Ed Priola for Delegate

Last Wednesday, I testified in the Maryland Senate Budget and Taxation Committee in opposition to Senate Bill 354, legislation calling for implementation of "combined reporting" in the state beginning January 1, 2011.

Combined reporting is a legal requirement that a multi-state corporation must (1) report all of its income to the state, even that which was earned outside of the state's borders, and then (2) pay taxes based on how much business the state thinks actually occurred within the state.

I am primarily opposed to implementing combined reporting at this time because it represents an enormous rush to judgment by the Maryland Assembly that will drive businesses out of Maryland.

Proponents of combined reporting, such as Delegate Frank Turner (D- Howard County), like to point out that it has been adopted in 23 other states. What he and others leave out is that the results from its implementation are at best a mixed bag. A number of studies conducted by state governments and economists call into question the claim of any certain increases in tax revenues. Rather, these studies show that combined reporting produces unpredictable revenue results and, over the long run, may actually reduce corporate tax revenues. At least two states, New York and Vermont, ultimately lost income under combined reporting ($680 million and $2.7 million, respectively).

The Maryland General Assembly does not yet know or understand the full impact combined reporting will have on Maryland's businesses and tax revenues. That is why they set up a Commission to study it for at least another year. What we do know is that combined reporting is not only a tax, but also a significant regulatory burden. Implementation requirements fall most heavily upon smaller businesses and more fragile business sectors.

According to the October 1, 2009 report of the Maryland Business Tax Reform Commission, the estimated effect of combined reporting varies wildly between different business sectors, with multimillion dollar swings canceling out to a net gain of $109-$170 million for the state (using 2006 data). 2,418 businesses would be paying more in taxes and 1,906 businesses would be paying less, causing massive shifts in tax liability, rather than closing tax loopholes.

Delegate Turner said the "winners and losers" aspect is merely a function of combined reporting instilling fairness in the tax structure. He also stated that "combined reporting levels the playing field, and makes it a lot more fair." I say that implementing an unproven tax system in the middle of a recession is unfair, irresponsible and threatens Maryland's business stability. It will cause more suffering for working families.

It should be remembered that corporate income tax is only a fraction of the total taxes companies pay to state and local governments each year. Companies also pay sales taxes, property taxes, etc., all of which add up to millions or billions of dollars each year. Encouraging companies to leave Maryland could have a larger negative effect on the state's revenues than the potential increase in corporate income tax.

The bottom line is that corporations do not pay taxes; individuals do. Increases in corporate tax rates will be passed on to consumers and will only serve to increase prices, reduce employment and lower the overall amount of our state's wealth.

For all these reasons, I urged the General Assembly to resist the impulse to increase business taxes in the depth of a recession and to let the Commission they set up complete its study.