90 big firms paid no state income tax

Comptrollers' numbers for 2001 and 2002

Is it cheating to use loopholes?

Liberal group criticized over its release of data

March 18, 2004|By Meredith Cohn | Meredith Cohn,SUN STAFF

Two-thirds of Maryland's largest companies paid no state income taxes in 2001 and 2002, according to information from the state comptroller's office released yesterday by a liberal advocacy group that has been hammering the General Assembly in the waning days of the session to close corporate tax loopholes.

The comptroller's data, released by Progressive Maryland, show 90 of the state's 130 largest for-profit companies by payroll pay no income taxes, but does not name the businesses.

The data were generated by the comptroller's office at the request of Sen. Paul G. Pinsky, a Prince George's Democrat, who said he wants the business community to pay its fair share.

The business community decried the report and has been fighting efforts this year by Pinsky and others who are attempting to close a corporate tax shelter that allows corporations that set up Delaware holding companies to avoid some Maryland taxes.

Pinsky further plans to use the new information to push for an overhaul of the state's corporate tax structure in coming years.

"This shows what you can do to avoid taxes when you can afford 20 or 30 accountants and attorneys," he said. "But every dollar that corporations don't pay, the citizens have to pay.

"This isn't going away, trust me."

Business advocates fired back that the information was taken out of context by Progressive Maryland, an umbrella organization of labor unions, churches and other groups.

The Maryland Chamber of Commerce said businesses pay $7.8 billion in state and local taxes, and corporate income taxes accounts for only about 5 percent of that amount. In general, businesses pay about 13.3 percent of their income in taxes, the chamber says.

The chamber recently released a report that showed the tax burden puts Maryland in the middle of the Mid-Atlantic pack in terms of overall taxes paid.

William R. Burns, a chamber spokesman, called the new data "terribly misleading."

"People who seek to define the tax burden solely on corporate income taxes are naive," he said.

"Corporate income taxes are just a small part of the total state and local tax burden. ... This is a tactic we've seen in recent years by those who favor higher business taxes."

Burns said some companies don't make money and, therefore, don't pay income taxes. He noted biotech companies that are working on drugs and other products that are not yet on the market.

The state comptroller's office did not dispute the numbers but agreed that there were a number of legal reasons for companies not to pay income taxes.

In a letter to Pinsky, Comptroller William Donald Schaefer wrote that companies might not pay the state income tax if they made no money or had sufficient tax credits.

Further, several businesses in Maryland comprise several subsidiaries that have different business goals and may not need to pay income taxes.

A spokesman for the comptroller, Michael D. Golden, said the office has sought to identify scofflaws and will continue to do so.

The comptroller has gone after the companies that set up Delaware holding companies to avoid Maryland taxes and has two large victories so far.

Settlements recently were reached with Crown Cork & Seal and Syms Corp., which owed more than $3 million in taxes, interest and penalties, the office said. In all, about 10 companies have paid about $10 million since an offer reducing the penalties was extended in December.

The office estimates that about 70 companies owe at least $78 million and another 240 companies are set to be audited.

Progressive Maryland said there are surely more companies that are skirting the law.

The group checked some of the large retailers on the list to see if they made money last year and still didn't pay income taxes. Thirteen of 15 showed a profit, said Deputy Director Sean Dobson.

"If they made a profit they're supposed to pay 7 percent taxes on it," he said. "If they're not paying taxes, they are figuring out some way to beat their taxes. There are loopholes created by fancy corporate accountants. In other words, they're cheating."

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