Progressive Maryland and other organizations testified Jan. 24 at a hearing on Senate Bill 195, called a “combined reporting” bill, before the Maryland Senate Budget and Tax Committee.

 Jennifer Dwyer, Policy and Legislative Director for Progressive Maryland, explained our support for the bill: By deftly deploying their presence in other states, some major companies doing business in Maryland have historically been able to avoid or greatly reduce their state income taxes compared to the benefits that they get from doing business in a wealthy state.

Progressive Maryland and other organizations testified Jan. 24 at a hearing on Senate Bill 195, called a “combined reporting” bill, before the Maryland Senate Budget and Tax Committee.

 Jennifer Dwyer, Policy and Legislative Director for Progressive Maryland, explained our support for the bill: By deftly deploying their presence in other states, some major companies doing business in Maryland have historically been able to avoid or greatly reduce their state income taxes compared to the benefits that they get from doing business in a wealthy state. High earnings and the vibrant economy make Maryland a great state to do business but these corporations, while benefiting from that economy, are in no way paying their fair share to the taxpayer-supported costs of keeping Maryland at that level. Businesses solely based in Maryland are disadvantaged because they do not benefit from that loophole, which “combined reporting” would largely close.

Here is Ms. Dwyer’s testimony to the committee:

Thank you for the opportunity to testify on SB 195. Progressive Maryland is a grassroots, nonprofit organization of more than 100,000 members and supporters who live in nearly every legislative district in the state. In addition, there are dozens affiliated community, faith, and labor organizations across the state that stand behind our work. Our mission is to improve the lives of working families in Maryland. Please note our strong, longstanding support for this bill.

SB195 requires affiliated corporations to compute Maryland taxable income using combined reporting. At a time in which there is so much uncertainty in our federal government, it is important to look at underlying problems in the state’s tax code.  In evaluating whether and how to fund various current and potential programs to improve quality of life for Maryland residents, it is critical that the legislature ensure that everyone, individuals and corporations, pay their fair share into the government services from which we all benefit.

Progressive Maryland believes that a fair tax system asks all to contribute to the cost of government services based on their ability to pay. Just as working families and Maryland-based businesses benefit from the many wonderful state services that Maryland provides, so do multistate corporations.  Multistate corporations rely on Maryland’s first-rate education system to provide a trained workforce, use a state’s transportation system to move their products from one place to another, and depend on the state’s court system and police to protect their property and business transactions. Corporations should contribute to funding these services just as working people and Maryland based businesses do. Unfortunately, many large, profitable, multi-state corporations are not currently paying their fair share. 

In 2014, nearly 30% of the 50 largest businesses in Maryland paid no state income taxes whatsoever. Maryland has in the past partially closed some loopholes through legislation aimed at “Delaware Holding Companies” and “Captive Real Estate Investment Trusts.” These were important steps, but fall short in fully extending fairness to those subject to Maryland’s corporate income tax. 

The biggest remaining loophole is the ability of large multi-state corporations to reduce their state tax though the use of related companies.  Simply put, combined reporting requires consolidating all taxable income of related companies into a “unitary” business and apportioning an appropriate share to Maryland. 

Twenty three states and the District of Columbia have adopted this approach--a majority of those states that have a corporate income tax.  

Objections have been raised that combined reporting will, “…cause huge shifts in tax liabilities among Maryland businesses engaged in interstate commerce.”  

However, there is a need to look closely at the size of the business and amount of tax shift of those affected by combined reporting.  In 2008, when corporate income was at historic lows, corporations with incomes under $100 million annually showed tax savings on average. 

However, 123 corporations in Maryland with income over $1 billion each would have seen their Maryland tax rise on an average of $600,000 each for a total of $74 million in state revenue (using the Finnigan method).   Similar effects are demonstrated in each of the study years 2006-2009 examined by the Comptroller’s office.

These figures demonstrate that large, multistate corporations are in fact utilizing related companies to avoid Maryland taxes.  Maryland-based businesses and smaller multi-state businesses are largely unable to duplicate these tax strategies and end up paying more taxes proportionately under the current system than they would under combined reporting.

Combined reporting is fundamentally an issue of tax fairness.  Individuals and businesses that operate solely within the state are unable to duplicate the tax avoidance strategies of large, multistate corporations.  Enacting combined reporting will be a big step toward insuring that everyone pays their fair share.

We urge a favorable report on SB195.