Franchot reaches wide, far

Gas costs, corporate taxes among comptroller's concerns

July 20, 2008|By Laura Smitherman | Laura Smitherman,Sun reporter

Between hosting his own biotechnology summit, leading the crusade against the legalization of slot machines and pushing for a new elementary school in Towson, Comptroller Peter Franchot appears to be squeezing in time for an activity his critics don't expect: his job.

State law sets out a relatively narrow role for the comptroller: chiefly to collect taxes on income, sales, gas, alcohol and other items, and to sit on the Board of Public Works. Franchot, a former state delegate from Montgomery County, came into office promising a much broader policy agenda dealing with the environment, minority contracting and anything related to state finances - which is pretty much everything.

But behind the scenes, he's been tackling issues that are within the traditional purview of comptroller. He has begun holding discussions with oil companies such as Exxon Mobil Corp. and Royal Dutch Shell PLC about the differences in gas prices from one jurisdiction to another, and he recently said he might consider using his subpoena power to get more information. He also is building on his predecessor's efforts to take big businesses to court over unpaid corporate income taxes, and is now litigating two dozen cases.

"To the extent I get visibility because something is a controversial issue, some of these other issues fall below the radar screen," Franchot said in an interview.

While Franchot has issued news releases and held news conferences about many of his initiatives, he has garnered the most attention for his high-profile opposition to slots and other issues that directly pit him against Gov. Martin O'Malley, a fellow Democrat and political rival. Franchot's efforts to win publicity have been derided by lawmakers and were the basis of a skit at last year's Legislative Follies, an annual variety show that pokes fun at Annapolis power brokers.

"Some people are in the business of sending out press releases, no matter how outrageous they might be," said Senate President Thomas V. Mike Miller, a frequent critic of Franchot.

Franchot sent a letter to his political supporters recently seeking contributions. The comptroller has said he would not run for governor in 2010 but that he wants to run for re-election to his current office. In the letter he listed his achievements, among them his fight to bring down the cost of gas and to crack down on "tax cheats."

"As Maryland's chief financial officer, I understand the pain families are feeling," Franchot wrote.

Franchot, who holds one of the few elected comptroller positions in the country, has a feel for hot-button issues. He first launched a probe into high gas prices last summer when prices zoomed past the then-stunning level of $3 a gallon.

The comptroller has focused on "zone pricing," in which wholesalers charge higher prices to some retail gas stations than to others. The price disparities can be significant between different areas of the state. According to, a price-tracking Web site, a Crown station in Park Heights charged $3.89 a gallon yesterday, while a BP in Mid-Town charged $4.15.

Oil companies contend that geographic differences are based on what the market will bear. They have resisted divulging information about pricing that they consider proprietary.

"It's a consumer rip-off, and it's been protected from public scrutiny by the industry," Franchot said. "Industry claims there is a proprietary software that justifies this, and we are going to get to the bottom of that."

Thomas A. Firey, a senior fellow at the Maryland Public Policy Institute, said that efforts to get around zone pricing by requiring that wholesalers set one statewide price would backfire because they would simply set the price higher. He said the reasons for price disparities are the same ones behind higher grocery prices in urban stores - the cost of land and rent is more in certain areas, and the degree of competition varies.

States are limited in their ability to regulate gas prices by a Supreme Court decision. But Franchot's office has indicated another legal avenue might be to examine whether discriminatory factors are used to determine prices.

Meanwhile, Franchot's office has been fighting with companies doing business in Maryland that he contends illegally avoided the state's corporate income tax by funneling profits to subsidiaries in Delaware. In 2003, the Maryland Court of Appeals sided with the state. Franchot's predecessor, William Donald Schaefer, instituted an amnesty program and then filed lawsuits against several other companies. Franchot has expanded on those efforts.

In April, the Maryland Tax Court ordered clothing retailer Talbots Inc. to pay $1.1 million in back taxes. A decision in another case with retailer Nordstrom Inc. is expected next month. In all, Franchot said he expects the cases to yield $145 million in unpaid taxes.

"Currently Maryland is one of the more aggressive states on this issue," said Stephen J. Blazick, an attorney at the Reed Smith law firm in Philadelphia who has represented companies that have employed the contested corporate structure. "Franchot has taken a stand that these companies are subject to tax in Maryland and this was a tax scheme."


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