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Saturday, January 31, 2015 |  Madison, WI: 24.0° F  Mostly Cloudy
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Banks exploit loophole, lax disclosure rules

One popular method for banks to legally avoid paying Wisconsin corporate income taxes, until a recent state Department of Revenue crackdown, has been the so-called Las Vegas loophole.

It's a simple concept. A Wisconsin bank creates a subsidiary firm in Nevada, a state without a corporate income tax. Through internal bookkeeping arrangements, Wisconsin profits are transferred to the Nevada operation. This leaves the Wisconsin banks profit-free - hence free of any state corporate income tax obligation.

Widespread use of this tax dodge was exposed by newspapers in 2003. The Capital Times reported that the Department of Revenue estimated "over 80% of state banks have established subsidiaries in Nevada."

After lengthy negotiations, settlements were reached between many banks and the Department of Revenue. The department said back tax payments were made and bank practices altered, but refused to disclose any settlement details.

But using the cumbersome process under which tax data can be obtained, it's been possible to garner some details about bank tax payments.

For example, First Banking Center, with 16 branches in south-central Wisconsin, paid zero income tax in 2000, 2001, 2002 and 2003. In 2004, the year these settlements were reached, it paid $632,784.

National Exchange Bank, based in Fond du Lac, had a similar pattern. No income tax in 2000 through 2003, and then $1,196,746 in 2004.

Madison-based AnchorBank went from zero income tax in 2001 to $2,159,170 and $2,450,690 the following two years.

Having good information about business taxes is essential for legislators who want to intelligently debate tax policy. Yet Wisconsin's disclosure rules make it difficult to obtain the information needed to make tax policy decisions.

This would be less of an issue if Wisconsin were one of the states using "combined reporting," which requires firms to report results for all their related operations.

In March, the Business Journal of Milwaukee reported that Marshall and Ilsley, the state's largest bank, sued the federal government, seeking $12.8 million in alleged tax overpayments. M&I, the newspaper reported, says it "mistakenly included some assets of its bank subsidiaries in calculating its tax liability."

Wisconsin would be best served by tax-disclosure policies that don't require legislators and citizens to keep better track of M&I's subsidiaries than the bank company does on its own.

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