Parts of tax plan falter

Corporation levy faces opposition in Senate panel

General Assembly Special Session

November 04, 2007|By Andrew A. Green and Bradley Olson | Andrew A. Green and Bradley Olson,Sun reporters

Gov. Martin O'Malley's effort to make sure big corporations pay income tax in Maryland -- a proposal that has faced stiff opposition in the business community -- ran into difficulty in a Senate committee yesterday.

Other elements of the governor's plan to resolve Maryland's projected $1.7 billion budget shortfall could also change in the coming days. In particular, his plan to expand the sales tax to real estate management and health clubs could be scrapped and replaced with new levies on other services, lawmakers said.

Administration officials plan to meet with legislators to decide which services should be in and which ones should be out.

O'Malley aides said they haven't given up on "combined reporting," a measure the governor says he favors to prevent multistate corporations from avoiding Maryland taxes by reporting profits elsewhere. But in a meeting yesterday, members of the Senate Budget and Taxation Committee appeared ready to scrap it.

"Quite frankly, I don't think we have the votes for combined reporting in this committee, but rather than killing the bill outright ... we might do a study," said Sen. Ulysses Currie, the Prince George's Democrat who is chairman of the committee.

O'Malley's chief legislative aide, Joseph C. Bryce, said he will work with legislators to find ways to make corporate tax compliance a component of the budget package. According to preliminary data from the comptroller's office, nearly half of Maryland's largest corporations didn't pay income tax in the state last year.

Legislative staffers estimate that combined reporting might generate about $28 million a year. But symbolically and politically, it is key. "The governor believes we should not be asking our citizens to pay more when there are those who are not paying taxes at all," Bryce said.

Karen Syrylo, a tax analyst for the Maryland Chamber of Commerce, said businesses dislike combined reporting because it is complicated and prone to cause lengthy litigation, all for a measure that does little to solve the state's fiscal problems.

"It's the old line: The juice isn't worth the squeeze," she said.

Objections from business owners also appear to be having an effect on O'Malley's plan to expand the sales tax to additional services. Real estate professionals, health club owners, massage therapists and others whose services would be subject to the sales tax have protested strongly in recent days, and Currie said it might be difficult to get those provisions through the legislature. He said others might take their places.

The House Ways and Means Committee did take up consideration of extending the sales tax to other services yesterday -- and met with predictable resistance.

Legislators considered extending the sales tax to items including snacks, clothing and tattoo parlors, and dozens of business interests lobbied not to be added to the tax rolls.

The House of Delegates considered more than three dozen bills yesterday that are not part of O'Malley's package, though most appear likely to be sidelined. Among them was the House Republican caucus' alternative to O'Malley's slot-machine proposal, which would raise $850 million by selling six licenses that would be awarded through a competitive bidding process.

Del. Anthony J. O'Donnell, the minority leader from Southern Maryland, said the GOP plan is fairer than O'Malley's, which specifies five sites for slots -- one each in Baltimore City and Anne Arundel, Allegany, Cecil and Worcester counties.

He called O'Malley's plan a "`Who wants to be a bazillionaire?' process."

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