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Some Md. lawmakers ready to consider business tax cut

May 19, 2013|By KAUSTUV BASU | kaustuv.basu@herald-mail.com

When Del. Andrew A. Serafini, R-Washington, introduced a bill during the 2013 session of the Maryland General Assembly seeking to reduce the state’s corporate income tax from 8.25 percent to 4 percent, he suggested that his bill might be a way to start a conversation around the issue.

During the session, Serafini also co-sponsored three other measures that would reduce the state corporate income tax in various ways.

None of the measures passed.

But the conversation that Serafini is seeking — to make the state more business friendly — might be beginning in earnest.

At the end of April, Sen. Ed Kasemeyer, D-Baltimore/Howard, who is the chairman of the Senate Budget and Taxation Committee, suggested that a bill to reduce that tax would pass in 2014, at least in the Senate, according to a news report by MarylandReporter.com.

According to MarylandReporter.com, economist Anirban Basu, chairman and CEO of the Sage Policy Group, told the Maryland Chamber of Commerce last year that it was important to lower the state’s corporate tax to attract more capital investment. At the time, he pointed to the possibility of federal spending cuts known as the sequester, which have become a reality now.

Maryland’s corporate income tax rate is at 8.25 percent, while Virginia’s rate is at 6 percent of the computed taxable income for corporations.

Maryland’s rate “ranks 14th highest among states levying a corporate income tax,” according to the website of the Tax Foundation, a Washington, D.C. based think-tank.


Business friendly

Douglas Wright Jr., president of Hagerstown’s Advertising Inc., a billboard company, said he believes that “businesses should not be taxed at all. But that’s a philosophical issue.”

He said a reduction in the state corporate tax “would be nice for us, but it would not be substantial.”

Advertising Inc. currently employs nine people.

Such a tax cut probably would be more meaningful for a larger corporation, he said.

“But what it will do will be important to all,” Wright said. “I think it will make the state more viable as a place to do business.”

Brien Poffenberger, the president of the Hagerstown-Washington County Chamber of Commerce, expressed similar feelings, saying local corporations would benefit from such a step.

“Most of our companies are very local ... I think reduction of the tax burden is exactly the kind of step to help businesses to get through the downturn,” he said.

Poffenberger suggested that instead of making companies jump through a “complicated set of hoops” to earn tax credits, the state should let businesses keep more of their money in the first place.

“Just think of the perception boost such a move would create for the state,” he said.

Moreover, what’s good for Maryland’s businesses would be good for all Marylanders, Poffenberger said.

It could mean more money being poured back into businesses and more hiring, he said.

“It will be in essence, a stimulus package. A rising tide will lift all boats, and it will be good for the image of the state,” Poffenberger said.


A significant reduction

Serafini said he likes the idea that more legislators are opening up to the idea but said he was intrigued that the issue might come up in the next session of the Maryland General Assembly, before the 2014 elections.

Serafini said that if such a step were to be taken by the state, it would have to be a bold one — meaning that the corporate income tax would have to be reduced to “at least” 4 percent.

“If we are going to do it, we need to do it significantly because how else are we going to draw people back to Maryland,” Serafini said.

He was not sure that would happen.

“I am concerned that it’s just posturing, and it’s not a serious effort to make us a more business-friendly state,” he said.

According to an analysis of Serafini’s bill by the state’s Department of Legislative Services, the state’s general fund revenues would have decreased by $129.6 million in fiscal year 2014 had his bill passed. Transportation Trust Fund revenues would decrease by $27.7 million while the state’s Higher Education Investment Fund would have gone down by $10 million in fiscal year 2014 had the bill passed.

Serafini predicted that any loss of revenue from a reduction in the state’s corporate income tax could be made up in about three years, because the state would be a more attractive destination for businesses.


More businesses?

Neil Bergsman, director of the Maryland Budget & Tax Policy Institute, a nonpartisan organization that provides research on the state budget and tax policy, said that a state’s corporate income tax is only a small part of the costs of a business.

“It is hard to believe that any amount reduced would lead ... to a relocation of business,” Bergsman said.

The institute supports a package of tax reforms that includes a reduction in the corporate income tax leading to a reduction in the tax bills of Maryland small businesses, he said.

Bergsman said this would include combined reporting of corporate profits — which treats a parent company and its subsidiaries as one corporation when it comes to state income tax — for a fairer reporting of state income tax. This, he said, would prevent multistate corporations from taking advantage of current laws to reduce their Maryland tax liability.

“Obviously, the next year is going to be an election year session, the government would like to do something,” Bergsman said.

Elinda F. Kiss, a business school professor at the University of Maryland, College Park, said in an email that taxes are not the only consideration for a business when choosing a location.

“When a family looks where to buy a home, it looks at school district. A business will think about what is a good location due to amenities, she said.

Other factors include proximity to vendors and suppliers, customers, climate and natural resources, Kiss said.


State corporate income tax

Following are state corporate income tax rates as of Jan. 1, 2013.

Maryland: 8.25 percent
Virginia: 6 percent
West Virginia: 7 percent*
Pennsylvania: 9.99 percent

*Rate is scheduled to decrease in 2014 subject to a reserve requirement.

Source: The Tax Foundation

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