Corporations already pay their fair share in Maryland

October 03, 2007|By Kathy Snyder

Recent news accounts and editorials on the topic of corporate tax "loopholes" have missed the mark. Corporate income taxes during the past three years are the highest ever received by the state. They have grown significantly over the last decade in spite of the fact that there are fewer corporations.

Equally important, businesses in Maryland pay 40 percent of all sales taxes and are the largest property taxpayers in each county. Private businesses also employ 2.1 million residents, underwrite much of the cost of government and provide significant funding to nonprofit and charitable groups.

The recent hysteria about business taxes can be traced back to the misinterpretation and misuse of summary data on corporate tax payments issued by the state comptroller's office. The data list how many of the largest employer payroll tax accounts also had a corporate income tax payment made by that entity. It doesn't list all companies, or all large companies, but only the payroll-tax-paying portion of a business.

Disclaimers included in the comptroller's office cover letters with the same data for prior years cautioned that "this information most likely does not provide a full picture of the corporate income taxes paid by many businesses as commonly perceived."

How can certain corporations pay no state corporate income taxes in a given year? First, it is possible the company had no profits to tax. Second, the company might have had carry-back or carry-forward losses that could be legally deducted. Third, it might have had valid income tax credits that eliminated its tax liability.

As for the proposal to adopt unitary combined reporting: This is not a "loophole-closer." Rather, it's a fundamentally different system of computing taxes, with its own set of problems. Under combined reporting, some companies would pay more income taxes, while others would pay less. All of the net incomes of certain related companies are combined, regardless of whether they have any connection to Maryland. Also combined are other elements of the formula for allocating the business' income among the states. Dividing the combined income by the larger allocation factor can result in a smaller percentage of the total income being taxable in Maryland.

How can a change that might reduce the state's tax revenue be good?

Kathy Snyder is president and CEO of the Maryland Chamber of Commerce. Her e-mail is ksnyder@mdchamber.org.

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