Is Baltimore tax heaven for business? Pretty close to it, study suggests Among big U.S. cities, only Atlanta imposes less of a burden

November 13, 1993|By John E. Woodruff | John E. Woodruff,Staff Writer

Baltimore not only doesn't tax companies into running away but imposes the second-lightest total business tax burden of the country's 25 biggest cities, according to a study published yesterday.

In a finding that directly contradicts a widespread perception that Baltimore and Maryland have an onerous business tax climate, the computer study ranked only Atlanta as having a tax climate more business-friendly than Baltimore's.

"That finding is absolutely right on the money," said Michael Conte, head of the University of Baltimore's Regional Economic Studies Program.

"There is a persisting perception that Baltimore and Maryland put heavy tax burdens on businesses, and that perception hurts Maryland tremendously in recruiting mid-sized businesses," he said. "But in fact, both personal and corporate taxes per dollar earned are among the lowest on the East Coast and either the lowest or the second-lowest in the mid-Atlantic region."

A hypothetical 125-employee company was the core of the study, conducted by Vertex Inc., a Berwyn, Pa., firm that helps businesses with local and state tax problems.

Assuming the company was in the services sector and had annual gross income of $15 million with pretax net income of $1.5 million, the study calculated the company's total federal, state and local tax burden for each of the country's 25 biggest cities. The highest burden was ranked 1 and the lowest was ranked 25.

Like most big U.S. cities, Baltimore has lost tens of thousands of jobs in recent decades, mainly in manufacturing.

But opinion has varied on whether taxes have been a deciding factor.

Two weeks ago, Mark L. Wasserman, the state's secretary of economic and employment development, told legislators in Annapolis they were wrong to assume that "the single factor of taxes" could explain why Baltimore or any other area lost jobs.

While the Vertex study dealt with business taxes, companies commonly consider many factors, including other forms of taxation, in deciding where to locate.

In broader national rankings that include such questions as quality of schools, personal safety and labor costs, Baltimore seldom ranks as favorably as it did in yesterday's business-tax study.

Even in taxes, Maryland has some problems, most notably a high real-estate transfer tax, Mr. Conte said.

Baltimore was not the only place where the outcome of the Vertex study defied conventional wisdom. Boston and San Francisco, widely discussed as places with heavy tax burdens on businesses, ranked 16th and 11th, respectively.

The heaviest tax burdens belonged to Philadelphia and Pittsburgh, mainly because of levies imposed by the state of Pennsylvania. The hypothetical firm would have paid $1,424,770 in Philadelphia and $1,351,948 in Pittsburgh, the study showed.

In Baltimore, the same firm would have paid $1,136,140, and in Atlanta, $1,118,239.

"We tried to be as objective as possible, and we think that even with different assumptions about the size or profitability of the company, while the details would have changed, the direction of the outcome would have been similar," Alex Smith, a Vertex spokesman, said yesterday.

"This will be great news to help Baltimore attract new businesses," said Miles Cole, of the Maryland Chamber of Commerce.

Mr. Conte of the University of Baltimore said the perception of high taxes here apparently arose in the late 1980s, when personal tax burdens rose rapidly in published national rankings.

In retrospect, "that increase clearly was due to rising incomes in good years," he said.

"When you look at taxes per dollar earned -- how much you get to keep out of what you earn -- Maryland is very far from being the tax hell that has been portrayed. In fact, it borders on being a positively nice place to do business from a tax viewpoint."

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