By Len Lazarick
A new study finds that at least 68 profitable corporations paid no state income taxes anywhere in the country in one of the last three years, according to their annual reports and official government filings.
Among the major companies on the list that do significant business in Maryland are Comcast, Wells Fargo, Southwest Airlines, Verizon, General Electric and Pepco Holdings, the utility company which paid no state taxes in 2008, 2009 and 2010.
“Individual taxpayers and small businesses in Maryland end up having to pick up the tab when these corporation avoid paying their taxes,” said Jenny Levin at Maryland PIRG, the public interest lobbying group that released the study Wednesday. The report, “Corporate Tax Dodging in the Fifty States,” was done jointly by the Institute on Taxation and Economic Policy and the Center for Tax Justice, which generally support more progressive tax policy.
The study found that 265 corporations it reviewed paid only about 3% tax on their corporate profits, while the average corporate state income tax rate was 6.2%. In Maryland, the rate is 8.25%.
The study recommends wide ranging changes in how states tax corporations. This includes adoption of combined reporting and decoupling from federal tax law changes that have lowered federal taxes on corporations.
The report did not disclose what corporations pay to individual states since the companies don’t have to and those individual payments are not disclosed by state governments either.
Companies pay higher property, sales taxes
Karen Syrylo, the tax consultant with the Maryland Chamber of Commerce, said the report disregards the other taxes that corporations pay in Maryland, which raise far more money than the corporate income tax and must be paid even when a company is having an unprofitable year.
According to an Ernst & Young study released in July, Maryland businesses paid about $8.8 billion in taxes, but only 10% of that was from the corporate income tax. The largest taxes on Maryland businesses were property taxes ($2.3 billion), sales taxes on items for business use ($1.5 billion), excise and gross receipts taxes ($1.7 billion), licenses and other fees ($1.1 billion), and individual income tax on business income ($800 million).
Kim Burns of Maryland Business for Responsive Government pointed to similar figures and called the study on tax dodging “arrogant and misleading.”
“It vilifies corporations that pay taxes and create jobs everywhere in the country,” Burns said.
Syrylo pointed out that there are a variety of reasons a corporation might pay no state income taxes. One reason in particular, depreciation on equipment, would heavily impact a utility like Pepco and other companies with major equipment purchases. She also said that companies are allowed to carry forward losses from prior years.
Syrylo said 3% was “a healthy effective tax rate of 3%.”
The report on low corporate tax rates comes at a time when a number of Maryland labor, education and nonprofit organizations are organizing an effort to persuade the governor and legislature to take a “balanced approach” to state budget issues. This means not just relying on cuts to services and personnel to balance the next year’s budget, but also increasing tax revenues.
The “Save Our State Coalition” is hosting a “community conversation” Monday night at Baltimore City Community College.
You might have mentioned that SOS Maryland’s “balanced approach” supports increasing sales tax revenues by recommending taxing services to consumers in addition to purchases. Additionally, the progressive group recommends taxing Internet sales & limited cuts to a bloated state budget that has increased year after year. Given the reported results from several audits over the past few weeks, maybe these folks should start looking at state government waste and mishandled department funds before supporting yet another revenue grab.