ANNAPOLIS - Business groups sparred with liberal advocacy organizations Wednesday over legislative attempts to force corporations to pay more income tax.

Nearly two-thirds of Maryland's biggest corporations "don't pay a red cent in state income tax," said Sean Dobson, deputy director of Progressive Maryland, pointing to the latest figures from the state Comptroller's office.

The House Ways and Means Committee heard testimony on several Democratic-sponsored bills to require corporations to combine income reports of all their affiliates doing business in Maryland. Under current law, affiliated enterprises file their own tax returns.

This arrangement, advocates said, is a loophole that allows many companies to skirt paying millions in income tax. Dobson and advocates from the Maryland Budget and Tax Policy Institute and the Washington-based Center on Budget and Policy Priorities argued before the committee for stricter tax laws.

Business groups countered that even if corporations pay no income tax, they must still pay payroll and property taxes.

Karen Syrylo, an accountant with the Maryland Chamber of Commerce, said combined reporting would lead to a decrease in corporate tax revenues.

A Democratic-sponsored bill that taxes companies' gross receipts instead of the taxable income would have the same effect, Syrylo said. But advocates said taxable income can be manipulated with "creative bookkeeping."

The bill mimics New Jersey's system of gross receipts-based corporate income tax, according to Progressive Maryland.

Fifty-three of the 130 largest corporations paid income tax in 2003, the most recent year available from the Comptroller's office. The Comptroller's office did not name the Maryland companies that paid no income tax, nor provide dollar figures paid, saying the information is proprietary and not for public disclosure.

There are several caveats to the numbers, said David Roose, director of the Bureau of Revenue Estimates.

"This information most likely does not provide a full picture of the corporate income taxes" paid by businesses, Roose wrote in a letter to Sen. Paul Pinsky, D-Prince George's, who requested the information.

Roose added that some businesses set up separate tax entities for a variety of reasons -- such as for insurance or management purposes -- and that "does not necessarily imply tax avoidance."

The measures aren't likely to please Gov. Robert Ehrlich, whose secretary for Business and Economic Development, Aris Melissaratos, urged the Ways and Means Committee to support the administration's proposed extension of tax credits for research and development companies through 2010.

Some 169 Maryland taxpayers qualified for the credits in 2003, for a total of more than $48 million, according to the Department of Legislative Services.

In an interview, Melissaratos called the combined-tax bills "an administrative nightmare."

"The tax (bills) are really worrying me because they hurt Maryland's pro-business image," he said. "We've got to eliminate barriers, not add new ones."

The committee also heard testimony on Ehrlich's initiatives to encourage technology research and development companies to come to Maryland.

One initiative would allow $2.8 million in general fund revenue and $1 million in special funds to go to the tax credits in fiscal 2007. That would increase to $8.5 million in general funds and $2.7 million in special funds a year beginning in fiscal 2009.

None of the bills heard Wednesday have been scheduled for a committee vote.

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Copyright © 2005 University of Maryland Philip Merrill College of Journalism