Bloomberg Tax
May 11, 2023, 8:45 AM

Opponents of Minnesota’s Anti-Tax Cheat Bill Should Be Ashamed

Don Griswold
Don Griswold
Digital Economist

My friends in the corporate tax avoidance industry are apoplectic over Minnesota’s push to enact an obscure income tax accounting method called worldwide combined reporting. It’s embarrassing to see them descend on St. Paul and hit the blog waves this week, spouting every frivolous obstacle and bullying tactic they can muster—all in an effort to halt progress toward sound state tax policy.

Why are they so upset? Because worldwide combined reporting would eliminate virtually all corporate state income tax avoidance there. This bill, if it ever becomes law, would be game over for corporate tax cheats in the North Star State.

The Great Tax-Dodge Shutdown

Did I mention no other state has worldwide combined reporting? That means Minnesota’s adoption could prompt other courageous states to join in a great tax-dodge shutdown of historic proportions. With all eyes on Minnesota until its legislative session ends May 22, the coming days may be the most momentous in decades for state tax justice.

So read on if you’d like to understand how worldwide combination neuters corporate tax dodgers, and why there’s no credible policy argument against this elegant solution to tax abuse in Minnesota and all 50 states.

Minnesotans should remind their legislators to be good stewards of democracy.

Not Reflecting Economic Reality

The collision between business reality and poorly conceived tax laws can create tax avoidance opportunities for the unscrupulous. Here’s the problem: Corporate income taxes are imposed essentially on the profits of every legal entity that a state has the power to tax. Out-of-state affiliated entities can’t be taxed.

But the typical multinational business enterprise operates as a single unitary group, no matter how many hundreds of affiliates are on its organizational chart. Entity-by-entity profit isn’t real for the typical multinational. Enablers exploit this distinction between taxable in-state entities and non-taxable out-of-state entities by fabricating new facts.

For example, a taxable in-state company creates, and then shifts its profits to, an out-of-state affiliate that operates in a tax haven. Unless some saving principle applies, the taxing state is toast. When measuring the in-stater’s profits by reference only to its own financial data, profit shifting enables tax avoidance.

Seventeen US states, largely in the South, fall right into the avoiders’ trap because their poorly conceived tax laws apply the separate entity filing method—determining the in-stater’s taxable income with reference to its own tax data in isolation.

Catching Up to Reality

But another path is available to states wise enough to adopt it. Worldwide combined reporting is based on the US Supreme Court-blessed unitary business principle. Examining complex businesses—some affiliates in-state, others out—the high court recognizes that economic reality justifies apportionment of profits based on the financial data of all affiliates in a unitary group.

In the debate over Minnesota’s worldwide combined reporting bills, it’s essential to understand what the unitary business principle is and isn’t—because the avoidance lobby’s arguments are based on inaccurate descriptions of how combined reporting works.

This principle isn’t an end-run around the constitutional prohibition on imposing tax on an out-of-state affiliate that has no connection (nexus) with the state sufficient to justify it. The principle is the foundation for apportioning a unitary business group’s total profits among its members—some taxable, others not—with calculations that reference financial data of all group members (wherever located) because their operations are inextricably intertwined.

In sum: Worldwide combined reporting doesn’t tax foreign affiliates. But it does make reference to their financial data to determine the tax liability of in-state affiliates.

Reagan and the Offshore Backdoor

Let’s look back four decades for an instructive lesson. Worldwide combined reporting had become law in a dozen states by the time Ronald Reagan became president. He was an easy target for intimidation by tax cheats. So in 1984, on behalf of powerful multinational interests, he pressured all 12 into enacting an avoider’s escape hatch out of worldwide combination. They called it the “water’s edge” election.

Retreat from worldwide to water’s edge combination allowed multinationals to divorce their tax returns from economic reality, calculating in-state affiliates’ taxable profits by reference only to their US domestic affiliates’ financial data. Offshore affiliates’ data was off limits, so that’s where profit-shifting went.

Minnesota is today among the 28 combined reporting states that leave this water’s edge offshore backdoor wide open to tax abuse.

Calling Cow Pies

Many readers of this column know that my new focus on tax justice for inclusive prosperity, paired with my tax avoidance enabler background, brings a unique perspective to knowledgeably criticize the business practices and arguments of my former colleagues.

In response to Minnesota’s exceptional leadership championing worldwide combined reporting, the avoidance industry heaps their pressure particularly on state senate tax committee chair Ann Rest, who I urge stay focused on protecting Minnesotans by shepherding worldwide company reporting through to passage.

The avoiders react with meritless objections. But flipping a tax avoider’s assertions upside-down often reveals the truth: multinationals can comfortably handle the hefty compliance burden for real operational entities (where real data exists), though perhaps not for avoidance-driven sham entities (for which they may need to fabricate data before reporting it).

Adopting worldwide combination won’t spark capital flight because fleeing the state won’t reduce avoiders’ tax liability unless they also jettison Minnesota customers. And it won’t launch an international tax war that the bill’s opponents foretell because Europe is cracking down on profit-shifting, too.

Worldwide combination has been upheld twice by the Supreme Court; brewing litigation is a frivolous and vexatious threat. Quibbles over precision of revenue estimates miss the larger point—tax avoidance degrades the rule of law, upon which inclusive prosperity and the stability of our democracy rest.

Minnesota’s current-law water’s edge election is a backdoor to offshore tax avoidance, but its proposed worldwide combined reporting rule is a sensible modernization that conforms law to reality—ushering in a new era of the great tax-dodge shutdown.

Look for Griswold’s column on Bloomberg Tax, and follow him on LinkedIn.

To contact the editors responsible for this story: Rebecca Baker at; Daniel Xu at

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