Delegates pass bill to close Del. corporate tax loophole

Measure, Senate version go to conference panel

March 24, 2004|By Jamie Smith Hopkins | Jamie Smith Hopkins,SUN STAFF

The long arm of state government could soon reach into Delaware, where businesses have for years been avoiding sending profits to avoid Maryland taxes. The House of Delegates passed a bill yesterday that would shut down the so-called Delaware holding company tax shelter. The Senate passed a similar bill last week.

Differences between the two versions must be worked out in conference committee. Gov. Robert L. Ehrlich Jr. could not be reached for comment last night. He vetoed a tax-change package last year that would have closed the loophole, though his displeasure was focused more on other aspects of that legislation.

The comptroller's office said dozens and possibly hundreds of corporations have avoided Maryland taxes by taking advantage of Delaware's not taxing income from intangible property such as slogans and icons.

After transferring the property to a holding company in Delaware, corporations pay royalties to use those assets, reducing their income - and tax burden - in Maryland and other states.

"This is the bill that closes the infamous Delaware loophole," said Del. Anne Healey, vice chair of the Ways and Means Committee.

After beating two holding companies in court last year, the state comptroller has been aggressively trying to collect from dozens of others.

Comptroller William Donald Schaefer is in favor of legislation that clears up any doubt about the usefulness of holding companies as a tax shelter. But he's upset that the Senate version offers amnesty for debts before 1995 while removing the penalties and halving the interest on taxes owed after that date.

"It basically gives away the store," said Michael D. Golden, a comptroller spokesman, because it would wipe away more than $78 million owed.

House Minority Whip Anthony J. O'Donnell said he voted against the House bill in part because it would require companies to provide "clear and convincing evidence" to prove they don't owe taxes. He thinks that's too high a standard, stacking the deck in favor of the state.

Sun staff writer Michael Dresser contributed to this article.

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