Testimony on SB179

By Emily Scarr
State Director

We signed onto Progressive Maryland's Testimony on Senate Bill 179, to support Combined Reporting for Maryland


Testimony on Senate Bill 179
Business Relief and Tax Fairness Act of 2015
Budget and Tax Committee
Groups Supporting: Progressive Maryland, UFCW Local 400, Maryland PIRG, SEIU, UFCW Local 1994, Maryland Nonprofits
Position: Support

The groups listed above support SB 179, which requires affiliated corporations to compute Maryland taxable income using combined reporting. The bill also eliminates the annual filing fee for specified annual reports for a corporation or business entity with less than 10 employees.

At a time in which the state is looking to resolve a structural budget deficit, it is important to look at underlying problems in the state’s tax code. It is critical that the legislature ensures that everyone pays their fair share before reducing state services for the most vulnerable among us or forcing working families to pay more.

We believe 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 the past, the Comptroller’s office has found nearly one-half of large corporations subject to Maryland corporate taxes paid none because of various tax strategies employed.1 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 four states and the District of Columbia have adopted this approach--a majority of those states that have a corporate income tax.2 Objections have been raised that combined reporting will, “…cause huge shifts in tax liabilities among Maryland businesses engaged in interstate commerce.”3 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. 4

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).5 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 respectfully urge a favorable report on SB 179.

1 “Report: Half of Big Corporations in State Pay No Income Taxes,” Clifford G. Cumber, Frederick News-Post, July 25, 2007.
2 “A Majority of States have now Adopted a Key Corporate Tax Reform—‘Combined Reporting,’” Michael Mazerov, Center for Budget and Policy Priorities, April 3, 2009,, retrieved February 15, 2012.
3 “Combined Reporting Hearing is February 22,” Ron Weinholt, Maryland Chamber Action Network, February 8,, retrieved February 15, 2012.
4 Annual report on possible corporate income tax changes, David F. Roose, Office of Comptroller of Maryland, March 1, 2011,, retrieved February 16, 2012.

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