No to amnesty

March 29, 2004

HERE'S A GOOD way to keep down state taxes - let's discourage the General Assembly from giving away an extra $88 million or so in corporate welfare this year.

Remember the so-called Delaware loophole? It's the shell game that certain corporations have been playing for years to hide their income from Maryland taxes. It works like this: Say you're owner of the Blue Boy Bagel Co. with franchises across the state. You set up a dummy holding corporation in Delaware that charges your stores big bucks to lease the Blue Boy trademark. Voila. No profit on paper, and therefore no tax in Maryland.

The Assembly approved closing the loophole last year, but Gov. Robert L. Ehrlich Jr. vetoed it. He defended the practice as a legitimate business decision. But this year he has seen the light and supports strengthening corporate tax laws. His proposed budget for the coming year anticipates more than $100 million in revenue from this reform.

For years, Maryland's comptroller has been trying to get these tax-cheating companies to pay up. Thanks to some favorable court decisions, Comptroller William Donald Schaefer has made some headway, collecting millions of dollars in back taxes. But he's trying to go after far more - about $80 million when interest and penalties are included.

Unfortunately, the state Senate's version of the tax reform legislation would grant amnesty for much of this debt. Mr. Schaefer estimates that the cost would be $88 million, including $8 million his office has already collected but would have to refund.

That's outrageous, particularly when the state is facing an $800 million budget deficit in fiscal 2006. The House of Delegates has taken a more reasonable position: It doesn't grant amnesty to companies at all.

That leaves the matter in the hands of a House-Senate conference committee. Last week, Mr. Schaefer asked Mr. Ehrlich to get involved in the negotiations. "An amnesty of this nature sends the regrettable message that abusive tax avoidance transactions are acceptable and will be rewarded even in the face of judicial condemnation," the comptroller wrote in a two-page letter to the governor. "It can only have the effect of encouraging more of the same in the future."

An administration spokesman said late last week that the governor agrees with Mr. Schaefer and will not support amnesty. That's welcome news. Let's just hope that the Senate will get the message and back off. The average Maryland taxpayer couldn't expect to have his overdue taxes erased. There's no reason why ethically challenged corporations deserve better treatment.

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