A matter of fairness

May 14, 2004

WITHIN THE NEXT few weeks, Gov. Robert L. Ehrlich Jr. gets a chance to define his administration and leadership: Does he treat all Maryland businesses equally or does he grant special favors to large corporations? His actions regarding the "Delaware loophole" will soon answer that question.

How peculiar that this issue should even be debated. Mr. Ehrlich introduced a loophole-closing bill during this year's General Assembly session. It made sense. For years, large corporations have been using Delaware holding companies to hide their profits and avoid state taxes. The shell game usually revolves around a bogus lease of a trademark or patent, but it could also be a fake loan. Maryland's tax collectors have been catching up with this practice, winning in a couple of key court fights last year. Mr. Ehrlich has wanted to codify a Maryland Court of Appeals opinion to make it easier to collect taxes. And here's the best part - the state would soon collect tens of millions of dollars in back taxes and penalties, money that is badly needed in these fiscally lean times.

But then the governor got cold feet. He tried to push for amnesty - letting these same corporations off the hook for a cool $88 million or so. Now he's saying that the legislature made too many changes to his original bill and that it might wind up hurting innocent companies, including ones that have no Delaware holding companies. He may even veto his bill - even though a veto would automatically remove $14 million from the Maryland Department of Business and Economic Development's budget.

After much review, here's what top officials at the state comptroller's office say about Mr. Ehrlich's charge that the bill is too broad: balderdash. (We paraphrase, of course.) Yes, the legislature made some minor, technical (and business-friendly) changes to the bill. Only one is worth noting, the experts say, and it makes sure foreign-owned companies can't evade Maryland taxes.

Comptroller William Donald Schaefer has already taken a position on the matter. He wants the governor to sign the loophole bill and he wants Mr. Ehrlich to veto the amnesty legislation. We couldn't agree more on both counts. Leaving the loophole open sends a clear message: If you're a big company, any accounting trick goes, because this governor will cover for you. It tells small-business owners that it's perfectly fine for them to pay Maryland's 7 percent corporate tax; just don't expect the big guys to follow suit. And, of course, it tells the average taxpayers that it's up to them to pay for state services - they can't hide their income the way big businesses can hide theirs.

This isn't about changing the law. It's just a matter of collecting overdue tax payments sooner. Sign your own bill, Mr. Ehrlich. We are facing an $800 million deficit next year. This is no time to reward ethically challenged companies that have violated the law. That's not fair to businesses, small and big alike, that pay their taxes fair and square. And it's not fair to Maryland taxpayers who will no doubt be stuck making up the difference.

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