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Resolutions & Amendments

27th International Convention - Chicago, IL (1986)

Support for the States' Use of the Unitary Method of Taxation

Resolution No. 161
27th International Convention
June 23-27, 1986
Chicago, IL


Multinational and multi-state corporations have been able to avoid paying their fair share of state taxes under the "separate accounting" method of apportioning corporate profits, by shifting profits to subsidiaries in foreign tax havens or low-tax states; and


When multinational and multi-state corporations are allowed to use their out-of-state subsidiaries to shelter profits they earn in a state, then other taxpayers-small in-state businesses, wage earners, consumers, homeowners — bear an unfair burden of taxes. The state itself loses precious revenues needed to fund public services; and


The unitary method of taxation closes the "subsidiary loophole" by treating integrated subsidiaries of corporations as a single business entity for tax purposes. The unitary method apportions the profits of integrated business operations to each state based on the share of the business' sales, employment and property located in that state; and


The legitimacy and legality of the use of the unitary method on a worldwide basis (in which foreign corporations are also included in the group of affiliated companies whose profits are apportioned among the states) has been upheld by the U.S. Supreme Court. Nonetheless, representatives of states using worldwide unitary agreed to move away from worldwide unitary to a "water's-edge" system in which the profits of U.S. corporations only are combined and apportioned among the states provided that a number of conditions were met; and


Despite the fact that 6 of the 12 states formerly using worldwide unitary have already moved to a "water's-edge" system and that other legislatures are in the process of doing so, the Reagan Administration has introduced legislation that would virtually prohibit the taxation of foreign-source dividends by the 31 states now doing so.


That AFSCME strongly endorse continued use by the states of a comprehensive "water's-edge" method of unitary taxation, to ensure that multi-state and multinational corporations pay their fair share of state corporate income taxes; and


That AFSCME deplores and will oppose any actions by the Reagan Administration or Congress to restrict the right of states to use a comprehensive "water's-edge" method of unitary taxation and/or to tax foreign-source dividends. AFSCME will also oppose any attempts to make states' eligibility for additional information from multinational corporations needed to enforce corporate taxes contingent upon their acceptance of a restricted definition of the "water's-edge."


Lionel Hudson, Delegate
Local 829, Council 57
Redwood City, California