O'Malley would back changing corporate tax law

The Baltimore Sun

Upset by a report that nearly half of Maryland's major corporations didn't pay income taxes last year, Gov. Martin O'Malley said he would seriously consider pushing for "combined reporting," a tax law change that advocates say would make it hard for companies to hide their profits in other states.

O'Malley, a Democrat who is developing plans to close the projected $1.5 billion annual gap between state spending and revenue, said that if citizens are going to be asked to pay more taxes, businesses should pay their fair share, too.

"This is an unfairness of the tax code that would allow some of the largest and most profitable corporations in the state to pay no income tax," O'Malley said. "All these corporations benefit from our quality of life."

Comptroller Peter Franchot also favors closing corporate tax loopholes, and his predecessor, William Donald Schaefer, tried for years to stop companies from hiding their profits in Delaware holding companies.

O'Malley's comments came a day after the state comptroller's office released a report showing that just 68 of the 132 largest for-profit corporations in Maryland, as defined by their payrolls, paid taxes in 2005. The numbers are preliminary and could change, but a similar proportion paid no taxes in 2004.

Confidentiality laws prohibit the comptroller's office from disclosing which companies paid taxes and which didn't. The Sun is on the list of 150 largest companies.

Liberal advocacy groups and lawmakers, including Sen. Paul G. Pinsky, the Prince George's Democrat who requested the data from the comptroller's office, say the solution is combined reporting, an approach used in about 20 states.

Combined reporting requires that companies list together their profits from all subsidiaries and apportion them among the states, a method that advocates say prevents the companies from hiding profits in states with low corporate income tax rates.

O'Malley said he's open to that idea.

"Addressing that unfairness is certainly something we've been looking at, along with closing other loopholes," O'Malley said.

Opponents of the idea say it would put Maryland at a competitive disadvantage because few states in this region have adopted combined reporting. They also say the policy is overly complicated and would burden businesses with excessive paperwork and difficult calculations.

Karen T. Syrylo, the Maryland Chamber of Commerce's state taxation consultant, said the fiscal benefits to the state from adopting combined reporting are unclear.

Pinsky said he thinks it could generate $100 million a year or more in new taxes, but legislative analysts predicted the figure would be less than $20 million.

Syrylo said that because of the variation in corporate structures, the state might even lose money on the proposition.

andy.green@baltsun.com

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