Maryland has long been considered among the bluest of blue states, firmly in the Democratic camp. Its recent progressive record on social justice has only further burnished that reputation: passing the Dream Act to allow in-state college tuition — and college affordability — for young immigrants, marriage equality, abolition of the death penalty and legislation to restrict gun violence.
When it comes to corporate tax justice, however, Maryland has seen only red. The state has allowed many of the very largest multi-state, multi-national corporations operating here to use a tax avoidance scheme resulting in the loss of hundreds of millions of dollars in state corporate taxes and, sadly, placing Maryland-only businesses at a distinct competitive disadvantage.
These large businesses have avoided paying any — yes, that's zero — state corporate taxes in recent years. How? By diverting income and expenses to subsidiaries of their parent company in other non-tax states. They create a subsidiary and incorporate their human resource department, for example, in Delaware then deduct it as a "business expense," even though the funds end up with the same parent company.
Out of nearly 65,000 companies filing corporate returns, the culprits of this tax hustle number in the dozens. State law prevents the disclosure of the identities of these businesses, but recently released 2011 tax records revealed that 19 of Maryland's 50 largest corporations (38 percent) totally avoided paying any corporate income tax.
This same report, which I obtained from the state's comptroller, revealed that only four of the 15 largest finance and banking corporations paid any Maryland corporate income tax in 2011, the most recent available record. The identities of the individual offenders are protected; businesses such as Bank of America, Citigroup, Wells Fargo, PNC and T. Rowe Price are among the state's biggest finance and banking corporations. Additionally, 27 percent of the state's largest retail companies — which include Walmart, Home Depot and Giant Foods — did not pay corporate income tax. Again, the names of individual offenders are protected.
Overall 43 percent of the top 150 for-profit corporations paid no Maryland corporate income tax in 2011. Nationally, over half of the states with corporate income taxes have stopped this practice by adopting "combined reporting." This approach captures all of a parent company's subsidiaries and apportions taxes on the percentage of business done in their respective state.
If combined reporting had been in effect in 2010, the state's largest 150 corporations would have, according to conservative estimates, paid close to an additional $80 million in state taxes. Some economists put the figure closer to $150 million annually. While corporate tax collections went up from 2010 to 2011, the number of large companies actually paying the tax dropped.
Ironically, this reform isn't simply a "blue" reform since "red" states like Texas, Kansas and Montana have also adopted it along with states such as California, New York and Massachusetts.
Sadly, Maryland's voice of the private sector, the Chamber of Commerce, has chosen to block this effort. Nominally the voice of all business, it has chosen to side with the big multinationals rather than most Maryland businesses. The tax avoidance by the "big guys" allows these companies to reduce costs and undersell their Maryland competitors.
In fact, combined reporting legislation introduced last year would have also reduced the corporate filing fee for every business in Maryland, but the chamber chose to protect the few dozen companies using this tax avoidance strategy rather than improve the lot of all private businesses. The Chamber of Commerce decries the extra paperwork these large corporations would face and the complexities of tax filing but conveniently ignores the fact that these multi-state companies are already filing combined reporting in 23 states. They also shrilly proclaim that passing combined reporting would drive companies out of Maryland — as if companies like Bank of America, Walmart or Citigroup would run away from a wealthy market of nearly six million people.
The hearing on the Business Relief and Tax Fairness Act of 2014, (SB395) which I've sponsored, will take place in Annapolis on Wednesday. Poignantly, it comes exactly 60 days before April 15 tax day. Maybe next year, these tax recalcitrant entities will join every other Maryland citizen and company and pay their fair share.
Paul G. Pinsky serves in the Maryland Senate from Prince George's County and is the sponsor of the Business Relief and Tax Fairness Act of 2014. His email is email@example.com.
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