Schaefer fumes over bill on holding companies

Proposed legislation lets delinquent companies avoid taxes, he says

March 03, 2004|By Jamie Smith Hopkins | Jamie Smith Hopkins,SUN STAFF

Maryland Comptroller William Donald Schaefer thinks few of the holding companies avoiding state taxes have taken him up on his settlement offer because they're expecting a better deal from the General Assembly.

He's angry that a bill before the House of Delegates would cut in half the interest due, eliminate the penalties and - if the holding companies pay up - waive corporate income taxes owed before 1996.

"What they're trying to do is just nullify everything we did," said Schaefer, whose office won two cases against holding companies last year after seven years of litigation. "They're making it seem like we lost. ... The message says, `We'll settle all cases for 25 cents on the dollar.'"

Corporations have reduced their tax payments in Maryland by setting up holding companies in Delaware, which doesn't tax income from intangible property such as slogans and icons. Corporations can transfer ownership of intangible property to Delaware, then pay royalties to the Delaware shelter for the right to use those trademarks.

Schaefer offered in December to reduce the penalty on those back taxes to 2 percent from 25 percent. About a dozen holding companies owing more than $12 million have taken him up on the deal. Among them are two that were scheduled to be audited but had not formally been told that they owed Maryland taxes.

Del. Jean B. Cryor, the Montgomery County Republican sponsoring the bill before the House of Delegates, which was introduced last week, said she is trying to offer a carrot to bring in money from the dozens, possibly hundreds, of companies that owe and haven't paid.

It's important to collect quickly because the state desperately needs more money, she said.

"This is the kind of situation where you look to see, is a half a loaf better than none, or, frankly, a whole loaf but taking a long time to get it and no end of people protesting," Cryor said.

She praised the comptroller's "tenacious" efforts and said she is trying to build on his office's legal successes.

"We're having a very slow amount of money come in," she said. "What we're seeing is that businesses are still sitting tight."

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