Lose the loopholes

January 02, 2003

WITH A BUDGET deficit of $1.2 billion, give or take, Maryland can't afford to allow any corporation to escape its fair share of the tax burden. Some analysts believe up to $200 million could be added to the state's bottom line if various loopholes were closed.

Students of the Maryland tax code estimate that $100 million drains away each year through shell companies located in Delaware. Companies operating - and profiting - in Maryland transfer profits to these corporations and pay no taxes in Maryland. The practice is legal, but obviously should not be. Some enterprising legislator or budget-balancer in the new administration of Robert L. Ehrlich Jr. ought to be crafting legislation to slam this door right away.

Corporations that evade taxes they owe have simply been quicker and more creative than the state up to now. And some say tax avoidance techniques are ever more in evidence. Comptroller William Donald Schaefer has asked the courts to rule that these shell corporations should be viewed as doing business in Maryland.

Other reforms could include changing state law so that goods made by Maryland-based companies and sold elsewhere but not taxed in another state would be subject to taxation in Maryland. Also, rewriting a law that allows corporations to avoid real estate transfer taxes on certain transactions could generate $10 million for the state and $32 million for local governments.

Other states have passed legislation aimed at stopping similar income-shifting practices, so it seems less likely that Maryland would put itself at a competitive disadvantage with businesses. In easier economic times, states like Maryland might have allowed such practices to go unaddressed. Fairness cried out for tighter laws then, but the cry now comes also from real needs: health care, education, help for the needy - government services facing painful trimming if more revenue is not located.

The Ehrlich administration says it needs more money quickly to deal with a budget shortfall in the fiscal year ending July 1, and a spokesman for the governor-elect says he will want a careful analysis of the state's taxing systems. That's all well and good - in this case, crisis can bring opportunity. A glaring deficiency in the tax code could be corrected and millions directed toward a treasury sorely in need of replenishing.

Corporate beneficiaries of the loopholes may squeal, but they shouldn't. Maryland won't be a business-friendly state if it can't pay its bills, fails to take care of its poor and doesn't treat all taxpayers fairly.

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