United States

Multistate: Multiple States Propose Pay-Ratio Corporate Tax Increases

Jan 30, 2017
From KPMG TaxWatch

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Those familiar with the state tax landscape are well aware that states tend to copy tax changes adopted in other states. In an interesting TWIST (pun intended), we are seeing legislation proposed in a few states that is almost identical to a recent ordinance adopted by the City of Portland, Oregon. Specifically, the Portland City Council recently approved a “pay ratio surtax” that applies to publicly traded-companies subject to the SEC’s pay ratio reporting requirements. The pay ratio compares the compensation of the company CEO to the pay of the median employee in the company, and the rate of the surtax is dependent on the company’s reported ratio. In Portland, if the reported ratio is at least 100:1, but less than 250:1, the surtax is 10 percent of a company’s local business tax liability. If the company’s reported ratio is 250:1 or greater, the surtax rate is 25 percent.

Legislation proposed in Minnesota (House File 65) and Rhode Island (House Bill 5141) would adopt surtaxes identical to Portland’s that would apply to a corporation’s state corporate income tax liability. The Minnesota surtax would be effective beginning in 2018 and the Rhode Island surtax would apply for tax years beginning on or after January 1, 2017. In Connecticut, House Bill 6373 would adopt a new rate structure for publicly-traded corporations. The  current corporate income tax rate would be replaced with a rate based on the ratio between the publicly-traded corporation's highest paid employee and the median compensation level of such corporation's employees as follows: (1) for a pay ratio of 25:1 or less, the corporate income tax rate would be 5 percent; (2) for a pay ratio of greater than 25:1 up to and including 100:1, the corporate income tax rate would be 7.5 percent; (3) for a pay ratio of greater than 100:1 up to and including 250:1, the rate would be 10 percent; and (4) for corporations with a pay ratio of greater than 250:1, the corporate income tax rate would be 25 percent. Another Connecticut bill, House Bill 6101, would deny economic assistance and tax expenditures to any corporation (not necessarily only publicly-traded corporations) whose chief executive officer earned more than one hundred times the average wage for a worker in Connecticut. Please stay tuned to TWIST for future updates on these bills.

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The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.