The country’s largest companies pay state income tax at an effective rate that is less than half of what is on the books, according to a report published Wednesday by the Institute on Taxation and Economic Policy.
The annual financial reports of 265 Fortune 500 companies that made money from 2008 to 2010 showed their state income tax payments were 3 percent of their U.S. profits. The average state corporate income tax rate is 6.2 percent. Maryland’s is 8.25 percent.
Those figures will likely provide ammunition to supporters of tougher corporate tax laws, including some in Annapolis who have called for the state to impose accounting rules designed to stop companies from stashing profits in other states with friendlier tax policies.
“Our report shows these 265 corporations raked in a combined $1.33 trillion in profits in the last three years, and far too many have managed to shelter half or more of their profits from state taxes,” said Matthew Gardner, executive director of the nonpartisan Washington, D.C., institute. “They’re so busy avoiding taxes, it’s no wonder they’re not creating any new jobs.”
The report includes two Maryland-headquartered businesses, both of them in Bethesda:
Lockheed Martin Corp. posted profits of $13 billion from 2008 to 2010 and paid $513 million in state income taxes nationwide, according to the report. That gives the defense giant an effective tax rate of 3.9 percent.
Coventry Health Care paid $102 million in state income taxes on $2 billion in profits, a 5 percent effective tax rate, the tax institute found.
A Lockheed spokesman said the company would not respond to the study Wednesday. Coventry did not respond to a request for comment.
Pepco Holdings, the Washington-based utility that supplies electricity to much of Montgomery and Prince George’s counties, recorded the lowest tax rate, -13.2 percent, according to the report.
“Individual taxpayers and small businesses in Maryland end up having to pick up the tab when these corporations avoid paying their taxes,” said Jenny Levin at Maryland PIRG, a left-leaning advocacy group.
Corporate income taxes collected by states were equivalent to 0.5 percent of the country’s economy in 1986, but only 0.28 percent in 2010.
Authors of the report identified a range of options available to states seeking to increase revenue from businesses. These include eliminating corporate tax breaks and instituting tax rules like combined reporting, a topic of frequent debate in Annapolis.
Sen. Verna Jones-Rodwell, a Democrat who chairs the Baltimore City delegation and serves on the powerful Budget and Taxation Committee, said Wednesday it would be “prudent” for lawmakers to revisit the combined reporting debate in 2012.
Supporters see combined reporting as a way of preventing companies from hiding income in low-tax states. If implemented, Maryland would levy corporate taxes based on an apportioned share of a company’s revenue nationwide.
“I think combined reporting, depending on how we went forward with the application of it, would bring in money for the state and not handicap the businesses that would be required to do it,” Jones-Rodwell said.
The state projects $845 million in corporate income tax revenue this fiscal year. In 2010, Maryland’s $690 million in corporate income tax revenue was equal to 0.23 percent of the state’s economy, according to figures from the state comptroller and Department of Business and Economic Development.
Legislative analysts project combined reporting rule would bring in up to $150 million more every year. It would, however, result in some companies paying more and others, less, and can hurt states in down years because it would require companies to pool losses as well as revenues.
“There are winners and losers in Maryland, and particularly in a down economy, we don’t see how the juice is worth the squeeze,” said Kathleen T. Snyder, president and CEO of the Maryland Chamber of Commerce. “Combined reporting will not make Maryland more competitive. It will, in the long run, cost the state private-sector jobs and business investments.”