Maryland Sen. Ron Young says multiple tech company executives have told him they will consider moving out of the state if an accounting tax change he is proposing gets passed by the General Assembly.
Young wants to call their bluff.
A bill proposed by Young, a Democrat from Frederick County, would require retail and restaurant chains in Maryland to use combined reporting for corporate income taxes. Combined reporting would require companies with subsidiaries in different states to account for those subsidiaries when filing their income taxes in Maryland.
Democrats, particularly Sen. Paul Pinsky, have been pushing for the change for years. They argue that combined reporting would prevent companies from sending their profits in Maryland to other states to avoid paying Maryland taxes. Young's bill, titled the "Small Business Fairness Act," focuses specifically focuses on the restaurant and retail chains, but he supports an expansion.
"It's meant to put out-of-state retail businesses and restaurants on a level playing field with the Maryland small businesses," Young told the Senate Budget and Taxation Committee during a Jan. 30 hearing.
Young said several biotechnology firms warned him they "can be located anywhere" and if Maryland implements combined reporting they could easily move out of the state.
"I understand the concern about manufacturing and biotechnology firms, but I don't agree it would happen," Young said. "Most have facilities in other states that already have combined reporting."
Twenty-seven states and the District of Columbia have combined reporting. Those states are a mix of Republican states and Democrat states. Young called out Texas, which he noted is often considered the most business-friendly state.
The Maryland Chamber of Commerce has vehemently opposed combined reporting. James McKitrick, a senior policy analyst for the Chamber, said during his testimony that Young made an "odd comparison" by mentioning Texas.
"It doesn't have nearly the same strictness of any other labor employment laws and lower taxes just in general," McKitrick said.
He also pointed out that Maryland's neighbors — Virginia, Pennsylvania and Delaware — do not have combined reporting.
Other groups opposing the bill included the Greater Baltimore Committee, the Maryland Retailers Association and the Restaurant Association of Maryland.
Melvin Thompson, senior vice president of government affairs for the Restaurant Association, used local restaurant chain Clyde's Restaurant Group as an example of the negative impact. The group operates 13 restaurants, four of which are in Maryland and account for 20 percent of revenue.
If combined reporting is implemented, Thompson said Clyde's corporate income taxes in Maryland would increase by $100,000 per year because of income in D.C. and Virginia that has nothing to do with the Maryland restaurants.
"Passage of this legislation would discourage other restaurant groups form expanding into Maryland, especially given that new restaurants typically operate at a loss for the first couple of years as they pay off operating costs and find operational efficiencies."
Young's bill would add almost $50 million a year to the state's coffers. Legislative analysts estimate the bill would increase state revenues by $250 million over five years.
The money could be used to help fund education, Young said. The Maryland Center on Economic Policy, a left-leaning think tank, and the Maryland State Education Association, the state teacher's union, supported the bill for that reason.
The committee also heard testimony on a bill proposed by Sen. Andrew Serafini that would reduce the state corporate income tax rate from 8.25 percent to 7 percent.
The Chamber of Commerce has been pushing for the proposal, which also received support from groups including the Greater Baltimore Committee, Associated Builders and Contractors Inc., the Maryland Building Industry Association and the Maryland Hotel Lodging Association.
The state teacher's union and the Maryland State and D.C. AFL-CIO — a large labor union — oppose reducing the corporate income tax rate because doing so would cost the state $926 million over the next five years.
Advocates of lowering the rate say it would attract businesses, while opponents argue lowering taxes does not work because additional revenue never ends up offsetting what was lost.