HB 731  Corporate Income Tax - Combined Reporting, Del. Ross sponsoring

Good afternoon Chair Hixson, Vice-Chair Rosenberg, and distinguished committee members. Thank you for the opportunity to speak here today.

I am testifying today in support of this combined reporting bill which, in its short 5 pages, closes a very large and costly loophole for the state of MD.

I come to this hearing simply as a concerned citizen. In 2010 I was a candidate for the House of Delegates in Howard County district 9A.  During that campaign, I was asked if there was anything I would do to change the Corporate Tax structure and combined reporting was my one answer.  I supported it then, I support it know, and it is the only issue that I have chosen to testify about in this legislative session.

The current application of the Maryland Corporate Income Tax by large, multi-state corporations is at best inequitable, at worst deceitful.  Most importantly, it in no way reflects the intent of you, the legislature to have fair taxation.

Two creative accounting schemes heavily used in the past by corporations serve as models for income shifting strategies.   One is the Delaware Holding Company Strategy and the other is the Captive Real Estate Investment Trust strategy. Both these techniques were used to open a costly loophole in the tax structure.  Narrowly targeted "fixes" in previous legislation by this body have encountered enforcement problems and legal challenges, leaving Combined Reporting as the one proven, comprehensive solution to combat these tactics.

  • In my remaining time I will not cover so much the reasons why you should implement combined reporting, I believe you have heard those from other folks today, rather I will state some general facts related to our corporate tax environment.

    In 1977, Corporate Income Taxes accounted for nearly 10% of all state tax revenue nationally.   Estimates are that that this dropped to 5% by 2004. This drop cannot be attributed to legislated tax reductions or lower corporate income. Rather, it appears to result from the increasingly sophisticated tax avoidance schemes employed by large corporations.

  • Our surrounding states generate a larger portion of their General Fund revenues from taxes on corporations.  Virginia, often labeled as more "corporate friendly", generates 5% of its state general fund from corporate tax, compared to our 4%.  Pennsylvania and Delaware both employ a Gross Receipts tax in addition to the Corporate Income Tax.  This gross receipts tax ensures that corporations cannot completely avoid taxation through the arbitrary shifting of income to other states.  In addition, Delaware also collects substantially higher “Incorporation Taxes”. In these states, taxes on traditional Corporations are a much larger portion of general fund revenues than in Maryland.

  • Finally, states are rapidly adopting Combined Reporting (seven states, including Texas, since 2004). A majority of states with corporate income taxes now mandate combined

I am not a tax expert, but my study of this issue leads me to conclude that closing this loophole is the right thing to do for Marylanders and for our small-businesses that responsibly pay their taxes.

During these trying financial times when many citizens appear to have lost all confidence in government’s ability to address the misdoings of corporate America and their accounting firms, it's more important than ever for you to seize the opportunity to correct this wrong in our state of Maryland.

Thank you.

Maryann Maher