Augustine Commission Examines Corporate Income Tax and Tax Incentives

The Maryland Economic Development and Business Climate Commission,otherwise known as the Augustine Commission after its chair, former Lockheed Martin Chief Executive Officer Norm Augustine, met for a full day of research and discussion on August 27 in Prince George’s County. During the meeting, the Department of Legislative Services (DLS) provided an overview of the corporate income tax and business tax credits in Maryland.  The Department of Business and Economic Development (DBED) presented in the afternoon on the administration of tax credit programs, followed by a panel business leaders.

DLS’s presentation on the corporate income tax provides an indepth overview of its calculation, how it is apportioned across corporations operating in multiple states, and its application to the manufacturing sector. The presentation also included information on combined reporting, a concept discussed by a former Commission and the General Assembly, and examined tax liability and how it has shifted across business sectors over time.

During discussion of the corporate income tax, some members emphasized that the taxation of pass-through entities must also be a part of the Commission’s mission. Pass-through entities, such as partnerships and limited liability companies, are not subject to the corporate income tax. Instead members of pass-through entities pay income tax through their individual income tax returns.

The business tax credit presentation provides an overview of the sector specific, job creation, and community/environment tax credits in Maryland. DLS estimates that approximately $100 million in business tax credits and credit reimbursements are authorized in each fiscal year. The Enterprise Zone Tax Credit program was discussed in detail and DLS commented that it may be time to revamp this program.

In discussing tax credit administration, DBED spoke broadly about the effectiveness of Maryland’s tax credit programs and the benefits and weakness of certain programs. DBED’s representative commented that the Enterprise Zone is effective for Baltimore City and rural counties across Maryland. However, the program doesn’t fully align itself with current market conditions as the program is old and the eligibility criteria are very rigid. She alluded to a revamping of the program. DBED recently retained a consultant to examine tax credit and incentive programs and make recommendations to improve them. All of the programs will be included in this examination, but particular emphasis was placed on the Enterprise Zone, One Maryland Economic Development, and Regional Institution Strategic Enterprise Zone programs.

The Commission has been charged this interim with examining the State’s business tax and incentive structure to improve Maryland’s competitiveness. County economic development directors presented before the Commission last interim offering their suggestions for how the State can better support local economic development efforts. These suggestions included flexible grants and incentive tools, workforce training, and interdepartmental cooperation across state agencies.

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