Donald Fry: Tax commission delivers refreshing change of pace

By Donald Fry

When the General Assembly created the Maryland Business Tax Reform Commission during the November 2007 special session to study whether to implement a so-called “combined reporting” corporate income tax policy, most in Annapolis probably expected that this commission would recommend some form of legislation to increase business taxes.

That’s the generally expected outcome when legislatures create commissions to “study” taxes.

This past Wednesday, the commission, which included five members of the General Assembly, delivered a refreshing change of pace. It voted overwhelmingly to recommend that lawmakers not impose a combined reporting tax policy on Maryland corporations during the 2011 session.

Even state legislators on the panel voted 3-2 to urge their fellow lawmakers not to pass a combined reporting bill.

The recommendation, which was introduced by business tax commission member Delegate Kumar Barve (D-Montgomery) who is House majority leader, offers hope that legislative leaders may not be in a mood to increase business taxes in the 2011 session.

The Greater Baltimore Committee and other business advocates contend that a combined reporting tax policy would not make Maryland’s corporate taxes more “fair,” as proponents contend, but would instead make them more complex and volatile, would increase business costs, and would make Maryland less competitive as a business location.

A combined reporting tax policy would take into account, or “combine,” the entire earnings of Maryland companies with operations in many states and apportion a portion of those earnings to Maryland for tax purposes.

The lawmakers on the tax reform commission who voted for the resolution not to move forward with combined reporting next year were Barve, Senator Nancy J. King (D-Montgomery) and Delegate Sheila Hixson (D-Montgomery), who chairs the House Ways and Means Committee. Senator Richard S. Madaleno, Jr. (D-Montgomery) and Senator Verna Jones (D-Baltimore City) voted against Barve’s motion.

Does this mean businesses no longer need to fear a major change in Maryland’s business tax policy from a legislature facing serious fiscal challenges?

Not exactly. It simply means that, at least for now, there appears to be a diminished chance that this particular tax policy change will make it through the legislature next year. It doesn’t mean that other potential revenue enhancements won’t be considered.

The business tax reform commission’s vote does not even mean that there won’t be combined reporting legislation proposed in the 2011 session. In fact, it’s likely that such a bill will be filed and pushed by proponents as a way to help close budget deficits. But at least proponents won’t be able to tout an endorsement from the commission.

The commission’s recommendation is silent on whether combined reporting legislation should, in its opinion, be considered in future legislative sessions.

Lawmakers will still face a significant fiscal challenge in the form of a projected $1.6 billion deficit for FY 2012 when they convene in Annapolis at noon on January 12. What’s more, fiscal imbalances will continue, according to the Department of Legislative Services, which projects general fund structural deficits of $1.9 billion in FY 2013 and $1.8 billion in fiscal years 2014, 2015, and 2016.

Next year the state could benefit from increasing revenue as the recession gradually eases and new revenue that is generated by slots.

Nevertheless, beginning next session, lawmakers will not have $1.2 billion in federal stimulus funding and will likely not be able to continue to transfer hundreds of millions from special funds to plug budget holes.

It’s obvious that there are many fiscal hurdles to be scaled in 2011 and beyond, so we’ll have to wait to see what strategies emerge and how they might impact business.

Let’s savor the business tax reform commission’s bit of good news for the private sector – at least for the next 46 days until the 2011 General Assembly session begins.

Comments are closed.