You are currently browsing the monthly archive for January 2010.

1. Get Involved: support progressive candidates and issues: Join and Support MCPA
2. Contact your State Legislators for more transparency, electoral fairness, and sound budget policies.
EMERGENCY ACTION ALERT: Act Now! Maryland needs voting machines we can trust.
3. Discuss budgets and revenues with elected officials, 1:30 PM February 7th 2010 in Wheaton
4. Sample Letter on Progressive Working Group Issues
5. Background, news, and information on these bills and policies
6. Please join the Montgomery County Progressive Alliance.

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1. Get Involved! Support progressive candidates and issues! Join and Support MCPA
If you live in the Montgomery County Maryland area, please join the Montgomery County Progressive Alliance. MCPA is local, independent coalition of organizations. MCPA organizes debates, forums and other events to inform the public and advance understanding and progress in Montgomery County. More information: https://mcprogressive.wordpress.com/

We’re gearing up for an exciting, important 2010. MCPA will endorse candidates and issue campaigns, educate the general public on issues, host events, and otherwise support progressive issues and campaigns as MCPA and in concert with other organizations. To achieve everything we should–to expand our meetings, hold more forums, extend outreach, and organize support for the best candidates–we ask you to become a paying member of MCPA now. Support our work: https://mcprogressive.wordpress.com/join-and-support-mcpa/ Contact mikehersh@mikehersh.com to work with MCPA.

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2. Contact your State Legislators for more transparency, electoral fairness, and sound budget policies.
MCPA is a member of the Progressive Working Group (PWG), a coalition of 24 organizations* in Montgomery and Prince George’s Counties–and most recently Howard and Baltimore Counties and Baltimore City–joining together to support 3 important issues: campaign finance reform, greater transparency/open access in Annapolis, combined reporting aka closing a massive corporate tax loophole. Following a PWG meeting with House of Delegates Speaker Michael Busch, we’re hopeful we can achieve progress on all of these issues!

In fact, we’ve already seen progress. Quickly following efforts from PWG and coalition allies Ryan O’Donnell (Maryland Common Cause), Sean Dobson, (Progressive Maryland) and Maryland Transparency and Equal Access in Government, Speaker Busch and Senate President Mike Miller took steps to promote greater transparency in General Assembly operations, including posting committee votes online.

We’re not satisfied with partial success on one issue area, however. We’re asking you to adapt the following sample letter (see below) to write or call your state legislators. Please use your own words! Identical emails and calls are less likely to receive due consideration. You can find your legislators’ contact information online here: http://mlis.state.md.us

* EMERGENCY ACTION ALERT! Maryland needs voting machines we can trust. The Maryland Legislature unanimously voted for paper-based, verifiable voting. Unfortunately, Governor O’Malley failed to fund the transition away from unreliable, error-prone, expensive and obsolete DRE voting machines in his current budget. The Board of Public Works will meet to consider funding the transition to more reliable, less costly paper ballot voting. Urge your state legislators to contact the Governor and demand voting machines we can trust in Maryland! (See sample letter below).

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3. Discuss budgets and revenues with elected officials, 1:30 PM February 7th 2010 in Wheaton
Sunday, February 7th 1:30 to 3:30 PM. Panel discussion/forum on MD and MoCo Budgets.

While we welcome the Governor’s commitment to schools and other priorities in his just-released budget, many questions remain about remaining challenges. Join us for a panel discussion on these critical issues with Delegates Brian Feldman, Sheila Hixson, and Roger Manno, County Council President Nancy Floreen and School Board President Pat O’Neill. We’re awaiting response from County Executive Ike Leggett and MCEA leadership. Free and open to the public.

Wheaton Library, (first floor large meeting room)
11701 Georgia Ave. Wheaton MD 20902
Public transportation: from Wheaton Metro take Y9 Bus (toward Montgomery Hospital).

More information and RSVP: Mark Woodard markdwoodard@comcast.net or Mike Hersh mikehersh@mikehersh.com

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4. Sample Letter on Progressive Working Group Issues:

Dear (name and office of delegate or senator)

I am a member of the Montgomery County Progressive Alliance, a grassroots group with approximately 1100 members in Montgomery County. We are part of a coalition of 24 groups which supports campaign finance reform, greater transparency and equal access in Annapolis, and combined corporate income reporting. I urge you to support these issues in the current legislative session.

Maryland needs voting machines we can trust. We thank you for voting to purchase and deploy paper-based, verifiable voting machines. Although you and the rest of the Maryland General Assembly unanimously voted for it, Governor O’Malley failed to fund the transition away from unreliable, error-prone, expensive and obsolete DRE voting machines in his current budget. Please contact the Governor and convey your strong commitment to voting machines we can trust in Maryland. Urge him to fund the transition to more reliable, less costly, verifiable paper ballot voting machines when the Board of Public Works meets to consider funding priorities in Maryland early next month.

We need real campaign finance reform (CFR) including voluntary public financing of General Assembly elections. This would let you focus on important issues facing our state, rather than on raising funds for your campaign. I understand challengers can raise campaign funds during the session, but you are not allowed to do so. We believe CFR would fix this unfair situation, and help free you and your colleagues from the burdens of fundraising. This would increase public confidence in the General Assembly, and ultimately make your work more effective.

We’ve considered the impact the recent US Supreme Court decision may have on CFR, and we understand that public financing would likely survive judicial challenge by virtue of its voluntary nature. We also understand that Sen. Paul Pinsky is among the legislators like to sponsor such legislation during the 2010 session. We strongly urge you to do all you can to ensure the passage of public financing CFR into law.

Please support Del. Heather Mizeur’s Maryland Open Government Act. Greater transparency/open access will let citizens better understand your efforts in Annapolis by facilitating access to information and participation in hearings. If enacted, the bill would allow free and total public access to services on the General Assembly’s Web site–eliminating the $800 fee for legislative tracking. It would also provide for live webcasts of committee hearings and Board of Public Works meetings. To facilitate public participation in General Assembly committee hearings, it would require one-day advance online notice of committee hearing agendas, would let people sign-up online to testify, and would mandate the publication of standing committee votes on the General Assembly Web site.

These objectives enjoy wide support politically and geographically. Along with all 24 members and allies of the PWG in Baltimore City, Montgomery, Howard, Baltimore and Prince George’s Counties, both House Speaker Busch and Senate President Miller endorse these principles. According to the Cumberland Times-News, “A legislative working group of the Allegany County Chamber of Commerce generally supported the Maryland Open Government Act.” Clearly, the time for greater access and transparency has come. Please sign on as a co-sponsor of The Maryland Open Government Act in the House of Delegates, or parallel legislation in the Senate.

We support combined corporate income reporting which would require the largest multi-state corporations to pay their fair share and help support education, infrastructure, transportation and other basic needs in Maryland. During the current budget crisis, this is more important than ever. Combined reporting will not harm Maryland’s economy or undermine efforts to attract and foster strong commercial growth. According to The Massachusetts Budget and Policy Center, which studied employment growth in states with combined reporting states from 1990-2006, “five of the seven states with the fastest employment growth use combined reporting” and “ten of the states with combined reporting had employment growth exceeding the national growth rate.”

According to an article entitled “Combined Reporting” from the New Rules Project: “Many retail chains earn profits at stores nationwide, but have developed an accounting scheme to evade paying their full share of state corporate income taxes. Tax experts believe the practice is costing states billions of dollars in lost revenue. It has also given chains an advantage over locally owned businesses, which must pay state income tax on all of their earnings. Twenty-one states are not vulnerable to these tax-evasion schemes, because they have enacted a policy known as combined reporting.” These states include–Alaska, Arizona, California, Colorado, Hawaii, Idaho, Illinois, Kansas, Maine, Michigan, Minnesota, Montana, Nebraska, New Hampshire, New York, North Dakota, Oregon, Texas, Utah, Vermont, and West Virginia.

Maryland has been considering enacting combined reporting for several years. The House of Delegates passed Combined Reporting during the recent special session, but the Senate did not. Other states currently considering combined reporting include Arkansas, Connecticut, Florida, Iowa, Kentucky, Massachusetts, Missouri, New Mexico, North Carolina and Wisconsin. The 31 states which have passed or are considering combined reporting represent every region of the U.S.–a wide range of political and socio-economic character–which indicates that this is not a left or right, pro- or anti-business, or partisan issue. Combined reporting is a simple matter of basic fairness, sound economics, and honest accounting.

We urge you to support Del. Roger Manno’s HB 10 which would dedicate funds from combined reporting to strengthen the state employees’ and teachers’ pension systems and prevent transfer of pension obligations to the counties and Baltimore City. Please co-sponsor HB 10 in the House, or sponsor and support parallel legislation in the Senate.

Thank you for your consideration of these important issues.

Sincerely,

Your name and address

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5. Background, news, and information on these bills and policies

Campaign finance reform:
Bill to be introduced soon. Fact sheet on campaign finance: http://progressivemaryland.org/public/documents/2010/ga/CleanElectionsBasicHandout2010.pdf

Fair and effective solutions to the budget crisis:
Teacher and Employee Pension Sustainability and Solvency Trust Fund (HB 10) (Manno) http://mlis.state.md.us/2010rs/billfile/HB0010.htm

Also see: “Combined Reporting” New Rules Project: http://www.newrules.org/retail/rules/level-playing-field-taxation/combined-reporting

Also see: “Corporate Lobbyist’s Case Against Combined Reporting in New Mexico: A Rebuttal”
http://www.cbpp.org/cms/index.cfm?fa=view&id=3012

Also see: WTH is Combined Reporting https://mcprogressive.wordpress.com/2010/01/09/wth-is-combined-reporting-and-why-do-we-need-it/

Transparency and Equal Access in Government:
See “Crowdsourcing Maryland’s Democracy” Washington Post Op-Ed: http://voices.washingtonpost.com/local-opinions/2009/12/crowdsourcing_marylands_democr.html

Also see Delegate Ali’s bill at Legislative Voting Sunshine Act (HB 107) (Ali): http://mlis.state.md.us/2010rs/billfile/hb0107.htm

Also see: “Lawmakers to introduce Maryland Open Government Act today,” Cumberland Times-News http://www.times-news.com/local/local_story_028094302.html

Also see: http://maryland-politics.blogspot.com/2010/01/busch-committee-votes-will-be-posted.html

Also see: http://voices.washingtonpost.com/annapolis/2010/01/miller_senate_to_post_committe.html?wprss=annapolis

Also see: Del. Mizeur legislative agenda: http://www.heathermizeur.com/pdf/2010/Mizeur2010LegislativeAgenda.pdf

Maryland Transparency and Equal Access in Government Coalition (MD TEAG) builds support for transparency/open access issues and needs more volunteers. TEAG has been meeting with legislators and others on these issues. For more information on TEAG’s long range goals as well as its work in the current session and to become involved, contact Luis Zapata, Chair, MD TEAG Coalition, MDTEAG@gmail.com, 301-325-6754.

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6. Please join the Montgomery County Progressive Alliance.
MCPA is local, independent coalition of organizations. MCPA organizes debates, forums and other events to inform the public and advance understanding and progress in Montgomery County. More information: https://mcprogressive.wordpress.com/

Support our work: https://mcprogressive.wordpress.com/join-and-support-mcpa/

Contact mikehersh@mikehersh.com to work with MCPA.

To join the MCPA Google group, send an email to mcprogressivealliance-subscribe@googlegroups.com

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Thursday, January 28th at 7:15 PM Healthcare-Now! of Maryland monthly meeting featuring Mark Dudzic of Labor for Single Payer speaking about the National AFL-CIO endorsing single payer and the national strategy conference for the Labor Campaign for Single Payer. Also updates on the state bill and the national Medicare for All campaign. Discussion and questions. The Episcopal Diocese Center 4 E. University Parkway Baltimore, MD (at the corner of Charles St and University Parkway). More information: http://www.mdsinglepayer.org and http://www.md.pnhp.org RSVP: mdpnhp@gmail.com

Monday, February 1st at 7 PM Monthly progressive coalition meeting. 2010 is a critical year. We’re organizing our steering committee, and mobilizing on events, issues and campaigns. Saigonese Restaurant, 11232 Grandview Ave., Wheaton, MD 20902 (Short walk from Wheaton Metro). More information  RSVP: Mike Hersh mikehersh@mikehersh.com

Tuesday, February 2nd 6 PM Jamie Raskin and the David A. Clarke School of Law welcome Andrea D. Lyon, Professor of Law, DePaul University, nationally recognized death penalty expert and author “Angel of Death Row: My Life as a Death Penalty Defense Lawyer” for a wine reception and book signing. University of DC 4200 Connecticut Ave. N.W. Building 39, Room 201 Washington, DC 20008 (at the Van Ness UDC Metro Stop). Free and open to the public. RSVP on line at: http://www.law.udc.edu/event/Angel_of_Death_Row

Wednesday, February 3rd at 7 PM. Support Dana Beyer for State Delegate. Jackie’s Restaurant 8081 Georgia Ave Silver Spring, MD 20910 With Honored Guests: Congresswoman Tammy Baldwin (subject to House voting schedule)*, National Organization for Women President Terry O’Neill*, Director of the Maryland Black Family Alliance, Elbridge James*, Hosted by Mike Hersh, a founder of the Progressive Working Group* $25 requested donation, $50 supporter, $100 host committee. * Guests are appearing as individuals. Organizations listed for identification purposes only. Not to imply or indicate official endorsement. By authority Friends of Dana Beyer, Chris Grewell Treasurer. More info. / RSVP: http://www.danabeyer.com/index.php?option=com_content&view=article&id=3&Itemid=4 or danamd@danabeyer.com

Friday, February 5th 6 to 10 PM. Networking/tabling opportunity at the Univ. of DC Cafe. Fun event with food, wine, beer, great people, live music, etc. Discussion of the Constitution and Rights at Risk, 6:30 to 7:30 pm led by ACLU Director Johnny Barnes and Shahid Buttar, Bill of Rights Defense Committee. The SCOTUS decision on Campaign Finance will be a focus. 4200 Connecticut Ave. N.W. Building 39, Firebird Inn (Cafeteria) Washington, DC 20008 (at the Van Ness UDC Metro Stop). Free Table and RSVP: Mike Hersh mikehersh@mikehersh.com More information: http://justicecafe.wordpress.com/

Sunday, February 7th 1:30 to 3:30 PM. Panel discussion/forum on MD and MoCo Budgets. While we welcome the Governor’s commitment to schools and other priorities in his just-released budget, many questions remain about remaining challenges. Wheaton Library, (first floor large meeting room) 11701 Georgia Ave. Wheaton MD 20902. Public transportation: from Wheaton Metro take Y9 Bus (toward Montgomery Hospital). More information and RSVP: Mark Woodard markdwoodard@comcast.net or Mike Hersh mikehersh@mikehersh.com We’ve gotten confirmation from Delegates Brian Feldman, Sheila Hixson, and Roger Manno, County Council President Nancy Floreen and School Board President Pat O’Neill. We’re awaiting response from County Executive Ike Leggett and MCEA leadership. Free and open to the public.

Saturday, February 20th Leadership Training for Single Payer healthcare. Workshops from 9 am until 3 pm. No fees required, donations accepted. Owen Brown Interfaith Center at 7246 Cradlerock Way in Columbia, MD 21045. RSVP to mdpnhp@gmail.com so that we can have materials ready. Speakers include: Dr. Carol Paris and Brigitte Marti of Maryland Physicians for a National Health Program on education, Mark Dudzic of Labor for Single Payer on outreach, Chuck Pennacchio of HealthCareforAllPA on building relationships with legislators, Donna Smith of California Nurses Association/NNU on media, Diane Wittner of ChesapeakeCitizens, Katie Robbins of Healthcare-Now, Dr. Andy Coates of PNHP and SinglePayerNewYork and Dr. Bill Skein of PNHP Los Angeles and Soapbox Consulting. Details are available at http://www.mdsinglepayer.org and http://www.md.pnhp.org

MCPA is a progressive coalition of organizations and individuals in Montgomery County, Maryland. We’ve had regular public meetings every month since 2003–with very few months missed. We use these meetings to share information, hear candidates and elected officials, and plan events and actions. We’ve had Congresswoman Donna Edwards, Maryland Senators Jamie Raskin and Rich Madaleno, Delegates Kumar Barve, Ana Sol Gutierrez, Karen Montgomery, Roger Manno, Tom Hucker, Heather Mizeur, and Jeff Waldstreicher; Council Members Duchy Trachtenberg, Marc Elrich, Roger Berliner, and George Leventhal–among many others at our meetings and events.

We’ve organized and cosponsored dozens of events, vigils, forums, debates, book talks and demonstrations on several issues including peace, healthcare, energy/climate, and many more. We cosponsored a debate in Rockville with Peace Action Montgomery in ’06 with Chris Van Hollen, Donna Edwards, and all the other candidates for US Congress in Districts 4 and 8 (except Al Wynn), and one with all the U.S. Senate candidates (except Ben Cardin and Michael Steele). Last March, we brought together about 80 activists at the Wheaton Library to hear Congressman Van Hollen’s representative and County Council members discuss local and federal energy policy.

We organized a spectacularly successful picnic last Summer at the Wheaton Regional Park last Summer. Well over 100 local activists gathered to hear author David Swanson and local leaders including State Senator Jamie Raskin; Delegates Roger Manno, Tom Hucker, Saqib Ali, and Karen Montgomery; Council Members Duchy Trachtenberg and Marc Elrich; and Healthcare Activist Dana Beyer. Most recently, we organized a healthcare forum in Rockville with several elected officials and 60 or so in the audience. We’re cosponsoring an event with the Greater Silver Spring Democratic Club next month on budgets and pensions, and one on home energy conservation soon thereafter.

We’ve brought out volunteers to canvass door-to-door, at metro stops, etc. for candidates in ’04. ’06 and ’08 for the primaries and general elections. We’ve organized meetings with elected officials and their staff in Rockville, Annapolis and D.C. We’ve organized sign waving events and vigils on issues and for candidates. Now, we’re asking our members to step up into leadership roles. We hope to organize a steering committee soon. Contact mikehersh@mikehersh.com to get involved!

Join the Montgomery County Progressive Alliance and the Greater Silver Spring Democrats Club for a panel discussion of these important issues with:

Delegates Brian Feldman, Sheila Hixson, and Roger Manno; County Council President Nancy Floreen and School Board President Pat O’Neill (confirmed). Other panelists invited.

Sunday February 7th 1:30 to 3:30 p.m.
Wheaton Library (first floor large meeting room)
11701 Georgia Ave. Wheaton MD 20902

Map/directions: http://maps.google.com/maps?q=11701+Georgia+Ave+Wheaton+MD+20902

Public transportation: from Wheaton Metro take Y9 Bus (toward Montgomery Hospital)

More information and RSVP: Mark Woodard markdwoodard@comcast.net
Mike Hersh mikehersh@mikehersh.com 301-933-7169 / 301-602-9388 (cell)

Get Involved: support progressive candidates and issues
If you live in the Montgomery County Maryland area–or support our efforts here–please join the Montgomery County Progressive Alliance. MCPA is local, independent coalition of organizations. MCPA organizes debates, forums and other events to inform the public and advance understanding and progress in Montgomery County.

We’re gearing up for an exciting, important 2010. MCPA will endorse candidates and issue campaigns, educate the general public on issues, host events, and otherwise support progressive issues and campaigns as MCPA and in concert with other organizations. To achieve everything we should–to expand our meetings, hold more forums, extend outreach, and organize support for the best candidates–we ask you to become a paying member of MCPA now. Contact mikehersh@mikehersh.com to work with MCPA.  Become a paying member of MCPA.

Paying members will help us establish our priorities, allocate our resources, and make a real difference.  For the low cost of $25/year, about $2 per month, you can participate in the changes you want to see in Montgomery County. Contribute online or bring payment to any event or meeting.

Paying members will be eligible to serve on committees (including the new steering committee), participate in charting our course into the next year including formulating the process through which we will nominate candidates and voting to endorse candidates for office in 2010. Organizations and individuals are eligible to join MCPA. They will also participate in our planning and decision-making processes governing our role in state and local elections.

Our committees will study and make recommendations for MCPA’s positions on issues facing all levels of government including: health policy, transportation and land use, energy and environment, equality under the law, accurate and transparent elections, clean politics including public campaign financing and other fundamental changes in access to our government, affordable housing, access to needed services, protection from public or private violations of basic rights, respect and support for all members of our community–regardless of race, age, gender, sexual identity, national origin, creed, denomination, religion or lack thereof.

If you haven’t yet: please join our Meetup Group, our Google Group, and our Facebook Group.

Please donate to support our ongoing meetings, public forums, website, and more, or bring payment to any event or meeting.  Sponsor our Meetup Group. Attend our meetings and events, join our committees, help us organize more events and develop or endorsement process.

Thanks!

Mike Hersh
Executive Director, Montgomery County Progressive Alliance

The Montgomery County Progressive Alliance and our allies including the Progressive Working Group, Democracy for Montgomery County, Progressive Democrats of America/Maryland, Progressive Maryland and many others support Combined Reporting to increase the fairness in our state, remove disadvantages which currently hinder small business growth, and help ameliorate crushing budget deficits. People ask us some important questions about this policy. I’ve searched the web and gathered answers to these questions:

What the Hell is Combined Reporting?

According to an article entitled Combined Reporting from the New Rules Project:

Many retail chains earn profits at stores nationwide, but have developed an accounting scheme to evade paying their full share of state corporate income taxes. Tax experts believe the practice is costing states billions of dollars in lost revenue.  It has also given chains an advantage over locally owned businesses, which must pay state income tax on all of their earnings. Twenty-one states are not vulnerable to these tax-evasion schemes, because they have enacted a policy known as combined reporting.

Which other states enacted Combined Reporting? Which haven’t? Which other states are considering it?

[From the New Rules Project article] As of February 2008, twenty-one states have adopted combined reporting.  These states are: Alaska, Arizona, California, Colorado, Hawaii, Idaho, Illinois, Kansas, Maine, Michigan, Minnesota, Montana, Nebraska, New Hampshire, New York, North Dakota, Oregon, Texas, Utah, Vermont, and West Virginia. Lack of corporate income taxes makes combined reporting irrelevant in four states: Nevada, South Dakota, Washington, and Wyoming.

The remaining twenty-five states (as of February 2008), plus the District of Columbia, have not adopted combined reporting and are vulnerable to chains escaping their state tax obligations by shifting income to subsidiaries.  These states are Alabama, Arkansas, Connecticut, Delaware, Florida, Georgia, Indiana, Iowa, Kentucky, Louisiana, Maryland, Massachusetts, Mississippi, Missouri, New Mexico, New Jersey, North Carolina, Ohio, Oklahoma, Pennsylvania, Rhode Island, South Carolina, Tennessee, Virginia, and Wisconsin.

[B]ills to implement combined reporting were introduced in several other states, including Arkansas, Connecticut, Florida, Iowa, Kentucky, Maryland, Massachusetts, Missouri, New Mexico, North Carolina and Wisconsin.”

If Maryland enacts Combined Reporting, won’t we lose jobs as businesses flee the state?

Not according to “The Massachusetts Budget and Policy Center [which] compiled this fact sheet describing employment growth in states with combined reporting states from 1990-2006.  They find that 1) five of the seven states with the fastest employment growth use combined reporting and 2) ten of the states with combined reporting had employment growth exceeding the national growth rate.” (New Rules Project).

This indicates warnings that businesses will leave the state are unfounded. Companies that use tricks to evade state taxes–like retailers and other chains with many locations–cannot serve communities from afar. The Combined Reporting article lists The Gap, Home Depot, Ikea, Kmart, Kohl’s, Limited Brands (including Bath & Body Works, Victoria’s Secret, The Limited, and other chains), Payless Shoes, Staples, and Wal-Mart as companies that escape taxes, but which would be forced to pay their fair share under combined reporting.

As mentioned above, New Mexico is one of the states considering Combined Reporting. The article “Corporate Lobbyist’s Case Against Combined Reporting in New Mexico: A Rebuttal” addresses several arguments against Combined Reporting. The considerations are similar to those in other states, including Maryland including:

[C]laims that combined reporting unfairly taxes corporate profits not actually earned in New Mexico, will hurt New Mexico’s economy, and is unnecessary and ineffective as a revenue-raising strategy. In reality:

* The U.S. Supreme Court has rejected the claim that combined reporting unfairly taxes corporate income earned outside the taxing state and has upheld combined reporting as a fair means of measuring the portion of income that a member of a corporate group earns in a state.

* Adopting combined reporting is essential to nullifying a wide variety of aggressive tax-sheltering strategies that large multistate corporations are able to implement to reduce or even eliminate their income tax payments. The targeted measure Minzner recommends as an alternative addresses only one of those strategies, some of which can only be shut down effectively by combined reporting.

* The states that have had combined reporting in effect for the past 15-20 years have been disproportionately successful in retaining manufacturing jobs – the jobs theoretically most likely to be moved in response to state tax policies corporations find objectionable. For example, 9 of the 11 states that performed better than New Mexico in manufacturing job growth between 1990 and 2007 mandated combined reporting.

* Mandating combined reporting would raise substantial new revenue for New Mexico, particularly when corporate profits begin recovering from the recession. The state’s Legislative Finance Committee estimates a 20 percent corporate tax revenue increase would result – funds that will be available to preserve education, health or other services that are good for the state’s economy. A revenue estimate of this order of magnitude is consistent with estimates done in other states, including an especially careful estimate recently made in Maryland.

* Mandatory combined reporting would mitigate the competitive disadvantage that some small businesses now face relative to multistate, multi-corporation groups that can lower their taxes by artificially shifting income into other states.

How does it work? How do corporations use this trick to avoid paying state taxes?

The New Rules Project article explains:

The way chain retailers are evading their state tax obligations is by transferring profits to certain types of subsidiaries.  One common approach is to establish a trademark holding company.  Another is to set up a real-estate investment trust, or REIT.

In the trademark holding company scheme, a chain sets up a subsidiary in a state that does not tax certain types of income, such as Delaware, Michigan, or Nevada. Home Depot, for example, has a Delaware-based subsidiary called Homer TLC Inc. The subsidiary, which consists of little more than an address, owns the company’s trademark. Home Depot stores in other states pay the subsidiary a hefty fee for using the trademark.  These fees are then deducted as business expenses from Home Depot’s tax returns in those states. Meanwhile, because Delaware does not levy corporate income taxes on earnings from intangible assets such as trademarks, the profits are not taxed in that state either.

Often the subsidiary will also lend money to the rest of the corporation, enabling a second stream of profits to be transferred free of state taxes through the payment of interest on the loan.

The REIT method has been widely used by large retailers, most notably Wal-Mart.

Established in the 1960s by Congress, REITs are exempt from paying taxes on dividends paid to their investors. Chain retailers have taken advantage of this by setting up their own REITs (often called “captive REITs”), which own the land and buildings that house their stores.  The chain then pays rent to the REIT and deducts the rent as a business expense from its state tax returns.  The REIT’s income is then paid back to the chain as a tax-free dividend.

This is how the Wall Street Journal explained Wal-Mart’s use of a captive REIT: “One Wal-Mart subsidiary pays the rent to a real-estate investment trust, or REIT, which is entitled to a tax break if it pays its profits out in dividends. The REIT is 99%-owned by another Wal-Mart subsidiary, which receives the REIT’s dividends tax-free. And Wal-Mart gets to deduct the rent from state taxes as a business expense, even though the money has stayed within the company.”  (“Wal-Mart Cuts Taxes By Paying Rent to Itself,” by Jesse Drucker, Feb. 1, 2007.)

What’s the big deal? Is this really costing Maryland money?

Again from the Combined Reporting article: [T]ax experts believe these schemes are costing states billions of dollars in lost revenue and likely account for a sizeable share of the decline in state corporate income tax receipts that has occurred in recent years.  In 1977, corporate income taxes accounted for 9.7 percent of total state tax revenue.  By 2001, their share had fallen to 5.7 percent and had dropped to an estimated five percent by 2004 (see The State Corporate Income Tax: Recent Trends for a Troubled Tax).

...

Between 1992 and 1994, Limited Brands transferred more than $1.2 billion from its stores to Delaware subsidiaries. Kmart shifted $1.25 billion into its Michigan subsidiary, Kmart Properties, Inc., from 1991 to 1995.

More recently, evidence submitted in a case in North Carolina revealed that, in one four-year period, from 1998 to 2001, Wal-Mart and Sam’s Club stores across the country paid captive REITs a total of $7.27 billion in “rent.”  Based on an average state corporate income tax rate of 6.5 percent,  this enabled Wal-Mart to avoid about $350 million in state taxes over those four years, according to an analysis by three tax experts commissioned by the Wall Street Journal.

A report by Citizens for Tax Justice, a Washington-based nonpartisan group, and Change to Win, a labor coalition that represents 6 million workers, estimated that Wal-Mart’s tax avoidance schemes helped cut its payments to state governments almost in half between 1999 and 2005. Over those seven years, Wal-Mart reported $77.4 billion in pretax U.S. profits. But it reported a total state income tax bill of only $2.4 billion, or 3.16 percent of those profits. The researchers’ report said that if Wal-Mart paid taxes at the statutory state corporate tax rates for the same period, it would have paid $4.7 billion in state income taxes.

Is Combined Reporting a real solution?

Several court cases have dealt with the question of whether this practice constitutes a legitimate tax-reduction strategy or an illegal tax-evasion scam.  But the cases have produced mixed results.  Some courts have sided with the corporations and ruled that the practice is legal. Others have favored the states. A January 2008 decision by a North Carolina district court ruled that the state was right to collect an additional $33.5 million in taxes from Wal-Mart, which the chain had tried to avoid paying through a captive REIT scheme.

Rather than undertaking the expense and uncertainty of a lawsuit, a better way for states to block these tax-evasion schemes and level the playing field for local retailers is to enact a relatively straight-forward revision to the state tax code, known as “combined reporting” (and sometimes referred to as taxing companies on a “unitary basis”).

Combined reporting requires that companies combine profits from all related subsidiaries, including captive REITs and trademark holding companies, before determining what portion of their profits are taxable in that state. (To determine how much of their total worldwide earnings are taxable in each state in which they operate, multi-state companies must apportion their profits according to formulas which consider how much of the firm’s property, payroll, and sales are in each state.)

States with combined reporting are effectively able to tax the percentage of an out-of-state subsidiary’s profits that can legitimately be attributed to a firm’s in-state operations. Combined reporting has been upheld by the U.S. Supreme Court.

More information also thanks to the New Rules Project

Pending Bills

  • From 2005-08, bills to implement combined reporting were introduced in several other states, including Arkansas, Connecticut, Florida, Iowa, Kentucky, Maryland, Massachusetts, Missouri, New Mexico, North Carolina and Wisconsin.

Even more information:

  • State Tax Policy and Entrepreneurial Activity In this November 2006 study, the U.S. Small Business Administration found that states that have adopted combined reporting and throwback rules have higher entrepreneurship rates. The study hypothesizes that “the presence of these policies might represent an overall state tax climate that is less favorable toward larger businesses and perhaps more favorable toward small businesses.”

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