Justices let stand Md. tax victory

Action is the second to reinforce state view of tax dodges in Del.

December 16, 2003|By Jamie Smith Hopkins | Jamie Smith Hopkins,SUN STAFF

The U.S. Supreme Court yesterday strengthened Maryland's case for collecting millions of dollars from dozens - if not hundreds - of companies avoiding taxes by sending profits to Delaware.

The high court refused to hear Crown Cork & Seal's appeal of a state court decision that found it liable for $1.4 million in state taxes. It was a second win for Maryland - last month the Supreme Court declined to consider an appeal from another business on the same issue.

The timing couldn't be better for state Comptroller William Donald Schaefer, who recently offered 70 companies a penalty of 2 percent instead of the normal 25 percent if they pay up by Jan. 30. Those businesses have until the end of this month to decide whether to take the deal, and though some have contacted the state comptroller, officials wouldn't say if any have promised to send a check.

"This might send a shock wave to those who have been sitting on the fence, wondering what they should do," said Michael D. Golden, a spokesman for the comptroller. "This just further bolsters our argument that these companies are nothing more than tax dodges."

He's talking about "holding companies" set up in Delaware by corporations doing business in Maryland in a ploy to reduce their taxes here. Delaware does not tax income from intangible property such as slogans and icons.

Corporations often transfer ownership of intangible property to a Delaware holding company, sometimes no more than a glorified mail drop, and then pay royalties to that entity for the right to use those trademarks. That reduces their income - and therefore their taxes - in Maryland.

The comptroller's office contends 70 companies the state audited owe at least $78 million in back taxes, interest and penalties, from Toys `R' Us to Victoria's Secret. That could be a drop in the bucket because the figure doesn't include taxes in the years after those firms' holding companies were audited by Maryland.

Schaefer also plans to audit 240 holding companies suspected of owing Maryland taxes.

Holding companies that haven't been officially told they owe state taxes yet have until March 1 to write a check if they want the same reduced penalty deal, Golden said.

"It would be in their best interest to pay up now rather than pay more later," he said.

Tom Hucker, executive director of Progressive Maryland, a grassroots community group that advocates for working families, said the Supreme Court action is good news, but he still thinks the General Assembly should pass a law specifically making it illegal to pass profits to out-of-state holding companies.

Otherwise, he fears companies will continue to fight their tax bills with the argument that their cases are different than the two shot down in the Supreme Court actions.

"We need the Assembly to step up and pass legislation to close not just this loophole but all the loopholes that allow giant corporations to cheat on their taxes at the expense of our schools and our hospitals," Hucker said.

Maryland - which expects to have a $730 million budget deficit for the next fiscal year - is losing more than $200 million annually to corporate tax shelters, according to an estimate by the Multistate Tax Commission in Washington.

Crown Holdings Inc., the Philadelphia parent of Cork Crown & Seal, declined to comment on the Supreme Court action.

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