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A sensible tax policy for Maryland

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When Amazon recently announced it was seeking proposals for a second North American headquarters, the buzz that emanated from the local business and economic development communities was likely felt in the company’s Seattle headquarters. The prospect of a 50,000-person workforce, related job opportunities many times that number, and an influx of highly educated and technologically savvy residents settling in the region is enough to make anyone downright giddy.

The Amazon announcement has created a modern-day gold rush among cities and states throughout the country. Competitors are falling all over themselves offering incentives to attract this once-in-a-lifetime economic and employment boom.

Of the potential sites being advanced in the state of Maryland, the Port Covington location has emerged as one that meets all of Amazon’s criteria:

  • a metropolitan area of 1 million residents,
  • more than 100 acres of available land,
  • highly educated and talented workforce,
  • a wealth of respected higher education institutions,
  • incentives currently in place ($660 million in approved Tax Increment Financing),
  • significant private sector investment (Goldman Sachs’ $233 million commitment),
  • access to a strong transportation network and airports, and
  • a site that is shovel-ready.

Many of these qualities are consistent with the Greater Baltimore Committee’s report “Gaining a Competitive Edge: Keys to Economic Growth and Job Creation.” As I pondered what policy changes might be adopted to further enhance the Amazon bid by Baltimore in the months ahead, I settled on one simple principal that was contained in the GBC report: ensuring that our tax structure is fair and competitive and devoid of elements that unreasonably target specific businesses or business sectors.

This economic growth principal is not limited solely to the prospects of landing Amazon’s second headquarters or attracting other businesses. It would serve as a benefit to sustain and retain existing businesses of all sizes.

‘Single Sales Factor’

The most compelling policy reform that could improve our current means of taxing corporate entities is the passage of the “Single Sales Factor” formula in apportioning corporate income taxes. This is a legislative proposal that the Greater Baltimore Committee and local business leaders strongly supported in last year’s Maryland General Assembly session. Single Sales Factor legislation seeks to change the state’s corporate income tax to one calculated solely on sales in Maryland rather than the existing structure, which considers the combination of a corporation’s property holdings, payroll and sales.

Currently, every time a business wants to add a new employee, buy a new piece of equipment, or expand to a new location in Maryland, its taxes increase. The system is backwards. We should be incentivizing business growth rather than discouraging it.

Unfortunately, the proposed legislation fell short of passage last year, and Maryland maintains a corporate tax structure that penalizes growth and expansion in Maryland.

The current tax policy also favors out-of-state businesses over Maryland-based businesses that have significant investments in jobs and property. To be fair, those out-of-state businesses are respected companies that provide needed goods, services and jobs in the state. But corporations that are domiciled in Maryland should not be treated unfairly when considering tax policy to the out-of-state companies doing business in Maryland.

Last year, amendments to the bill were considered to mitigate concerns of the opponents. I hope that given sufficient time the concerns that some expressed last legislative session to the Single Sales Factor can be addressed.

Passage of the Single Sales Factor legislation is not essential in the effort to attract Amazon’s second headquarters to Port Covington. The Baltimore proposal is strong enough on its merits. Nevertheless, I have little doubt that passage of such a new tax structure would be an additional “arrow in our quiver” to demonstrate an increasingly competitive business climate and would prove to be a foundation for future economic growth and job expansion.

The state government’s budget would also benefit. Increased spending from the private sector would help diversify the state’s economy. It would also loosen Maryland’s reliance on federal government spending, direct and contractual. This is a sector of the economy that is uncertain, given the political gridlock in the halls of Congress. The formula is simple: grow our economy and expand jobs. This is good for everyone.

The Single Sales Factor approach in corporate taxation is a growing trend in the United States. A majority of states that tax corporations have already adopted this approach, including three neighboring states. In fact, the Single Sales Factor approach is not novel to Maryland. Years ago, the practice was applied to the manufacturing industry and has proven to be effective in supporting our manufacturing base and jobs associated with that industry.

It is now time to expand this tax policy to apply to every business and industry in the state.

Donald C. Fry is president and CEO of the Greater Baltimore Committee. He is a frequent contributor to The Daily Record. 

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