Combined reporting may wait until 2011 

Posted: 8:02 pm Thu, February 25, 2010
By Nicholas Sohr
Daily Record Business Writer

ANNAPOLIS – Efforts to create a combined reporting corporate tax system in Maryland face opposition this year from business interests and at least one key lawmaker who want to put the issue on the back burner until 2011.

The system, its supporters say, would stop multi-state corporations from dodging Maryland taxes by shifting revenues out of the state and into jurisdictions with more friendly tax structures.

It has been a perennial issue in the State House. In 2007 the House of Delegates passed combined reporting legislation championed by Gov. Martin O’Malley. The bill stalled in the Senate, and was eventually watered down to establish a commission to study the corporate tax structure in the state.

Sen. Ulysses Currie, chairman of the Budget and Taxation Committee, said Thursday that he wants to wait until that commission, known as the Business Tax Reform Commission, makes its recommendations — likely at the end of the year — before moving combined reporting legislation.

“I want to wait for the work group to finish its work,” he said. “By December, we’ll know more.”

Currie said he thinks the state has “made progress” on the issue, and he would likely back a shift to combined reporting next year.

“I would think after the work group completes its work, there will be some legislation,” Currie said. “Based on what I heard [at a hearing Wednesday] and assuming the outcome of the work group [includes a combined reporting recommendation], I would support it.”

The sponsors of HB 584 and SB 354 see combined reporting as a matter of fairness — fairness that could bring the state $131 million in fiscal year 2011, according to legislative analysts.

A state comptroller’s report requested by Sen. Paul G. Pinsky, D-Prince George’s, found 51 of the 150 largest companies in Maryland didn’t pay corporate income tax in Maryland in 2007.

“They have lawyers and accountants and floors and floors of people to figure out these loopholes, what state does what,” Pinsky said. “But if you’re a small business or a medium-size business in Maryland … you don’t do this.

“It’s an unfair and uneven playing field for Maryland-owned businesses.”

The bills, which are similar but not identical, would require multi-state corporations to file taxes based an apportioned share of the income of all their subsidiaries.

“This is a very tough, tough time in the Maryland General Assembly and we’re looking at cutting things that we would have spent the rest of our careers fighting for,” said Del. Justin D. Ross, D-Prince George’s. “There shouldn’t be any sacred cows. These biggest corporations shouldn’t be sacred cows.”

Business groups have shed some of the staunch combined reporting opposition they expressed to lawmakers in years past but still advised caution. They, like Currie, recommended that lawmakers wait until the tax commission releases its recommendations to make any wholesale changes.

“I think this could become part of a larger business climate issue, not only what you do, but how you do it — if you appoint a commission and cut them off at their knees …,” said Ron Wineholt, vice president of government affairs at the Maryland Chamber of Commerce.

Combined reporting would impact large businesses most heavily, according to legislative analysts, with companies reporting more than $100 million in annual income seeing increased tax obligations on average. Companies that fall below that threshold would see lower taxes on average, according to the analysis of the legislation.

The retail, finance and insurance sectors would see the biggest increases, according to the bill analysis.

Lawmakers at a House Ways and Means Committee hearing Thursday asked if the shift to combined reporting could hurt the state’s chances of landing companies like Northrop Grumman Corp, or force other companies to leave Maryland. The state is actively wooing the defense giant from its home in California, a combined reporting state.

“They won’t leave in the middle of the night like the Colts did,” said Gene L. Burner, president of the Manufacturers’ Alliance of Maryland. “They may leave one line at a time if the tax situation in Maryland becomes unsustainable, and I’m not suggesting this bill would do that.”