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Corporations hit with new Maryland disclosures
By Beverly A. Richard, CPA, MST
Maryland legislators sought to mandate combined reporting during the 2007 special legislative session in an effort to close perceived "corporate loopholes" and collect additional tax revenues. The push for combined reporting was stalled as legislators were educated on the complications and questions surrounding the actual revenue estimates.
Instead, legislators instituted new corporate filings for manufacturers and corporate groups in order to gather tax data to evaluate new tax proposals. The exact requirements were then streamlined during the 2008 regular legislative session.
These annual reporting requirements affect public and non-public companies and are retroactive to tax years beginning after Dec. 31, 2005. The reportings continue through tax years beginning in 2010.
The Comptroller’s Office has indicated that tax year 2006 filings will be due by Oct. 15, 2008. Filings for tax year 2007 will be due by the extension due date of the corporate income tax return – Oct. 15, 2008 for calendar year taxpayers. The comptroller will collect the data from the corporations, analyze the information and then submit detailed reports to the governor and General Assembly.
Reporting requirements
Manufacturers: Manufacturers with more than 25 employees must return to reporting the difference in Maryland tax between using the single factor apportionment and three-factor double weighted sales apportionment. They also must report:
- Maryland and worldwide sales;
- Maryland and worldwide taxable income; and
- Maryland and worldwide book value of plant, property and equipment.
Corporate groups: Members of “corporate groups,” as explained below, are required to file / report:
- a proforma water's edge combined corporate income tax return, based upon regulations to be adopted by the comptroller;
- the difference in Maryland tax and the sales factor under a throwback provision in which sales shipped from Maryland would be included in the numerator:
- when the customer is located in a state where the selling corporation is not subject to a tax based upon net income (such as protected by P.L. 86-272);
- when the customer is the federal government;
- the amount and source of non-apportionable, non-operational income and the difference in Maryland tax if the corporation were required to allocate that income to the corporate domicile.
A “corporate group” means an affiliated or controlled group as defined under the consolidation regulations of the Internal Revenue Code.
Alternatively, a “corporate group” can be an affiliated group of corporations which is engaged in a unitary business, and where more than 50 percent of the voting stock is owned directly or indirectly by common owners or by one or more members of the group.
A “corporate group” does not include corporations that are not subject to U.S. federal income tax, a regulated investment company (IRC §851(A)) or an insurer (Insurance Article §1-101).
The Comptroller's Office has the enormous task of promulgating regulations to explain the specifics of these disclosures. This includes the task of explaining the proforma water's edge combined report, who would be included in the unitary group, and how to calculate the tax. The Comptroller's Office has not released the draft regulations at this time; however, we anticipate having them in July.
Beverly A. Richard, CPA, MST, is part of SC&H Tax & Advisory Services, LLC and chair of the MACPA's State Tax Committee.