Wednesday, August 12, 2009
Let the Business Tax Reform Commission Do its Work
An article in today’s Baltimore Sun, “Maryland turning eye to tax changes” did not accurately describe Maryland business tax increases being proposed by public employee unions. Far from being an “accounting change” or “loophole closer,” altering Maryland’s corporate income tax law to a system of combined reporting is a fundamental change to our state’s tax system.
Current law requires corporations doing business in the state to be taxed based on their payroll, property and sales in Maryland. Combined reporting arbitrarily assigns income to Maryland for all members of a corporate unitary group – even for those corporate entities having no presence in the state.
States that have adopted combined reporting have found that it results in massive shifts of tax liability between businesses, with many paying more taxes and many paying less. It is important to analyze the winners and losers of such a tax change and the impact on Maryland’s economy.
The Maryland General Assembly has already effectively closed practices targeted by combined reporting through the enactment of “addback” statutes. The Maryland Chamber of Commerce supported legislation to address Delaware Holding Company and captive REIT abuses.
Combined reporting requires a fact-specific determination of what entities operate as part of a unitary business. This tax system requires significantly more work by businesses, tax practitioners, and state tax auditors. The State Comptroller’s Office has never supported legislation to adopt combined reporting.
The Governor and General Assembly are to be commended for appointing a Business Tax Reform Commission, which is taking an in-depth look at combined reporting and other business tax issues. We should resist the urge to increase business taxes in the depth of a recession and let the Commission do its work.
