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Bill would close ‘tax loophole,’ dedicate ‘recouped revenue’ to Maryland’s HBCUs | COMMENTARY

Del. Stephanie Smith represents District 45 in the Maryland House of Delegates.
Del. Stephanie Smith represents District 45 in the Maryland House of Delegates. (Joshua McKerrow/Capital Gazette)

As a graduate of Hampton University and Howard University School of Law, I am acutely aware of the quality of education Historically Black Colleges and Universities (HBCUs) provide and the role they play in the social mobility of many Black residents. In Maryland, we are blessed with four excellent HBCUs, Coppin State University, Bowie State University, Morgan State University and the University of Maryland Eastern-Shore. However, our state’s track record on funding these institutions is spotty, and its history of underfunding is judicially confirmed.

Since 2006, advocates for Maryland’s four HBCUs have fought the state of Maryland alleging violations of Title VI of the Civil Rights Act of 1964. In 2013, a federal court held that unnecessary program duplication within Maryland’s higher education system has harmed HBCUs creating “segregated effects for which the State has no sound educational justification.” The Court ordered the state to remedy the injustice; to date no remedy has been finalized.

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Last spring, I was deeply frustrated when Gov. Larry Hogan vetoed House Bill 1260, which would have provided long overdue relief to these important institutions. Citing fiscal constraints, the governor rejected the Maryland General Assembly’s bi-partisan effort to settle the dispute and enable our HBCUs to more fully achieve their important missions. Undeterred, House Speaker Adrienne Jones has reintroduced a bill to settle historic HBCU underfunding. This is a critically important first step toward addressing past fiscal harm. To ensure we are not in this inequitable funding position moving forward, Maryland HBCUs need new sustainable funding moving forward. Thus, in conjunction with Sen. Antonio Hayes, I have introduced legislation to close a long-standing corporate tax loophole to provide new supplemental funding for our HBCUs.

About 25 years ago, the legislature became convinced rental car companies should not have to pay titling tax on their fleet purchases and the state would come out ahead by charging an inflated rental use tax to each individual consumer. This arrangement is problematic for several reasons, but the most egregious is that it has failed to recoup the promised revenue. Today, according to the Maryland Department of Budget Management, this loophole adds up to nearly $60 million in lost tax revenue each year. Senator Hayes and I propose to eliminate the fleet purchase tax exemption, lower the counter sales tax consumers pay for rentals and apply the recouped revenue to the funding of Maryland’s HBCUs.

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Intent notwithstanding, the impact of the current corporate tax exemption leaves less revenues for institutions and efforts long under-supported by the state. The continued preservation of this tax exemption, while underfunding HBCUs, demonstrates the problematic ranking of priorities that racial equity advocates seek to reorder. For too long, closing corporate tax loopholes has been proffered in campaign literature. With this bill, we move beyond well-meaning economic equity rhetoric to meaningful action.

Sitting in the House Ways and Means Committee last year, I listened as a version of this bill was presented. With great passion, I heard highly paid lobbyists argue a $24 billion dollar a year company was fighting to “level the playing field” in regard to how much sales tax an emerging competitor should collect from customers. They forcefully demanded “fairness.” While the arguments for and against the bill were intense and well-presented from both sides, my eyes glazed over. Hearing corporations argue about tax fairness when public institutions like Maryland HBCUs have been fighting for decades for adequate funding was extremely frustrating. However, as I looked into the issue, the reason I should care became clear: Favored tax treatment of corporations was actually hindering issues of racial equity and economic justice.

To be clear, the rental car industry is not to be blamed for the chronic underfunding of HBCUs; like any business, their job is to maximize profits and minimize expenditures. However, when charged with reexamining the policies that create social inequities, like the failure to adequately fund HBCUs, responsible legislators should closely examine tax exemptions provided to out-of-state corporations. For too long, Black-led institutions have been asked to wait for better revenue projections and told their priorities, however worthy, can simply not be funded. Our bill seeks to refocus Maryland’s priorities from upholding unnecessary corporate tax breaks for out-of-state businesses to properly supporting public institutions of higher education.

As one can see, equity policy is an exercise in disruption. Our tax and fiscal policies have ripple effects far beyond any specific industry. As we sit at a historic crossroads, I am encouraged that my colleagues will see the responsibility we have to shape a more just tax system and will favorably support this effort to sustainably provide adequate funding to Maryland’s HBCUs.

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Democrat Stephanie M. Smith (stephanie.smith@house.state.md.us) represents Baltimore City in the Maryland House of Delegates.

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