Study aims to fend off rise in Md. business tax

Chamber also seeks to counter earlier study

February 25, 2004|By Meredith Cohn | Meredith Cohn,SUN STAFF

The state Chamber of Commerce released yesterday a study on taxation to help persuade lawmakers not to raise business taxes and to counter perceptions from a recent national study - done by the same consultant - that showed Maryland is a low-tax state for businesses.

The report concluded that Maryland businesses paid about $7.8 billion last year in state and local taxes, about 13.3 percent of their income.

"Maryland is competitive now, and we're not saying [to] lower business taxes," said Kathleen T. Snyder, president and chief executive of the chamber. "But we need to be careful because we don't want to impact Maryland's competitiveness while we're looking to expand the job base."

The legislature is considering several new corporate taxes this year to balance the budget and raise new revenue. Among the proposals are an increase in the state sales tax, an increase in an income tax paid primarily by partnerships and small companies, and a tax on health maintenance organizations.

The chamber commissioned the study by Ernst & Young LLP to counter a national study, also done by Ernst & Young. The national report, released last month by the Council on State Taxation, concluded that Maryland business' share of state and local taxes was, at 32 percent, the lowest in the nation.

That study did not include some "hidden" taxes paid by the large number of small businesses and others, the chamber report said.

Officials from Ernst & Young said one major tax not counted in the national study, the individual income tax, hit Maryland disproportionately. That tax is paid by partnerships, limited liability corporations and other businesses not listed in the state as corporations. It added about $1 billion to the total paid by Maryland businesses in taxes.

Maryland's percentage of small businesses is higher than that of most states, the chamber said. The state has about 148,000 registered businesses, 3,188 of which have more than 100 employees.

"We've peeled back another layer of the onion," said Robert Cline, Ernst & Young's national director of state and local tax policy economics and an author of the report.

Cline said the income tax pushes Maryland to the middle of the pack in the Mid-Atlantic region, which was the focus of the new report. Virginia and North Carolina, two of Maryland's top competitors in seeking to lure new businesses, both have lower taxes in most cases. Pennsylvania and Delaware have higher taxes.

At least one expert said the chamber had probably skewed the results of the second study because officials didn't like the results of the first. The tax laws and the kinds of business in Maryland would not make it so different that it would require a separate set of rules to calculate its tax burden, said Steve Hill, director of the Maryland Budget and Tax Policy Institute, a nonpartisan research organization based in Silver Spring.

"In any kind of study you could broaden, restrict or manipulate the criteria to get the results you want," he said.

"The chamber was fearful a study saying they had low taxes would weaken its position in the legislature, which wants to close tax loopholes this year."

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