Panel recommends leaving corporate tax unchanged

An influential panel voted Tuesday to delay discussion of altering the state's corporate accounting rules, a move welcomed by the chieftains of large companies who worried that the change could hurt their bottom lines just as the economy appears to be brightening.

The change, known as combined reporting, would make it difficult for companies to steer Maryland revenues to shell corporations in other states with more favorable corporate tax rates.

Tightening corporate accounting rules has long offered a tempting, even populist, way for lawmakers to chip away at the state's persistent budget shortfalls. Last week, fiscal analysts announced that next year's gap between state revenues and expenses will be $1.6 billion, nearly one-third larger than previously thought.

But for years, business groups have argued that the change could cost the state money — a position that was bolstered Tuesday when the comptroller's office distributed a study concluding that the state would have lost $13 million to $50 million if the rules had been in place in 2008.

Opponents say making the change could cause businesses to leave the state.

"We continue to oppose combined reporting," said William R. Burns, a spokesman for the Maryland Chamber of Commerce. "The Maryland General Assembly should reject business tax law changes that would make Maryland less competitive."

Members of the Maryland Business Tax Reform Commission, a panel of lawmakers charged by the General Assembly two years ago with studying combined reporting, voted 12-4 to recommend that lawmakers leave the issue alone for the legislative session that begins in January. The commission was silent on future years.

"This is not the simple issue that the proponents and opponents make it out to be," said House Majority Leader Kumar P. Barve, the Montgomery County Democrat who led the effort to delay discussion of the change. "This is the most complex issue that I've had to deal with."

The comptroller's report offered a drastically different picture than one produced last year, which was based on 2007 corporate income data and showed that combined reporting would have netted the state up to $170 million.

The most recent study does not include data from about 1,400 companies that went out of business, moved or failed to report the data to the state. However, David Roose, an analyst with the comptroller's office, said he does not believe the figures would change dramatically.

"Down the road we could do it," said Del. Sheila Hixon, a Montgomery County Democrat who chairs the Ways and Means Committee. She has advocated for tax increases in the past — "if you make it, we can tax it," she quipped Tuesday — but voted against recommending the change, saying that Gov. Martin O'Malley and the leadership in the Assembly oppose it.

The panel's decision is not binding; the Assembly could still implement the change. But lawmakers on the committee said that seems unlikely.

"It appears to make the corporate income tax more volatile," Barve said. He said he dislikes that the change would affect industries differently, noting that it could give the utility sector a $25 million tax break while increasing taxes on sectors that include manufacturing and retail.

The strongest voice in favor of the change came from Sen. Richard Madaleno, who said the private sector is "fundamentally reorganizing itself" into larger companies that have a greater ability to dodge state taxes.

"We don't bank at Maryland National," the Montgomery County Democrat said. "We bank at Wells Fargo."

There is never going to be a "right time" to implement the change, Madaleno said. But "we are going to cross the bridge someday."

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