Tax change would help large donor

Discovery Channel's parent firm stands to reap big savings

$340,000 a year off bill

Company, chairman, wife gave $20,000 to Glendening campaign

February 09, 1999|By Greg Garland | Greg Garland,SUN STAFF

The Maryland comptroller's office is proposing a change in state tax regulations that would save Bethesda-based Discovery Communications Inc. -- parent company of the Discovery Channel -- $340,000 a year on its tax bill.

Although the measure would apply to other TV or film production companies based in Maryland with similar operations, the biggest beneficiary by far is believed to be Discovery Communications.

The company, its chairman, John S. Hendricks, and his wife, Maureen, were among the larger contributors to Gov. Parris N. Glendening's gubernatorial campaign. They contributed a total of $20,000 to his campaign over a two-year period, 1997 and 1998.

The Hendricks contributed $8,000 of that shortly after Discovery Communications announced plans to build a $150 million world headquarters in Silver Spring -- a project aided by a $10 million package of state and Montgomery County financial incentives.

Assistant State Comptroller Marvin Bond said the governor had nothing to do with the proposal to change the tax regulation. He said it was drafted by the comptroller's office to correct what that office felt was an inequity in Maryland's tax code.

Maryland calculates corporate income taxes using a formula that takes into account a company's sales, property and payroll, Bond said.

The formula is used to determine the amount of business companies do within the state's borders so Maryland can apply its 7 percent tax rate to that portion of the corporations' taxable earnings, Bond said.

But, he said, the formula does not work well for television and film production companies because of those businesses' unique characteristics. As a result, he said, Maryland was applying its tax rate to too large a percentage of taxable earnings.

"Everybody seemed to agree, once we started looking into it that it needed to be adjusted," Bond said. He said Maryland modeled its new tax formula after one that California applies to film production companies.

Among other things, the regulatory changes involve treating films as "tangible personal property," Bond said. Doing so allows the company to write off, over a period of time, the costs of making films, he said.

Another provision changes the way the state applies its corporate income tax to the money a film or TV production company makes from subscribers.

"The way the law did read, income from any subscriber around the world would have been credited as a Maryland sale" for tax purposes, Bond said. "You should look at the income only from subscribers in Maryland."

The proposal was approved in late January by Comptroller Robert L. Swann, shortly before William Donald Schaefer took office.

Bond said the comptroller's office decided to review the matter after hearing from a Maryland TV and film production company that felt the existing tax formula treated its business unfairly.

Bond declined to identify the company, saying, "Maryland law prohibits us from disclosing anything about a tax return or a taxpayer that is not in the public record, and this is not in the public record." Donald A. Baer, a senior vice president for Discovery Communications, said yesterday that his company was the one that brought the tax issue up to the comptroller's office.

"We called it to their attention that other states handle it differently," Baer said. "We welcome a change that accurately reflects the true nature of our business and treats us like similarly situated companies in other states."

The Maryland Register, where proposed regulatory changes must be published prior to taking effect, states that there is "only one corporation that currently does business in Maryland that would be affected by the regulation change."

Bond said staff members who prepared the proposed regulatory change originally thought that was the case, but now believe other companies involved in TV and film production in Maryland could benefit from the change to varying degrees.

As examples, he said, some nationally distributed TV commercials are produced by Maryland-based companies, and filmmaker Barry Levinson's production company films the TV series "Homicide" in Baltimore.

Pub Date: 2/09/99

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