Business Leaders Seek Tax Structure Changes to Improve Business Climate

Business leaders testifying before the Maryland Economic Development and Business Climate Commission, otherwise known as the Augustine Commission, offered their suggestions to improve the State’s business climate during a meeting held yesterday in Baltimore. A number of proposals focused on reducing or changing the calculation method of the state’s corporate income tax and providing an income tax exemption for the owners of small businesses classified as pass-through entities (PTEs).

As reported by the Baltimore Sun,

Donald C. Fry, president and CEO of the Greater Baltimore Committee, urged the commission to include a reduction in the state’s corporate income tax rate, which he said has an outsize effect, contributing to the state’s relatively poor showing on some business climate rankings while raising a relatively small share of state revenue.

The increase in the corporate rate from 7 percent in 2007 to 8.25 percent in 2008 was unusual compared to nearby states, such as New York, North Carolina and West Virginia, which have moved in the other direction, Fry added.

“If you took it down to 5.5 percent, and reduced it lower than Virginia, you would be making some news,” Fry said.

Pass-through entities, such as partnerships and limited liability companies, are not subject to the corporate income tax. Instead members pay income tax through their individual income tax returns.

The Maryland Chamber of Commerce said the commission should create a tax exemption for the owners of businesses, mostly small, whose company profits are taxed on owners’ personal returns. Similar proposals did not move forward in the legislature in 2013 and 2014.

Business groups also spoke in opposition to combined reporting.

The chamber suggested the commission recommend that legislators reject adoption of a combined reporting structure, which would change the way companies operating in multiple states through affiliates are taxed.

While there does not appear to be consensus among the 25 member group, one proposal did seem to have broad support.

…the chamber’s suggestion that the state start to offer guidance to companies on tax questions by private-letter rulings, as the federal government and 32 other states already do.

David R. Brinkley, Hogan’s secretary of budget and management and until January a longtime member of the state Senate, said after the session that the idea was new to him, but he supports it.

“I don’t see that costing a lot, if anything,” he said. “That’s kind of a no-brainer.”

During the October 2 meeting, the Commission will discuss higher education funding and costs; and begin discussing potential recommendations. A final report with recommendations is expected in December.

Additional coverage can be found in The Daily Record (subscription required).

Prior coverage of the Maryland Economic Development and Business Climate Commission can be found on Conduit Street.