United States

Multistate: CEO Pay Corporate Rate Bills Proposed in Two States

Feb 19, 2018
From KPMG TaxWatch

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Recently, at least two states have proposed legislation that resembles an ordinance adopted by the City of Portland, Oregon in 2016. Specifically, effective for tax years beginning on or after January 1, 2017, for Portland Business License Tax purposes a new a “pay ratio surtax” is imposed on publicly traded companies subject to the SEC’s pay ratio reporting requirements. The reported pay ratio compares the compensation of the company CEO to the pay of the median employee in the company. The rate of the Portland Business License Tax surtax is dependent on the company’s reported ratio. 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. The 2017 Business License Tax forms have been revised to reflect the new surtax, which is computed on a new Pay Ratio Surtax schedule.

In 2018, legislation proposed in Rhode Island (Senate Bill 2058) would adopt a surtax identical to Portland’s, (effective for tax year 2018) but the additional Rhode Island tax would apply to the company’s corporate income tax liability. In Connecticut, House Bill 5106 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.  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.