Study Finds Many Large Corporation are Not Paying their Fair Share; Proposed Legislation Would Help

While state lawmakers in Annapolis discuss cutting important services and investments in an effort to balance Maryland’s state budget, we got further evidence today that large, profitable corporations are able to avoid paying their fair share of state taxes that support those services and investments. According to a new report, the 269 Fortune 500 companies that disclose their state income tax payments were able to avoid paying taxes on more than half of their profits. Some companies managed to not pay any state income taxes.

The list of companies that are able to avoid paying their fair share in taxes includes major companies that Maryland residents do business with every day. Marylanders support these companies when they go out to eat (Yum! brand restaurants like Pizza Hut and Taco Bell), surf the web (Yahoo, Facebook, Priceline.com), or pay their utility bills (Verizon, PG&E, Pepco, Comcast). Besides supporting such corporations with their business, Maryland tax dollars pay for the roads and bridges, communication systems, public safety, and educated workforce that these companies rely on. Yet they and many others that do business in Maryland are able to avoid paying for the services that they enjoy.

Between 2008 and 2012, these 269 companies paid state income taxes equal to less than 3.1 percent of their U.S. profits, less than half the average state corporate tax rate. As a result, these companies avoided paying $73.1 billion in state corporate income taxes over the five years the report covers. In 2012 alone, 25 companies paid no state income tax.

Source: Citizens for Tax Justice and the Institute for Taxation and Economic Policy (click to enlarge)

During the current legislative session, lawmakers in Annapolis have proposed a number of tax changes, some of which are better than others. This report’s findings are another sign that the General Assembly ought to consider tax reform that ensures large and profitable corporations operating in the state pay the legal tax rate.

Often, companies are able to dodge state corporate taxes through a shell game of creative accounting. As we have previously argued, Maryland can reduce such practices by instituting “combined reporting,” which would treat a parent company and its subsidiaries as one corporation for state income tax purposes. Doing so would provide a more complete and accurate accounting of the profits corporations earn from their activities in Maryland, limiting their ability to use tax avoidance tactics.

Maryland would collect tens of millions of dollars in additional revenue through combined reporting, Maryland’s Department of Legislative Services estimates. Multiple pieces of legislation put forward during the current session would enact combined reporting; state lawmakers need only to vote in favor of one of them.

When these large companies are able to pay less than their fair share in taxes on their profits, small businesses and families are left to make up the difference to pay for important public services and investments like schools, health care and public safety that benefit everyone in the state. State lawmakers ought to enact reforms that prevent tax avoidance and level the playing field for small businesses in Maryland that pay their fair share.