Bankers' hopes for tax bill fading

April 04, 1995|By David Conn | David Conn,Sun Staff Writer

With only a week before the legislature adjourns, Maryland bankers are beginning to worry about the prospects for a bill to give them a break on their taxes. With some question as to the Glendening administration's support, they're using the bill as a test of the new governor's pro-business position.

The measure, which would reverse a 27-year-old tax law by treating banks like most other corporations, has passed the House of Delegates as part of an omnibus tax bill. The Senate is expected to pass its own stand-alone bill today. Differences in the two versions would have to be reconciled.

But bankers said the Glendening administration has been less than supportive. "We keep getting mixed signals," said John B. Bowers Jr., executive vice president of the Maryland Bankers Association.

"We are hearing from certain sources and levels in the governor's administration that they are supportive and are going to embrace the bill," Mr. Bowers said. "And then we see others in the administration lobbying against it. So we are very confused."

Bonnie Kirkland, the governor's chief legislative officer, said the administration wanted to avoid hurting the banking industry but would rather study the proposal over the summer, possibly making the bill retroactive next year.

"We're trying to work with the House and Senate leadership on it," Ms. Kirkland said. "It was not something we were initially supportive of because of the fiscal impact," she said, referring to the potential cost to the state.

The bill essentially would apply the corporate tax to commercial banks, which instead have been subject to the financial institutions franchise tax. The change would cost the state about $6 million to $8 million in taxes each year, while local governments would gain $2.5 million to $5 million.

Bankers, who have been enjoying record profits nationally, say hTC the bill's importance goes beyond its fiscal impact and reflects on Mr. Glendening's commitment to create a business-friendly state.

"I think the biggest issue before the administration is whether they're going to send a positive message to the banking industry, whether we're going to build on the 22,000 or 23,000 bank employees in Maryland," Mr. Bowers said. "Or whether we're going to send the wrong message and say, 'Gee whiz, because we haven't thought this out, we're going to sit with our heads in the sand.' "

Ms. Kirkland said amendments to the bill have made it more palatable to the governor, who is offering several more changes he hopes will be accepted by House and Senate conferees. She agreed that the bill is seen as pro-business, but that it's not as crucial as dropping the snack tax, creating a research and development tax break, or devising incentives for the development of alternative-fuel vehicles.

The bills would substitute the financial institutions franchise tax, which applies to commercial banks, savings and loans, finance and mortgage companies, with the ordinary corporate tax. Both apply a 7 percent tax rate to operating income.

The franchise tax also taxes interest income from federal, state and local government debt that banks own. But financial institutions have been exempt from the state personal property tax.

The latest version of the Senate bill would phase out the franchise tax over the next three years and phase in the corporate tax -- including the personal property tax -- on commercial banks, certain savings banks and trust companies. Savings and loans, finance and mortgage companies would remain under the franchise tax.

The more expensive franchise tax has been applied to banks because they were seen as protected from outside competition through interstate banking restrictions.

But with increasing competition from out-of-state banks and the arrival soon of national interstate banking, Maryland banks no longer have a protected franchise and should be taxed like any other corporation, bankers argued.

The tax bill is symbolically important now because looser interstate regulations will make it easier for banks to operate in any state they want, bankers asserted.

"You really have to look at the mobility of banking going forward," said George F. Cormeny Jr., senior vice president at the First National Bank of Maryland. "It makes no difference where the headquarters are, it makes no difference where the operations centers are.

"We want to ensure that there is an incentive for the operations and administrative centers to remain in Maryland," Mr. Cormeny said.

The Department of Fiscal Services estimates the change would cost the state $2.5 million in revenue next year and $7.5 million a year by the year 2000. Local governments would gain $5 million that year and thereafter because personal property tax revenues go to local coffers.

The personal property tax in the bills is limited: the value of banks' computer hardware and software used for check and loan processing would be exempt. "Other corporations get to exclude their production equipment, so banks should be able to exclude computer hardware and software used in production," Mr. Bowers said.

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