Maryland’s dreadful tax system needs reform

Blog post by Andrew Griffin

Andrew Griffin is the senior vice president of government affairs at the Maryland Chamber and leads advocacy efforts on behalf of the 5,500+ members of the Chamber before the Maryland General Assembly and on a federal level. He develops, leads and executes the legislative strategy of the organization and maintains the Chamber’s positive working relationships with key elected officials and members of the administration to build a better understanding of and appreciation for business issues.

 

 

 

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We are approaching the grim 2-year anniversary of the start of the pandemic in the United States, and many Maryland businesses continue to struggle to keep their doors open.

During Maryland’s last session, we saw lawmakers from both sides of the aisle come together to address recovery. The passage of the RELIEF Act was a major win for businesses, workers and the Maryland economy. This bipartisan effort was a critical piece of what has become the complex landscape of our recovery. This session, Maryland legislators have the opportunity to once again speed up the pace of our recovery by addressing the long-standing issue that is our burdensome state tax system.

While taxation is inevitable, how Maryland lawmakers have chosen to levy taxes has had a direct, negative impact on our business climate. In December, the Tax Foundation’s State Business Tax Climate Index was released, comparing all 50 states’ tax systems. Maryland ranks a dismal 46 on the list, sinking two more spots since 2021.

This overall score is an average based on the competitive rankings of Maryland’s systems for corporate tax, individual tax, sales tax, property tax and unemployment insurance tax. The combination of these factors is used to determine a state’s overall ranking. While factors beyond taxes can and do affect a state’s business climate, it is undeniable that the impact of Maryland’s tax system directly correlates to business investment in our state.

Simply put, taxes matter to business. We are in constant competition with our surrounding states and jurisdictions to attract and retain business. Unfortunately, Maryland’s neighbors consistently outrank us and offer a more favorable tax environment, the exception being Washington, D.C. (#48). Delaware (#16), West Virginia (#21), Virginia (#25) and Pennsylvania (#29) offer businesses a more promising tax climate to live and do business. In 2010, Fortune 500 company Northrop Grumman chose to move its headquarters to Falls Church, Virginia from Maryland, citing a more favorable tax climate.[1] This is just one behemoth example of the daily decisions the business community is making, leaving Maryland holding the short end of the stick.

During the 2020 legislative session, the Maryland Chamber of Commerce brought together a broad coalition focused on data centers, a group of 60 business organizations and other interested stakeholders united in support of Senate Bill 397: bipartisan legislation that would provide a sales-and-use tax exemption for equipment used at a qualified data center.

Our coalition knew that if the bill passed, it would level the playing field with neighboring states, attract data center business to Maryland, create jobs, provide a financial boost to local governments and support the state as a leader in cyber innovation and investment. As a result of the coalitions hard fought advocacy the Maryland General Assembly passed SB 397 nearly unanimously, and it became law in May 2020.

Since then, Maryland has attracted giants like Quantum Loophole, who directly connect their move to Maryland with the passage of SB 397. “The primary driver was the sales and use tax exemption for data centers that became effective July 1, 2020,” said Sylvia Kang, VP of Real Estate at Quantum Loophole. “Without Maryland passing the data center legislation, Quantum Loophole would not have selected Maryland.”

This new facility will spur incredible economic growth and job opportunities in and around Frederick. Maryland’s economy will benefit with new opportunities for local businesses along with the creation of well-paying jobs.

The evidence is clear, favorable tax structures attract business, promoting economic growth, creating jobs and fostering stability. The first step to a more competitive climate in Maryland is to offset or reduce Maryland’s 8.25% corporate tax rate. This rate was raised in 2007, jumping up from 7%. Maryland’s economy and residents have missed economic development opportunities as a result. Our lawmakers must work together to address this issue.

Further, on the back of historic scrutiny of our state’s Unemployment Insurance system, ideas are floating around Annapolis as we speak that would increase the cost burden on employers. Despite Maryland businesses already being saddled with some of the highest minimum and maximum UI tax rates in the country, lawmakers are contemplating a new unemployment finance structure that would increase UI taxes by an average of 20.7%, with a larger burden falling on small and medium-sized employers.[1]

Again, there are many factors that contribute to a state’s overall business climate, but tax structure is the lion’s share piece of that pie. We encourage Maryland lawmakers to work together to address some of the perennial tax problems Maryland businesses are faced with year over year. The Maryland Chamber of Commerce stands ready as a resource on ways to keep Maryland competitive and ensure our state’s economic future.

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[1] Dana Hedgpeth and Rosalind Helderman, “Northrop Grumman decides to move headquarters to Northern Virginia,” The Washington Post, April 27, 2010.

[2] Maryland Dept. of Labor : House Bill 907 – Unemployment Insurance – Study on System Reforms

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Questions? Contact us at mdchamber@mdchamber.org or (410) 269-0642.