- The Washington Times - Wednesday, March 24, 2004

ANNAPOLIS — Gov. Robert L. Ehrlich Jr. said yesterday he is undecided about whether to veto a bill closing a long-existing tax loophole for corporations doing business in the state.

“It’s too premature,” Mr. Ehrlich, a Republican, said after a Board of Public Works meeting. “The genesis was clearly inappropriate corporate behavior, [but] one person’s corporate loophole is another person’s smart business move … and obviously sometimes loopholes are created to get particular businesses to stay and expand in the state.”

Mr. Ehrlich’s comments come after the legislature approved two different versions of a plan to close a tax shelter used by companies doing business in Maryland but with Delaware headquarters.

Under a House plan passed Tuesday, roughly two-thirds of the state’s largest companies would be forced to pay corporate-income taxes.

The Senate’s version of the bill, passed last week, forgives tax debts incurred before 1995. It also lifts penalties on taxes not paid after 1995 and gives a 50 percent break on unpaid interest on tax debt.

The bills now will be addressed in a House-Senate conference committee.

Mr. Ehrlich vetoed a similar bill last year because of additional provisions, and it was not clear yesterday which bill he would support.

Mr. Ehrlich said Budget Secretary James C. “Chip” DiPaula Jr. is working with lawmakers to refine elements of each bill.

Mr. DiPaula declined to discuss specifics.

“We are going to make sure there is a fair calculation of what is owed to the state,” he said.

Comptroller William Donald Schaefer, a Democrat, who handed Mr. Ehrlich a detailed letter of what should be done to close the corporate-tax loophole, supports the Senate bill.

“You should pass the Senate bill without the amnesty,” said Mr. Schaefer, who successfully sued only a handful of state companies for evading corporate taxes in court.

House Speaker Michael E. Busch, Anne Arundel Democrat, and fellow Democrats have proposed a $670 million tax-rate increase for the wealthiest Marylanders, from 4.75 percent to 6 percent.

Yesterday, the House, in a series of votes that closely followed party lines, rejected Republican efforts to strip tax increases from the bill providing revenues to balance the state budget.

On a key vote, the House voted 90-48 to raise the state sales tax to 6 percent from 5 percent and use the money for public schools. The 90 votes would be more than enough to override a veto by Mr. Ehrlich. Other amendments failed on similar votes.

The bill would bring in just more than $1 billion in revenue, primarily by increasing the sales tax and the motor-vehicle titling tax to 6 percent from 5 percent and increasing the top income-tax rate to 6 percent on affluent Marylanders for the next five years.

It also would reduce state property taxes by about $320 million a year and reduce income taxes for low-income Marylanders by $30 million, leaving a net gain to the state of $670 million. Democrats want to repeal Mr. Ehrlich’s property-tax increase of last year in exchange for passing his slot-machine legislation.

House Republicans offered a series of amendments to remove parts of the tax package from the bill so they could get Democrats on the record as supporting tax increases.

Mr. Ehrlich, who has pledged to veto any bill that increases the sales or income taxes, said it was fair for Republicans to get Democrats on the record.

“Votes should be on the [voting] board. Those votes should be well known to the voters of Maryland,” he said.

The entire budget-financing bill comes up for a final House vote tomorrow. If the bill passes the House, it will go back to the Senate, which approved a much more modest plan increasing taxes by about $95 million.

Senate President Thomas V. Mike Miller has said he does not think the Senate will accept the House tax plan.

This article is based in part on wire service reports.

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