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Amgen Wary Of Any Change To R.I. Corporate Tax

Amgen Wary Of Any Change To R.I. Corporate Tax [The Providence Journal, R.I.]

From Providence Journal (RI) (April 1, 2011)

April 01--PROVIDENCE -- The international medicine manufacturer Amgen, one of the state's largest private employers, warned on Thursday night that it might not further invest in Rhode Island if the state makes a key change in its corporate-tax policy.

David M. Goggin, director of government affairs in New England for Amgen, which runs a protein production plant in West Greenwich, said that the change in tax policy would create "disincentives for us to grow" in Rhode Island, and would represent "a serious step backward."

His comments came at a Senate Finance Committee hearing at the State House. It was the first official airing before the General Assembly of Governor Chafee's proposed corporate-tax changes. No votes were taken; the session was intended solely for taking testimony, said Sen. Daniel DaPonte, D-East Providence, the committee's chairman.

At the hearing, legislators were to examine the full range of changes that Chafee has submitted as part of his "business tax competitiveness proposal." Elements include a gradual drop in the state's corporate income-tax rate, a restructuring of the corporate minimum tax, and elimination of a tax break under the state's Jobs Development Act.

But the chief focus of Thursday's hearing turned out to be one of the most contentious state tax issues in the country. Known as combined reporting, it mainly has to do with the way a multi-state business reports and pays state tax.

Under the current system, a Rhode Island business is responsible for reporting and paying Rhode Island tax based only on its Rhode Island business, even if it has operations in other states.

Under the proposed method, the income and expenses of the entire company, including operations in other states, would be combined for Rhode Island tax purposes. (About 23 states have combined reporting, including Massachusetts. Connecticut and Rhode Island are considering it.)

Proponents say, in part, that combined reporting helps to prevent multi-state companies from lowering their Rhode Island tax by shifting income out of Rhode Island to a low-tax or no-tax state such as Nevada.

Opponents say, in part, that Rhode Island law already has provisions that prevent such tax-avoidance strategies; combined reporting is too complex and burdensome; and the method can in some cases increase a business's in-state tax sharply.

There was no doubt Thursday about where Amgen stood. Goggin, accompanying an official from the Council on State Taxation, a national pro-business group better known as COST, told legislators that when Amgen introduces a new product and weighs where to locate production, the various Amgen sites in the U.S. and abroad compete for that business.

"If our taxes rise dramatically in Rhode Island, that is a negative factor" that the company will consider on where to locate production, he said.

Amgen has invested more than $1.5 billion in its West Greenwich protein-production center, making it among the largest in the world, Goggin said in a letter on Thursday to DaPonte.

The company has more than 1,500 employees in Rhode Island, including about 1,000 at its West Greenwich site. Salary and benefits average $120,000 per worker, he said. And the company serves as the anchor to Rhode Island's developing biotechnology sector.

Under combined reporting, Amgen's overall Rhode Island tax burden "would dramatically increase by subjecting related companies with, otherwise, no Rhode Island taxable income, and without any physical investment in Rhode Island, to [Rhode Island] income tax," Goggin wrote. "This would create significant tax barriers to increases in Rhode Island investment by Amgen."

Goggin said Amgen values its presence in the state, and its West Greenwich facility has "vast potential capacity for future expansion." In an interview after his presentation, he said that one of Amgen's two plants in West Greenwich is currently dormant, making it ideal for expansion. "It's not in our best interest to have a manufacturing plant be dormant," he said. But he cautioned that combined reporting, if enacted, "may make Rhode Island a less competitive option for future investment."

A number of people testified at the hearing, some for combined reporting, some against. Several committee members appeared lukewarm to changing existing state policy.

And some were receptive to Goggin's presentation, including Sen. Edward J. O'Neill, an independent whose district includes Lincoln, North Providence and Pawtucket. O'Neill cited the state's unemployment rate and its need for jobs.

Rhode Island has had a double-digit unemployment rate for 24 consecutive months. Its current rate of 11.2 percent is fourth-highest in the nation, federal figures show.

Some at the hearing said that combined reporting would help level the playing field for local businesses that cannot take advantage of tax-shifting strategies.

Kate Brock, executive director of Ocean State Action, a coalition of labor unions and advocacy groups, said, "Our state and our nation have a number of corporate tax loopholes that need to be closed."

KEY POINTSTax package

Governor Chafee has proposed sweeping changes to the state's system of business taxes. The proposal received its first formal airing before the General Assembly on Thursday at a hearing of the Senate Finance Committee. Chafee's plan includes the following elements:

Apply the $500 annual corporate minimum tax on a graduated scale, depending on a business's Rhode Island gross receipts.

Extend the reach of the annual corporate minimum tax to limited partnerships and limited liability partnerships.

Eliminate a business tax break under the state's Jobs Development Act.

Require corporations to use a different method, known as combined reporting, to report their income and expenses for Rhode Island tax purposes.

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Posted: April 2011