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For the second consecutive year, a Maryland Senate committee narrowly defeated a controversial bill that would have altered the way businesses that operate in multiple states pay corporate income taxes to Maryland.

Under combined reporting, companies that operate in multiple states would total their combined profits from all states, then pay a portion to Maryland based on factors such as how much property, payroll and revenue were reported in the state.

The present system allows some companies to hide profits from Maryland by transferring money to out-of-state subsidiaries, leaders with the advocacy group Progressive Maryland said Monday.

“It’s very unfortunate,” Matthew Weinstein, a consultant with the Progressive Maryland Education Fund, said of the Senate Budget and Taxation Committee’s 7-6 vote March 22 to give the legislation an unfavorable report.

The same committee also voted 7-6 against the measure last year.

Maryland Chamber of Commerce leaders applauded the committee vote, saying the legislation would have made tax compliance more complex and the state less competitive.

“None of our competitor states have enacted combined reporting, and in this time of economic uncertainly, Maryland should focus on policies that promote economic growth and job creation,” said Kathy Snyder, president and CEO of the business organization.

The Maryland Business Tax Reform Commission, which was formed after the House approved combined reporting in 2007 and the Senate opposed it, recommended against adopting combined reporting about two years ago.

Since 2006, five states and Washington, D.C., have implemented combined reporting to bring the total to more than 25, according to a state legislative analysis.

Key regional competitors Virginia and Pennsylvania are among the states that have not adopted combined reporting, making it an economic development issue, Brian Levine, vice president of government relations for the Rockville-based Tech Council of Maryland, said in a recent hearing.

Weinstein said he thinks more states will continue to pass combined reporting and eventually Maryland will. The present tax collection system costs the state about $60 million a year in lost tax revenue, according to a Progressive Maryland report released Monday.

All told, tax breaks and exemptions given to corporations and higher-income individuals cost the state at least $215 million annually, the group said.

But Maryland chamber leaders and others disagree on the costs, saying combined reporting would shift taxes around and impose a $153 million tax increase on certain Maryland businesses while decreasing taxes for others.

A companion bill remains in the House Ways and Means Committee.

A similar combined-reporting bill sponsored by Del. Heather R. Mizeur (D-Montgomery) is pending in the House of Delegates.

kshay@gazette.net