Baltimore bests peers in tax test

The Economy

City places fourth for business rates

January 24, 1999|By JAY HANCOCK

TAX PAIN is all in the neurons of the taxpayer, which makes Vertex Inc.'s new report pertinent and Baltimore's excellent score noteworthy.

Baltimore placed fourth-best in Vertex's study of business taxes in 27 U.S. cities, beating alleged commercial havens such as Dallas, Phoenix, Seattle, Houston, Tampa, Fla., and Charlotte, N.C.

Tax taxonomy is common sport. Dozens of studies purport to finger the worst "tax hells" as well as the paradises. Baltimore and Maryland show up frequently, usually not far from the brimstone.

But the reports, while useful, are often two or three steps from reality.

For simplicity's benefit, they often measure only a few tax categories. Many only compare tax rates, often in high brackets that don't affect everybody. Or they measure gross ratios such as taxes per capita or per income dollar.

So Maryland's 7 percent corporate income tax looks punitive compared with Illinois' 4.8 percent or Indiana's 3.4 percent. But without a crawl through the cobwebs of franchise, excise, sales, payroll, property and other business taxes, the exploration isn't finished.

Maryland's 23.5-cent state gas tax looks steep next to South Carolina's 16 cents. But the big picture needs to include South Carolina's admissions tax, beer tax, insurance tax, soft-drink tax, bingo tax, coin-operated devices tax and motel tax -- not to mention income taxes and half a dozen kinds of property taxes -- as well as their Maryland equivalents.

The value of Vertex's study is that it measures tax loads in real, flesh-and-metal economies, not law books or fiscal budgets. Vertex created a hypothetical service company with 125 workers, $15 million in sales and $1.5 million in profit. Then it implanted the firm in 27 cities and measured the tax hurt.

By doing a study in vivo instead of in vitro, Vertex captured business taxes in all their real-life variety and confusion. It accounted for federal, state and local business taxes as well as regional wrinkles in collecting the same.

"One of the things that is fascinating is how these taxes get applied at the local level," said Jon Sappey, a Vertex spokesman. "Our form of government grants tremendous amounts of leeway to local jurisdictions to raise money, and that leads to some wacky things" not seen on the rate schedules.

In Baltimore, Vertex's mythical guinea pig paid total taxes of $1.14 million last year -- fourth-lowest of the 27 cities considered. Only Las Vegas, Atlanta and Denver were better -- and not by much. The most expensive cities were Philadelphia, New York, Seattle, Pittsburgh and Cleveland.

In Philadelphia, the test company would have paid $250,000 more in annual tax than in Baltimore. Baltimore scored especially well in tele- communications, payroll and sales taxes. Its worst category was business property tax, where it was seventh-highest.

No, Vertex's research is not the final word.

It paid no attention to personal taxes. Maryland's personal income taxes are high, and Baltimore's residential property taxes are higher than high.

Vertex examined core cities and ignored suburbs. Core cities aren't exactly where the growth is these days, and it would be interesting to eye, say, Howard County's business-tax load compared with that of its leafy peers around the nation.

Or compared with Baltimore, for that matter. Baltimore looks good matched against New York City and Boston. It might not look so hot up against Gwinnett County, Ga. Vertex is thinking about measuring other jurisdictions, Sappey said, using other kinds of businesses. Manufacturers, for example.

But the Vertex study is a credible, heartening banner that Maryland marketers can wave at footloose corporations. It shows that some assumptions about Northeastern states are off-kilter, and it shows that the low-tax South is becoming not so low anymore.

Pub Date: 1/24/99

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