Tax-reform group seeks state records

NASHVILLE -- Leaders of a tax-reform group Tuesday accused the Tennessee Department of Revenue of repeatedly ignoring requests for information about how much money the state loses each year from a corporate tax loophole they contend benefits large, multistate businesses.

The loophole involves payments from Tennessee subsidiaries of large corporations to the parent firm for use of "intangible assets" such as trademarks, logos and other intellectual property. State law allows subsidiaries to write off those payments as a business expense not subject to tax.

Tennesseans for Fair Taxation spokesman Bill Howell said the group filed an open records request Tuesday for information he contends revenue Commissioner Reagan Farr has refused to supply.

Mr. Howell said that changing tax reporting requirements for those businesses could generate $120 million to $250 million in new income.

Mr. Farr said the state has provided "gross figures" to Tennesseans for Fair Taxation.

"What Bill has asked for repeatedly is reports and analyses that we don't have, and we don't have any time or resources to run," he said. "Bill Howell has continually misrepresented the facts in this process. We have shared a lot of data, not only with his organization but with the general public, about related intangible expenses."

Tennesseans for Fair Taxation says the intangible assets issue could be solved by the state moving toward "combined reporting" so that multistate corporations would have to add together the profits of all subsidiaries in all locations. Tennessee now uses "separate accounting," which lets companies report profits of subsidiaries independently.

The group's chairman, John G. Stewart, said in a news release that "in this time of enormous shortfalls in state revenue, shortfalls that are predicted to grow more severe in the future, I cannot imagine why the Department of Revenue would show no interest whatsoever in accessing this potential source of tax revenue."

Gov. Phil Bredesen has said the state faces as much as a $1.5 billion revenue gap in the upcoming 2010-2011 budget.

Mr. Farr disputed Mr. Stewart's statement, saying the group has a "political agenda" that includes pressing for a general state income tax.

He said Tennessee could generate as much as $100 million from lifting the "single item" cap on local option sales taxes. The cap lets local governments apply their sales tax rate to only the first $1,600 of an item's value.