Combined Reporting Could Become a Reality in Maryland

Combined Reporting Could Become a Reality in MarylandState Sen. Paul Pinsky (D-Prince George’s County) has for the third consecutive legislative season failed to bring combined reporting to Maryland. However, according to the Baltimore Business Journal (BBJ), a recent March 24th ruling by the state’s Court of Appeals has many in the business community worried that combined reporting will be activated without legislation.

So, for those unfamiliar with this type of taxation, what is combined reporting? According to the Maryland Business Reform Tax Commission, “Combined reporting is a method of apportioning the income of corporations among the states in which they do business. Under combined reporting, the related corporations that are part of a “unitary group” are generally treated as one entity for tax purposes.”

In essence, the Court of Appeals ruled that Peter Franchot, the Comptroller of Maryland, had the ability to collect corporate income tax from two subsidiaries of W.L. Gore & Associates—the maker of Gor-Tex waterproof fabric—even though they are not based in the state. The argument in favor of collecting tax from W.L Gore and Associates is to be found in the “unitary” argument, which stated that the company’s subsidiaries had a “sufficient” connection to Maryland to be viable for tax collection.

The two subsidies were Gore Enterprise Holdings Inc. and Gore. Future Value Inc, which managed corporate patents and investments for their parent company. As originally reported by the BBJ, the court found that “the two subsidiaries existed only to service W.L. Gore, which is subject to Maryland tax because of its facilities in the state.”

Many in the business community are not supportive of the measure. Will Burns, the Communications Director for the Maryland Chamber of Commerce, penned the following: “The Maryland Chamber has opposed combined reporting as a priority issue for a number of years. This corporate tax policy change would result in massive shifts in tax liability, complicate tax compliance and make Maryland less competitive.”

Furthermore, Maryland Chamber Senior Vice President of Government Affairs Mathew Palmer expressed that “while many elected officials have focused on ways to promote growth in Maryland, this bill would harm Maryland’s business climate.”

As of now, the future of combined reporting is up in the air. For his part, State Sen. Paul Pinsky plans to introduce a combined reporting bill a fourth time, citing that the court’s decision doesn’t go far enough.

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