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Maryland Corporations Fail To Pay Required Taxes

by Andre German
“It is appalling," says State Sen. Paul G. Pinsky, "that Maryland is even discussing raising the sales tax when it hasn’t yet collected this lost revenue from the corporate sector.”
In a time when the state of Maryland is facing a budget deficit of nearly $1.5 billion, Maryland’s corporate tax structure is way behind the times.

The office of Maryland State Comptroller Peter Franchot has released preliminary figures revealing that nearly half of the major corporations operating in Maryland last year didn’t pay income taxes. Just 68 of the 132 largest for-profit corporations in Maryland, as defined by their payrolls, paid taxes in 2005. The numbers are preliminary and could change, but a similar proportion paid no taxes in 2004.

This comes at a time when Maryland Gov. Martin O’Malley has proposed tax hikes to lower the deficit.

The loophole that companies are employing to avoid income taxes is the fact that Maryland’s tax structure is organized in such a way that companies can incorporate subsidiaries and shelter income in them.

Public officials are looking for ways to address this issue. Sen. Paul G. Pinksy (D-Prince George’s), the requester of the figures from the Comptroller’s office, has supported the institution of “combined reporting,” an approach used in about 20 states, which would require companies to file income taxes from all subsidiaries. Pinsky said he thinks this measure could generate $100 million a year or more in new taxes, but legislative analysts predicted the figure would be less than $20 million.

“By using loopholes, shelters and other gimmicks, these big companies are avoiding paying Maryland taxes,” Pinksy said. “It is appalling that Maryland is even discussing raising the sales tax when it hasn’t yet collected this lost revenue from the corporate sector.”

O’Malley has said he “is open to the idea” of combined reporting, but has not committed to it, saying, “Addressing that unfairness is certainly something we’ve been looking at, along with closing other loopholes."

Some opponents of combined reporting claim that it creates a hostile business environment in Maryland because other states in the region lack a combined reporting policy, and is overly complicated, requiring excessive paperwork and difficult calculations. Frederick Sen. David Brinkley, Republican minority leader and a member of the Budget and Tax Committee, is among them. Brinkley claimed the move to close any loophole was manufactured by liberal organizations he called “the socialist brigade.”

Brinkley goes on to state, “The report is a move to force the Governor to include corporate tax loopholes in a package to address the shortfall—one that, if he accepts, will be antagonistic to business.”

He continued, “If O’Malley bites this bait, it’s the clear litmus test that he wants nothing to do with a friendly business climate.".

Several Maryland Chamber of Commerce analysts dismissed the Comptroller's report as misleading and a retread of similar reports from 2004 and 2005.

The chamber said that 2005’s tax information was incomplete because it provided only preliminary data; returns from some corporations with tax years beginning July 1 are not yet due. “Any attempt to draw conclusions from such incomplete data is meaningless,” a Chamber statement said.
Andre German writes from Harford County, Md.

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This story was published on July 27, 2007.