BBJ: Maryland businesses fight to save millions in tax credits in Annapolis

By Holden Wilen

Feb 12, 2020

Dozens of people from industries across Maryland came to Annapolis Wednesday to testify against a bill that would eliminate many of the state’s tax credit and incentive programs.

The House Ways and Means Committee conducted hearings on many of the key bills being watched by the business community during this year’s legislative session. The committee’s chairwoman, Del. Anne Kaiser, a Democrat from Montgomery County, has proposed a bill to eliminate eight incentives offered by the state to attract and grow businesses in Maryland.

Programs eliminated by the bill would include enterprise zones, One Maryland tax credits, opportunity zone enhancements, the biotech tax credit, film production tax credits, the cybersecurity tax credit and the small business tax relief credit.

Bills included a proposal by Del. Mary Lehman, a Prince George’s County Democrat, to implement combined reporting, which businesses have been fighting against for years. Combined reporting would require companies with subsidiaries in different states to account for those subsidiaries when filing their income taxes in Maryland. Legislative analysts estimated the bill would generate $561.5 million in revenue through fiscal 2025.

Another bill, proposed by Montgomery County Democrat Vaughn Stewart, would create a so-called “throwback rule” in determining whether sales are considered to have happened in Maryland when calculating state corporate income tax. It would require Maryland-headquartered companies to pay corporate income taxes on revenue earned outside of the state, but not taxed elsewhere.

The proposal is estimated to generate $251.1 million in state revenue through fiscal 2025.

Various groups, including the Greater Baltimore Committee, the Maryland Chamber of Commerce and the Council On State Taxation, said both proposals would hurt Maryland’s already negative business reputation and make the state less competitive.

Stewart defended his proposal, calling the warnings of the opponents “apocalyptic.”

“They’re not providing any studies to back it up,” he said.

For his part, Stewart cited several academic studies that found throwback rules do not have a significant impact on business activity or employment.

Supporters of Stewart’s and Lehman’s proposals argued that taxes don’t actually play a big role in site location for companies. Del. Eric Leudtke, the majority leader in the House and a member of the Ways and Means Committee, also questioned the role of taxes.

“I wonder if tax climate really has that much impact on the business climate of state, given that we don’t have [the throwback rule],” Leudtke said. “Or is it tax policy that has a fairly limited role in economic growth in the state?”

The business advocates said Maryland’s tax climate needs to be looked at holistically. For example, Maryland already has a moderately high corporate income tax rate.

Other bills receiving testimony during the marathon hearing included a package of bills proposed by Del. Julie Palakovich Carr of Montgomery County. Her legislative package includes:

  • HB222 — This bill implements an additional 1% income tax on net capital gains. The bill would provide Maryland with $766.3 million in additional revenue through fiscal year 2025.
  • HB223 — Titled the “End Ineffective Business Subsidies Act of 2020,” the bill terminates various incentives for businesses including enterprise zones, the One Maryland Tax Credit program, opportunity zone enhancements and the biotechnology tax credit. The bill would add $65.8 million to state revenue through fiscal 2025.
  • HB224 — The bill decouples Maryland from the federal government for a tax break given to people who invest in an opportunity zone, providing the state with an additional $71.7 million through fiscal 2025.
  • HB507 — The bill imposes imposes a state tax on income distributed to members of pass-through entities from the entity’s income exceeding $1 million. Pass-through entities include partnerships and other types of businesses that are not registered as traditional corporations, such as law firms, accounting firms and others. The bill is estimated to generate $1.8 billion in revenue through fiscal 2025.

Business groups opposed those bills as well. The Greater Baltimore Committee called on lawmakers to pass legislation creating a tax commission to study “a fair, equitable and modernized system of taxation.”

To read the full story, visit the Baltimore Business Journal’s website.

Source: Baltimore Business Journal