Section of Taxation Publications
  VOL. 60
NO. 2

Contents | TTL Home


Note: The following is an excerpt from the introduction to the article as published in The Tax Lawyer. Author citations have been omitted for brevity. Tax Section members may read the article in its entirety in Adobe Acrobat format.

Mark J. Cowan* and Clint Kakstys **

* Assistant Professor of Accountancy, College of Business & Economics, Boise State University; University of Connecticut, B.S., 1991; University of Hartford, M.S.T., 1996; University of Connecticut, J.D., 2004; CPA (Connecticut 1994)
** Associate, Sills Cummis Epstein & Gross P.C., Newark, New Jersey; Princeton University, A.B., 2000; University of Connecticut, J.D., 2004


Revenue from state corporate tax systems has declined substantially in recent years. States have begun to update their corporate tax codes in an effort to stem this erosion. The recent efforts of two states, New Jersey and Vermont, to take up the challenge of corporate tax reform are particularly instructive. These two states were operating under different circumstances and ultimately took two very different approaches to fixing their corporate tax systems. In 2002, New Jersey, facing a significant fiscal crisis, used a complex mixture of traditional and groundbreaking techniques to expand the reach of its corporate tax system. In 2004, Vermont, in an attempt to more equitably distribute its corporate tax burden, became the first state in over 20 years to enact a mandatory combined reporting law. The purpose of this Article is to analyze the 2002 New Jersey and 2004 Vermont tax reforms to determine if they can provide any guidance to other states hoping to repair their own corporate tax systems.

To set the stage for the analysis in this Article, Part II explains the current problems with state corporate tax codes, the common planning techniques taxpayers employ to avoid the corporate income tax, and surveys some of the ways the states have attempted to address these problems. With this as background, Part III explores in detail the 2002 New Jersey tax reform and its aftermath. The focus in Part III is on the complex mechanics of New Jersey’s tax reform, since these legislative devices can provide guidance to other states facing fiscal crises and hoping to increase the revenue generated by their corporate tax systems. Part IV explores the adoption of combined reporting in Vermont. Since the mechanics of Vermont’s reform are fairly straightforward, the focus in this Part is on the process Vermont used to enact mandatory combined reporting. Specifically, Part IV reviews the available legislative history of Vermont’s reform in an effort to provide guidance to other states hoping to successfully enact combined reporting. Part V speculates as to why each state took its own path to shoring up its corporate tax system and measures each state’s efforts against normative concepts of tax reform. Part VI concludes that the process behind Vermont’s 2004 reform provides an excellent road map to other states hoping to truly reform their corporate tax systems through combined reporting. Further, Part VI concludes that the mechanics of New Jersey’s 2002 corporate tax changes, while falling short of true reform, can nonetheless provide some guidance to states in fiscal distress that lack the political will to enact combined reporting.


Published by
Section of Taxation, American Bar Association
With the Assistance of
Georgetown University Law Center


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