To Be Fair, Business Should Share the Load


The Linowes Commission report would ask Maryland taxpayers to accept substantial tax increases by alleging that they are not now paying their "fair share" and by offering a few sweeteners such as installment payment of property taxes or additional tax credits for renters.

Before any legislation is considered, the General Assembly should initiate its own comprehensive and detailed tax study. I offer some points to consider.

Compare Maryland's top state and local tax rate of 7.5 percent with its neighbors. Pennsylvania's combined state and local rate of about 3 percent, although based on gross income, rather than on adjusted gross less deductions, produces a tax burden which would be about half that to be paid by Marylanders considered middle class.

Recent changes in Maryland's income-tax law have effectively reduced regressivity, but since Maryland law incorporates federal definitions of taxable income and allowable deductions, many taxpayers will be paying more tax to Maryland and its subdivisions under the state's existing rate structure because of changes in federal law.

Virginians pay state and local sales tax on goods and services, but at a lower combined rate than in Maryland.

Pennsylvania's 6 percent rate also applies to goods and services, but with an exemption for clothing, except furs, which means an effective rate of about 3 percent, considering the high percentage of a family's budget spent on clothing and accessories.

Delaware has no sales tax on consumer goods and services. The TC Linowes report, proposing rate increases to 5 1/2 percent and broadening the tax base to include most services, would almost double the tax burden.

The recommendation for a personal-property tax represents a new approach to taxation of Marylanders. At the same time, it camouflages a tremendous tax break for business by granting a complete exemption from state and local personal-property taxes for manufacturing machinery and inventories. This would cost the state and subdivisions millions in lost revenues and shift the burden to individuals.

Under the guise of simplifying the assessment procedure and offering such tidbits as a slight reduction in tax rates, allowing installment payment of taxes and extending the circuit-breaker benefits to more renters, the Linowes proposal would result in a substantial increase in annual property-tax revenues to the state and its subdivisions by assessing property at 100 percent of market value.

To be revenue neutral, a $3.00 tax rate should be reduced to less than half, if the present assessment ratio of about 40 percent of market value is increased to 100 percent.

And the determination of market value, which has been the bone of contention in the recent tax revolt by residential property owners, would remain unchanged. Maryland's present assessment procedure is more uniform than in most states. But older residential properties are assessed without realistic allowances for depreciation, after being inflated by the application of current building cost multipliers calculated from the year of original construction.

Maryland should also consider removing agricultural-class assessments for land for those property owners, including developers, who do not qualify as farm operators approved by the Internal Revenue Service. Otherwise, their true property-tax burden for governmental services is being subsidized by other property owners. Serious consideration should be given to the establishment of a separate classification for the assessment of commercial and industrial property, as has been the case in other states.

The proposed increase in the corporate tax rate from 7 percent to 7 1/2 percent would represent the smallest percentage increase proposed for any class of taxpayers. The proposal to eliminate the transfer of corporate tax revenues to the Transportation Fund has the effect of transferring responsibility for this fund primarily to other consumers who would pay an ever-increasing tax on motor fuels to rebuild Maryland's transportation network.

The major subdivisions in other states also levy city and county income taxes on corporations doing business in their jurisdictions. Philadelphia, to name one, has such a tax, but it did not deter Bell Atlantic from relocating its headquarters operation to the Philadelphia area rather than to Maryland.

Most corporations in Maryland have enjoyed a most liberal exemption from the payment of an annual franchise or license tax. The annual-report fee of $40 is the same for a small business as for such multi-state giants as IBM, Black & Decker, Martin Marietta or Westinghouse.

These same corporations pay substantial annual franchise or license taxes based on capital or stockholders' equity to such competing states as Delaware, Ohio, Pennsylvania, Virginia, West Virginia and North Carolina, to name a few. Pennsylvania's annual tax at 1/2 of 1 percent of stockholders' equity is most fair, taking into account the effect of increases or decreases in


As do other states, Maryland provides a full exemption for non-profit corporations with charitable, educational, professional and religious purposes. Taxing them would add millions in revenue and should be given serious consideration. To the extent that Maryland allows a deduction for such taxes paid to other states while not levying its own, we are short-changed in the collection of corporate taxes and indirectly subsidizing the taxes paid to the other states.

The Linowes report would also eliminate the annual-gross-receipts tax paid by communications companies such as the Chesapeake and Potomac Telephone Company that exercise monopolies. This would mean annual tax savings of several million dollars for C&P;, with little likelihood that the windfall would be reflected in lower rates for subscribers.

If Maryland's taxpayers are to be convinced on the issue of fairness, any added tax burdens must be shared more fully by the business community, as well as the wage earner and residential-property owner.

CMax H. Levenson is a retired director of state taxes for a group of corporations doing business in the mid-Atlantic region.

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