Maryland Business Tax Reform Commission Says Tax Avoidance Creates Economic Growth

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On Tuesday, the Maryland Business Tax Reform Commission chose not to recommend one of the most sensible — and most needed — corporate income tax reforms available to state policymakers, "recommend[ing] to the General Assembly that combined reporting not be implemented in 2011.” The commission failed to understand (or chose to ignore) the benefits of requiring "combined reporting" of corporate income by corporations with income from different states. This method of taxation greatly reduces the opportunities for multistate companies to shift profits from the state where they are generated to states with lower corporate income taxes or none at all.

The actions of the Commission, which has been meeting for over a year with a mandate to make recommendations to the state legislature on a wide variety of business tax issues, still leave the door open for lawmakers to pursue combined reporting in 2011. And lawmakers should seriously consider it, in the wake of news last week that the state's budget deficit for the next fiscal year is $1.6 billion.

From a tax avoidance perspective, Maryland's lack of combined reporting is the equivalent of a farmer leaving the barn door wide open. As ITEP's policy brief on this topic notes, in the absence of combined reporting, multi-state companies can easily shift their income on paper from one state to another to avoid paying income tax, creating "nowhere income" that isn't taxed by any state.
In a hearing last week, ITEP and other organizations testified on the need for combined reporting, both as a means of achieving a level playing field between big multi-state companies and their mom-and-pop competitors, and as a desperately needed revenue-raiser. And as a Tuesday editorial in the Baltimore Sun eloquently argues, the "level playing field" argument alone should be a compelling reason to enact this needed reform.

Hopefully, Maryland lawmakers will show clearer thinking on this topic than has the Commission when they convene next spring.

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