November 11, 2010

Businesses, groups disagree on combined reporting

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By Megan Poinski
Megan@MarylandReporter.com

During a two-hour-long parade of witnesses before the Business Tax Reform Commission on Tuesday night, one point came through repeatedly: what is best for the state’s corporate tax code is not obvious.

Person after person came before the commission with impassioned recommendations, most of them dealing with combined reporting.

Some urged the commission to reject combine reporting. Some said that combined reporting is needed. Others decried proposed gross receipts and service taxes, while still others urged commission members to keep in mind that any big changes will take time.

“There are no easy answers, that is clear, and no matter what you choose, you are going to upset somebody,” said Nancy Soreng from the League of Women Voters, speaking near the end of the 32 testifiers at the meeting.

Formed by 2007 legislation, the 18-member commission is charged with evaluating the state’s current tax structure and making recommendations for changes in order to create more fair and equitable taxes for businesses across the state.

The commission will decide on its final recommendations next week, with a report due to the legislature and governor Dec. 15, a year earlier than originally planned.

The Tuesday night hearing was the public’s chance to have input on the final report and recommendations. Management of businesses of all sizes, representatives of business and industry associations, accountants, economists, members of policy groups, and union representatives all weighed in on corporate tax policy.

Most of the testifiers spoke extensively about combined reporting, which is a way of calculating corporate taxes based on how much a company makes in a state, not where it is headquartered.

It is complicated to calculate taxes based on combined reporting because there is no single accepted formula or method to look at what should be taxed. Combined reporting – like many other different taxation methods – would result in some businesses being taxed more, but others being taxed less.

Speaking against combined reporting were representatives from large multi-state corporations like UPS and Marriott, trade groups for manufacturing, technology and retail, and chambers of commerce. A study produced for the commission determined that large corporations doing business in many states are likely to be taxed more than they pay currently under combined reporting.

Joe Donohue, who works in the tax department of hotel chain Marriott, said that with the economy still recovering, now is not the time to add more taxes to business. Combined reporting causes instability, he said, and a stable tax environment is imperative for businesses trying to succeed.

Chris Solefami, director of tax for UPS, said that combined reporting would create an unnecessary burden on the state’s corporations. Not only might combined reporting cost the global parcel shipping company more in taxes, but it also would require more people to figure them out.

“Anything that increases complexity increases our costs,” he said. He added that if UPS has to hire more accountants to work on combined reporting taxes in Maryland, those jobs will most likely be at UPS’ headquarters in Atlanta and not in-state.

Several people spoke about the states with which Maryland routinely competes for businesses: Pennsylvania, Virginia, and North Carolina.

“None of our competitor states enacted combined reporting,” said Kathy Snyder, president of the Maryland Chamber of Commerce. “If we do that, Virginia will love Maryland much more. …It’s a short-term gain with a long-term competitive loss.”

However, combined reporting had some strong advocates, namely small businesses and trade associations, economists, policy groups and unions.

Michael Mazerov from the Center on Budget and Policy Priorities, a center focused on studying the effects of budget policies on low and moderate income families, said that combined reporting is the only way to get large corporations that operate in Maryland and other states to pay their fair share.

Through creative methods like locating their subsidiaries across state lines, a company sometimes cannot be taxed in Maryland for the business it does. “That’s corporate avoidance 101. It’s not illegal,” Mazrov said.

Besides, he said, the major multi-state companies rallying against combined reporting already do business in the states that have instituted the practice.

Carly Mercer, speaking on behalf of Maryland PIRG — the state’s Public Interest Research Group — said that instituting combined reporting is a matter of fairness to the residents of Maryland.

Residents pay taxes that fund governmental programs and infrastructure, and Marylanders lose out if those services have to be cut because of fund shortfalls. Corporations doing business in Maryland should contribute to “the services and structures that enable them to thrive in our state,” she said.

Si Boettner, who owns the Chesapeake Trading Company in St. Michaels, said that he understands why large businesses would want to pay less in taxes. However, that isn’t fair to small businesses like his.

“It’s not too much to ask that the rules be the same for everyone,” said Boettner.

Written testimony shared at the meeting is available here.