08 February 2022 | Tax and Budget

Kansas' Combined Reporting: An Effective Tool to Close Corporate Tax Loopholes

Emily Fetsch

November 2021

Combined reporting is one of the best policy tools to ensure corporations fulfill their tax obligations. For businesses operating in one state, paying their taxes is fairly straightforward, as all of the profits are taxable in that one state. For C-corporations operating in multiple states, tax policies are more complicated and could lead to corporate tax avoidance. Combined reporting works to level the playing field between small companies operating in one state and their larger, multi-state counterparts. Luckily, Kansas has had combined reporting for many years. Policymakers should retain this important tool to preserve the accuracy of corporate tax obligations.

How does combined reporting work?

Combined reporting requires that multi-state corporations composed of a parent and subsidiaries to total all of their profits, regardless of location, into one report. The combined profit is then apportioned to each state in which the group is doing business based on a formula (set out in state law) that measures the corporations’ presence and/or sales in each state. Combined reporting is contrasted with separate accounting, where the parent and subsidiaries separately report their profits.

Combined reporting addresses the problem of “income shifting, in which large multi-state corporations dubiously claim that their income was earned in states with little or no corporate income tax…[by] removing the incentive for companies to tell state tax collectors that their profits were earned by out-of-state subsidiaries that those collectors cannot otherwise reach.” [source

At present, 28 of the 45 states with a corporate income or similar tax require combined reporting.


Simplicity: Combined reporting helps simplify the process for corporate taxation. In its absence, states are forced to prevent interstate income shifting by adjusting charges between parent and subsidiary corporations on a transaction-by-transaction basis – a laborious, costly, and largely ineffective approach.

Fairness: It increases fairness between Kansas’ small and large businesses, the latter of which are more likely to benefit from the tax avoidance and income shifting that combined reporting prevents.

Sustainability: Eliminating combined reporting would negatively affect Kansas’ income revenue stream. Based on estimates from other states, combined reporting typically increases corporate tax collections by at least 20 percent.

What are the next steps? Addressing worldwide combined reporting.

Kansas would further benefit from combined reporting by adopting “worldwide” combined reporting to ensure businesses are not avoiding taxes by shifting income, not only to other states, but 

to other countries. Kansas could also allow corporations the choice between including some foreign subsidiary income in its tax base in the same way the federal government does or computing its tax on a worldwide combined reporting basis.

For years, Kansas’ use of combined reporting has eliminated loopholes to ensure multi-state businesses pay their fair share to fund the services they rely on. In addition, it has kept our budget out of the red. Policymakers must continue to safeguard this important tool in the struggle to secure equal opportunities for small, hard-working Kansas businesses, which don’t have the same ability as larger corporations to play complex, tax avoidant accounting games.

Download this brief here