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Corporate tax disclosure — end to legalized bribery or hostile action?

When words like “dangerous” and “inflammatory,” or phrases like “legalized bribery” and “rape the economy” are getting tossed around, you know there’s a fight brewing.

House Revenue Committee holds a hearing on HB 3627 Friday morning, and both proponents and opponents agree on one thing — more will be at stake than the already thorny question of whether publicly traded companies should be required to disclose what they pay in Illinois corporate income tax.

“For us, we start out with the question of values,” says Toby Chow, who serves on the Leadership Council of Fair Economy Illinois, the group that’s lobbying for the bill. “What are the priorities that are going to guide state policy? Corporate profits or saving human lives?” Chow points out that according to the Illinois Department of Revenue, two-thirds of the state’s corporations paid no income tax in 2010.

Jim Kane, who’s chairman of the taxation forum at the Chicagoland Chamber of Commerce, believes that current disclosure laws are perfectly adequate. SEC filings, which can run into the hundreds of pages, require detailed reporting, audited by outside agencies. On the state level, such data is available in aggregate but not for individual companies. Kane believes that publishing such numbers individually will violate a corporate right to privacy, forcing companies to reveal their corporate tax strategy. “It’s very inflammatory language,” he says. “It’s one of the most hostile and punitive actions I’ve ever seen out of Springfield, right at a time when we’re trying to get companies to make large investments in the state.”

The proposal would require public corporations operating in Illinois to include twelve additional pieces of information in their tax returns. Among them are base and net income, Illinois tax credits, and final Illinois tax liability.

HB 3627 touches on a whole bunch of the fundamental tensions that dog a state with declining revenue and mounting obligations. Who is the engine of growth? What kind of business environment do we want to cultivate? And with the water rising and credit agencies becoming increasingly squeamish about the pension overhang, who’s going to foot the bill when it comes due?

Advocates’ say their strategy is to arm the public with the facts necessary to facilitate a conversation on corporate tax policy. “For decades, there have been tax technicians debating whether or not income is being shifted internationally too easily to tax havens. In the last five to ten years, since Enron and WorldCom, people have started digging into the national and international data made available by the SEC and their counterparts in other nations,” says Dan Bucks, the former director of the Montana Department of Revenue and an expert witness at tomorrow’s hearing. “We need that same debate at the state level, and it won’t happen without disclosure.”

The Chamber of Commerce argues that the bill is reductive and that little can be gleaned from bottom-line figures. “If the policy objective is to enhance transparency, this wouldn’t accomplish that. You can’t tell what went into a number on a tax return. You need the supporting data to put it into context,” says John Carpenter, the Chamber’s Chief Operating Officer. “[That data] is dangerous in the uninformed individual’s hands.”

Carpenter believes that the bill will chase large corporations out of the state. “If a company’s making a decision about going to Illinois or Missouri, this is one more consideration that goes into the picture. One more example of rolling up the welcome mat for business in Illinois.”

David Borris, who owns Hell’s Kitchen Catering in Northbrook and serves on the Main Street Alliance, a small-business advocacy group, doesn’t want corporations participating in what he calls a race to the bottom by shifting funds out of Illinois to offshore tax havens. “If that’s the business we want, we’re heading to Potterville,” Borris says, calling tax concessions given to individual corporations under threat of departure “practically legalized bribery.” “If some businesses choose not to locate here because they want to rape the economy, maybe we don’t want them here.”

ABOVE: Fair Economy Illinois’ protest of corporate tax dodging at Apple’s Michigan Ave. store in July. Photo by Mark Wright