Proponents of “combined reporting” for corporate income taxes say the change will benefit small businesses in Maryland, but business groups opposing the legislation say it will harm Maryland’s business climate.
“There are over 260,000 companies that submit separate personal property filings and pay taxes, over 240,000 of those have ten or fewer employees,” said Sen. Paul Pinsky of Prince Georges County at a hearing on SB179 Wednesday. “At the same time, a couple dozen of companies among them, with the largest payrolls in the state, pay no corporate tax at all.”
Pinsky wants to eliminate filing fees for personal property taxes by businesses with 10 employees or less, and he wants to make large multi-state firms pay more.
Most of these small businesses do not pay corporate income taxes, and Pinsky’s bill would cost the state $77 million in revenues from filing fees.
Pinsky is concerned that by avoiding taxes, big businesses are able to lower their prices and “undercut” Maryland small business owners. He believes that while this bill is unpopular among CEO’s of larger companies, it is the right thing to do for Maryland small businesses.
Under combined reporting, corporations would combine all their income from operations, and then pay taxes on the percentage of revenues that come from Maryland.
Currently 24 states and the District of Columbia have enacted similar combined reporting legislature.
“None of those states who have had it, for two, five or fifteen years have reversed it,” Pinsky said. “And I think that says something. They said you can’t get away with this type of mode of operation in our state, and I think we should say the same thing.”
With the added revenue in taxes that are collected from large businesses, Pinsky said the state will be able to reduce the budget deficit, avoiding teacher layoffs and lowering taxes for small businesses.
Business groups opposed
Mathew Palmer, senior vice president of government affairs at the Maryland Chamber of Commerce, worries that a bill targeting larger corporations will be “alienating the very industries Maryland is trying to attract.”
Ilaya Hopkins, vice president of public affairs at Montgomery County Chamber of Commerce, seconds Palmer’s opinion, saying that headquarter companies will be driven away from Maryland, hurting the state’s chances of staying relevant in the regional and global marketplace.
“Combined reporting has a negative impact on headquarter companies…it is important to remember, given the fiscal restraints the state is in now, that this is not a cure-all.” said Hopkins.
Sean Looney of Comcast asked the committee to look back at similar bills that were introduced and the two-year study on the effect of combined reporting on Maryland.
“For two years we took a very rigorous analysis of all the corporate taxes in the state and that panel wisely said that because of all the volatility and the unreliability of combined reporting. They gave it an unfavorable report.”
Looney feels that the switch to combined reporting will “scare away” jobs and investments from Maryland.
Similar bills have been introduced dating back to 2010 but they either received an unfavorable report or had no action taken on them.