Taxation and Economic Policy)

Closing the Billion Dollar Loophole (California Public Interest Research Group) (pdf)