Loophole lobbying

April 05, 2005

LAWMAKERS SHOULD be outraged -- but, predictably, they don't seem to be. Reports show Edward A. St. John of MIE Properties has poured $160,000 into the state's 2006 election. To accomplish this feat, he had to bypass the state's law restricting donations to $4,000 for individuals and $10,000 per company. How did he do it? By funneling the money through more than 50 companies he runs out of his Baltimore County office.

And why would Mr. St. John have so many subsidiaries? Because property-holding firms such as MIE typically sort their holdings into LLCs and LLPs -- limited liability corporations and limited liability partnerships. Ostensibly, this is to protect from liability lawsuits. But a loophole in tax law gives big companies an extra incentive: LLCs and LLPs aren't subject to real estate transfer taxes. On big-ticket properties such as shopping malls, this allows the owners to avoid paying hundreds of thousands of dollars in taxes. All the Mr. and Mrs. Average Homebuyers aren't so lucky; they get stuck with the bill.

Seems like the two loopholes are now feeding off each other. As more companies convert to LLPs and LLCs, their clout grows.

The House of Delegates has approved legislation to correct both problems. One bill would close the tax loophole for companies with assets of $1 million or more; the other would close the campaign donation loophole by counting subsidiaries as part of one business entity.

Both measures are stuck in Senate committees. Under the House bill, the added tax revenue would pay for public school construction, a multibillion-dollar problem in Maryland. Looks like senators care more about the largesse of campaign donations.

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