Big Md. firms should disclose tax payments

October 07, 2007|By JAY HANCOCK

A couple of months ago state Comptroller Peter Franchot suggested in a report that more than half of this state's biggest for-profit companies paid no Maryland corporate income tax in 2005.

"That is absolutely wrong," says Karen T. Syrylo, tax consultant for the Maryland Chamber of Commerce. "It is in no way the complete list of Maryland's largest corporations," and many more companies pay tax than those indicated in the report, she adds.

Who's right? Franchot's study has enough holes to drain spaghetti. But the chamber's explanation - that complicated legal structures within companies kept state staff members from identifying the real taxpaying entities - isn't reassuring. Tax avoidance is one reason many of these legal labyrinths were created.

Fortunately, corporate Maryland could settle the debate immediately. The biggest Maryland companies could divulge what they paid in state income tax the past five years, showing their true contribution and shedding light on whether Gov. Martin O'Malley's proposal to raise the tax is reform or robbery.

How about it, corporations?

The chamber says Franchot's study mistakenly identifies big companies by measuring only employment. Under a given corporate umbrella, the legal entities with the most employment might not be the ones paying the tax, Syrylo says. And the ones paying taxes might not show on Franchot's screen because they have no employees.

The comptroller "knows it's not as simple and cut and dried as the report indicates," said Franchot spokeswoman Christine Duray. Sen. Paul G. Pinsky asked Franchot to study income taxes paid by Maryland's biggest corporations, and the document is the best the office can produce given computer limitations, she said.

The study, produced for several years now, doesn't identify companies that paid or didn't pay tax. Franchot can't do that, under the law. Instead, it discloses that out of the state's 132 biggest for-profit employers, only 68 paid income tax in 2005.

Former Comptroller William Donald Schaefer always sent Pinsky a long list of cautions about the data, which for some reason Franchot left out. ("It certainly wasn't intentional," says Duray.)

"There are examples of businesses with over a dozen separate accounts in our system, some or all of which could be paying corporate income tax," Schaefer's letter said. "Unfortunately, our tax system cannot tie related entities together to find the total corporate income tax paid by the `business' as a whole."

That's a pretty damning qualification. The fact that the excitable Franchot hasn't raised hell about the report reinforces the idea that he understands its limits. And - another point in business' favor - Maryland's corporate income-tax collections have soared, doubling since 2003 to $776 million. Somebody's paying this tax.

On the other hand, the study "cannot be construed to mean no corporations are cheating on Maryland taxes" or legally reducing their tax through loopholes, says David Roose, director of the comptroller's Bureau of Revenue Estimates.

Avoiding income tax is a primary reason companies split themselves into pieces in the first place. Any business with "over a dozen separate accounts" might be just as likely to get off scot-free as have undetected tax payments in an affiliate.

At the same time, increases in income-tax collections don't prove that business' long-run share of Maryland's expenses is growing. Much of the rise was generated by Maryland's booming economy, which, believe me, is not permanent.

O'Malley wants to raise the corporate income tax rate and install measures to foreclose new loopholes. Maryland has already addressed schemes in which companies assign assets to affiliates in other states and then deduct "rent" or "royalties" from their state taxable income. But the tax lawyers are usually three steps ahead of the legislators, and who knows what new recipes they're working on?

(Full disclosure: Tribune Co., owner of The Sun, just settled a long-running tax dispute with the Internal Revenue Service involving a former subsidiary of Times Mirror, which Tribune bought in 2000.)

The clearest picture would come from knowing the state income tax paid by each big Maryland company. The comptroller can't disclose the information, but you can, companies. Almost all the big, for-profit employers are registered with the Securities and Exchange Commission, which means they already disclose almost everything else.

We know about the $291,000 in fringe benefits, including club memberships, a car and driver, plane use, home security and home office equipment, that Lockheed Martin gave CEO Robert J. Stevens last year. Would it be too painful for Lockheed to say what the company paid in Maryland income tax?

"Over the last five years Lockheed Martin has paid a substantial amount of income taxes to the state of Maryland," says spokesman Jeff Adams. "We consider our specific tax information to be confidential."

I asked four other giant Maryland companies - plus the Baltimore Sun Co. - if they would consider disclosing tax data to help the debate on O'Malley's plan.

"Private and confidential," said a Giant Food spokesman.

"We don't want to comment on a hypothetical," said a Legg Mason spokeswoman.

Top officials at McCormick and Marriott who could answer the question were unavailable Thursday and Friday, spokesmen said. For The Sun's part, it delivers $140 million in annual economic benefits to Maryland, but tax returns are confidential, said a spokesman.

OK. O'Malley's idea to boost business income tax should prompt caution. For-profit corporations are the foundation of any healthy economy, and they aren't a piggy bank to be raided when it's convenient. But if companies insist they really aren't gaming the tax system, the best evidence in their favor may be at their fingertips.

jay.hancock@baltsun.com

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