Monday, March 24, 2003

If This is Athens, Where's the Acropolis?

Evelyn Pasquier of Piper Rudnick has authored a summary of HB 753, a budget bill that has just passed the Maryland House of Delegates. She terms the bill "Draconian." Perhaps, "Draconian" is a little over the top, but it's a bad bill.

HB 753 dramatically increases the annual fees that all business entities registered in Maryland must pay. By way of example, all business entities would have to pay at least $400.00 a year. Currently, the annual fee is $100.00 for corporations and nothing for LLCs and partnerships. The fee rises to as much as $20,000.00, depending on the number of employees a business entity has. The fee will have a significant negative impact on the use of multiple entities to lower the liability profile of a business.

Maryland is the "corporate domicile" of many real estate investment trusts. This results in a good deal of money flowing into the state without any significant burden on governmental resources. Apparently determined to kill the goose that is laying this golden egg for the state, HB 753 imposes a $10,000.00 filing fee on REITs.

HB 753 also imposes transfer and recordation taxes on transfers of controlling interests in entities if the underlying real property owned by the entities is worth at least $1,000,000.00. I've commented in the past on the deficiencies of this tax, both legal and economic, and I won't repeat the criticisms here.

HB 753 also makes significant changes to the corporate income tax in Maryland. In essence, these changes extend the reach of Maryland's taxing authority over income that previously escaped taxation.

Ironically, HB 753, which places burdens on business activities in Maryland, has its roots in political rhetoric (mostly, but not exclusively, Republican) that condemns taxes. Voters have been told time and time again that they are heavily taxed. In general, and particularly in Maryland, this is not the case. As a consequence, elected officials in Maryland are unable (or, perhaps, unwilling) to state the obvious: The cuts in the Maryland income tax over the past few years were unwarranted and should be repealed. Attempting to patch the state's leaky fiscal ship by enacting "non-taxes" in the form of dramatically increased business fees will ultimately cost the state dearly in terms of economic development.

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