"Here we go again," said House Minority Leader Anthony J. O'Donnell, a Southern Maryland Republican. "I want to say this very slowly for my tax-and-spend friends: 'Taxes bad.' "
Proponents of combined reporting say the change would prevent multistate corporations from shifting profits to states with lower or no corporate income tax.
The American Federation of State, County and Municipal Employees, which represents state workers, is supporting the change as an alternative to budget cuts.
O'Malley had included the proposal as part of a package of tax measures in the 2007 special legislative session, when it was rejected by a Senate committee. Lawmakers enacted $1.3 billion in other tax increases.
Among the corporations that have lined up against combined reporting are defense contractor Northrop Grumman Corp. and hotelier Marriott International Inc. Business groups say the change would drive major employers to surrounding states. While about half the states with corporate income or business taxes have implemented such a policy, Virginia and Pennsylvania have not.
House Speaker Michael E. Busch said emphatically that "there will be no new taxes" next year. He said he does not view combined reporting as a new tax but rather "a philosophical debate about the appropriate way to collect taxes."
States such as West Virginia have cut corporate tax rates when adopting combined reporting to neutralize arguments that the change was merely a money grab, but that strategy would likely weaken support for the change in budget-strapped Maryland. The budget must be cut by more than $1 billion to cover a projected shortfall next year, so collecting more taxes might become an attractive alternative.
"It would be some found revenue and reduce the need to make cuts to health care and state workers," said Sen. Paul G. Pinsky, a Prince George's County Democrat. "I don't see it as a tax increase. It's closing a loophole. This is revenue we should be getting."
The proposal could gain steam with the release of the report from Franchot's office, which required companies to file shadow income tax filings using combined reporting. Officials caution that the tax data being studied is from 2006, before the economy slid into recession, and that the proposal involves complex accounting issues that should be addressed carefully.
Franchot is "philosophically supportive of combined reporting, but he recognizes the devil is in the details," said spokesman Joseph Shapiro.
