Gov. Martin O?Malley said Friday he wants to close “corporate loopholes” that allow companies to avoid paying taxes, including one that lets corporations buy and sell real estate without paying state and local transfer taxes.
“Everyone wants to know that everyone is paying their fair share,” O?Malley said. He backs “combined reporting” for corporations and taxing property deals made through sale of “controlling interest” of a company that owns real estate. Liberal and progressive groups have advocated both moves.
Unlike other tax plans the governor announced this week, these changes do little to cure the state’s estimated $1.7 billion deficit next year. “Combined reporting” generates perhaps $25 million, and the transfer tax on controlling interests raises $14 million for the state and around $50 million for local governments. However, the transfer tax all goes for special purposes such as Program Open Space and Agricultural Preservation, or school construction and roads on the local level.
Karen Syrylo, a tax expert for the Maryland Chamber of Commerce, said neither change is a loophole, but a change in tax policy. She believes “combined reporting” will actually cause a decline in corporate taxes. “We will have more companies paying less tax, and less companies will be paying more tax,” Syrylo said. The change is likely to hurt companies headquartered in Maryland.
Syrylo also disputed O?Malley?s repetition of a charge that half of Maryland companies pay no corporate income tax. She said that misinterprets a report from Comptroller Peter Franchot that did not count corporate taxes paid by subsidiaries.
In a sale of controlling interest, a business entity buys the majority of the stock of the company owning real estate, without having to change the name on the deed or paying recordation taxes, as does a person buying a house. “That’s not fair and that’s not right,” O?Malley said.
Sale of controlling interest in a property is already taxed by neighboring states, and the measure has passed the House of Delegates several times. It failed to make it out of the Senate Budget and Taxation Committee. “Hopefully we would get it through this session,” said Sen. Verna Jones, a committee member.
Senate Republican Leader David Brinkley, also on the committee, said the change would have a negative effect on agriculture. Transfer of controlling interest “is the main way that people are keeping the farm in the family,” said Brinkley, a Frederick County financial planner.
