Donald Fry: Tax commission delivers refreshing change of pace

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By Donald C. Fry

When the General Assembly created the Maryland Business Tax Reform Commission during the November 2007 special session to study whether to implement a so-called “combined reporting” corporate income tax policy, most in Annapolis probably expected that this commission would recommend some form of legislation to increase business taxes.

That’s the generally expected outcome when legislatures create commissions to “study” taxes.

This past Wednesday, the commission, which included five members of the General Assembly, delivered a refreshing change of pace. It voted overwhelmingly to recommend that lawmakers not impose a combined reporting tax policy on Maryland corporations during the 2011 session.

Even state legislators on the panel voted 3-2 to urge their fellow lawmakers not to pass a combined reporting bill.

The recommendation, which was introduced by business tax commission member Delegate Kumar Barve (D-Montgomery) who is House majority leader, offers hope that legislative leaders may not be in a mood to increase business taxes in the 2011 session.

The Greater Baltimore Committee and other business advocates contend that a combined reporting tax policy would not make Maryland's corporate taxes more "fair," as proponents contend, but would instead make them more complex and volatile, would increase business costs, and would make Maryland less competitive as a business location.

A combined reporting tax policy would take into account, or “combine,” the entire earnings of Maryland companies with operations in many states and apportion a portion of those earnings to Maryland for tax purposes.

The lawmakers on the tax reform commission who voted for the resolution not to move forward with combined reporting next year were Barve, Senator Nancy J. King (D-Montgomery) and Delegate Sheila Hixson (D-Montgomery), who chairs the House Ways and Means Committee. Senator Richard S. Madaleno, Jr. (D-Montgomery) and Senator Verna Jones (D-Baltimore City) voted against Barve's motion.

Does this mean businesses no longer need to fear a major change in Maryland’s business tax policy from a legislature facing serious fiscal challenges?

Not exactly. It simply means that, at least for now, there appears to be a diminished chance that this particular tax policy change will make it through the legislature next year. It doesn’t mean that other potential revenue enhancements won’t be considered.

The business tax reform commission's vote does not even mean that there won't be combined reporting legislation proposed in the 2011 session. In fact, it's likely that such a bill will be filed and pushed by proponents as a way to help close budget deficits. But at least proponents won't be able to tout an endorsement from the commission.

The commission's recommendation is silent on whether combined reporting legislation should, in its opinion, be considered in future legislative sessions.

Lawmakers will still face a significant fiscal challenge in the form of a projected $1.6 billion deficit for FY 2012 when they convene in Annapolis at noon on January 12. What’s more, fiscal imbalances will continue, according to the Department of Legislative Services, which projects general fund structural deficits of $1.9 billion in FY 2013 and $1.8 billion in fiscal years 2014, 2015, and 2016.

Next year the state could benefit from increasing revenue as the recession gradually eases and new revenue that is generated by slots.

Nevertheless, beginning next session, lawmakers will not have $1.2 billion in federal stimulus funding and will likely not be able to continue to transfer hundreds of millions from special funds to plug budget holes.

It’s obvious that there are many fiscal hurdles to be scaled in 2011 and beyond, so we’ll have to wait to see what strategies emerge and how they might impact business.

Let’s savor the business tax reform commission’s bit of good news for the private sector – at least for the next 46 days until the 2011 General Assembly session begins.

Donald C. Fry is president and CEO of the Greater Baltimore Committee. He is a regular contributor to Center Maryland.

Previous Center Maryland columns by Donald C. Fry:

‘Reform’ commission to mull tax increase for Maryland corporations

No tsunami in Maryland, but voters deliver ripple of transition

Why isn’t transportation infrastructure crisis on lawmakers’ radar?

Market expert tells a pre-Halloween scary story

Entrepreneurs provide inspiration in a recession

Military is driving Maryland’s anticipated biggest economic spurt in 60 years

MedImmune CEO frames bright future for bioscience

Making transportation a top-tier priority

Primary voters in a mood for transition

Reading Maryland's fiscal tea leaves

Getting beyond sound bites and bumper stickers

Biotech tax credit more popular than ever, but the ‘rock-concert’ lines are gone

Bad timing for upcoming business tax report

For economic indicators, the ‘whipsaw’ effect continues

Do census data foretell a Baltimore city population rebound?

Remember the value of business after the election

New report ranks Baltimore among stronger regions to weather the recession

New living wage proposal: wrong idea, wrong time for Baltimore

Northeast needs more attention from federal rail planners

New national report has familiar ring for Maryland bioscience advocates

New report underscores Maryland’s work force development challenges

State’s health initiative: a ‘win-win’ for employers and their workforces

As Baltimore hikes taxes, are state’s counties next?

After the ‘fiber from heaven’ scramble, what’s next?

BRAC growth no longer a future event – it’s happening now

Economic development is a contact sport

Despite the recession, bioscience growth still percolates in Baltimore

State stumbles in enacting new education collective bargaining process

Wind power has potential in Maryland, but solar emerges as early renewable option

It's not good to be clueless in cyberspace

Amid fiscal shuffle, Maryland lawmakers pass measures to spur business growth

Thankfully, Baltimore leads with substance over style in luring Google

Leave damaging transportation provisions out of the budget

Amended budget continues recession-induced fund shifts and stimulus rescue

General Assembly setting stage for combined reporting push in 2011

Wrong timing for proposal to change Baltimore City school board

Baltimore City isn’t alone in facing pension funding challenges

A government investment program that delivers

Proposed transportation fund raid -- a bad habit continues

Where's the outrage over crime?

Small business is where innovation lives
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Donald C. Fry has been the president and CEO of the Greater Baltimore Committee (GBC), the central Maryland region's most prominent organization of business and civic leaders, since November 2002.

Under Don’s leadership, the GBC is recognized as a knowledgeable and highly credible business voice in the Baltimore region, Annapolis and Washington, D.C. on policy issues and competitive challenges facing Maryland. Its mission is to apply private-sector leadership to strengthening the business climate and quality of life in the region and state.

Fry served as GBC executive vice president from 1999 to 2002. From 1980 to 1999 Fry was engaged in a private law practice in Harford County. During this time he also served in the Maryland General Assembly. He is one of only a handful of legislators to have served on each of the major budget committees of the General Assembly.

Serving in the Senate of Maryland from 1997 to 1998, Fry was a member of the Budget and Taxation Committee. As a member of the House of Delegates from 1991 to 1997 Fry served on the Ways and Means Committee and on the Appropriations Committee.

Fry is a 1979 graduate of the University of Baltimore School of Law. He earned a B.S. in political science from Frostburg State College.