Tax structure hurting Maryland

In the last two years, Maryland has lost to Virginia the new headquarters of both Northrop Grumman and Science Applications International Corp., the second- and sixth-largest federal contractors in the nation, respectively. Most recently, Maryland lost a battle over a 625-employee division of Bechtel Corp., an engineering powerhouse that maintains a division twice that size in Frederick County.

Economists point to Maryland’s high corporate and personal income taxes as the top reasons why corporations would favor Virginia.

The commonwealth’s corporate tax rate, at 6 percent, is 2.25 percentage points lower than Maryland’s.

Additionally, Virginia’s top personal income tax rate, at 5.75 percent, is far lower than Maryland’s, which approaches 10 percent when a local “piggyback” tax is included.

Virginia’s low tax rates contributed to its recent ranking by CNBC as the best state in the country to do business. Maryland, by contrast, ranked behind 28 other states, with its aging infrastructure, cost of living and prevalence of unions weighing down its score. In another nationwide survey of states’ friendliness to business, Maryland ranked much higher, at No. 14. But its performance was eclipsed by Virginia’s No. 2 ranking.

“Maryland is a conundrum,” declared a recent report by the state-appointed Maryland Economic Development Commission. “On the one hand, it ranks only in the middle of leading innovation states in economic activity, but on the other, it is among the leaders in fast-growing companies.”

The state has all the machinery for robust economic growth, but its complicated corporate tax structure and reliance on the federal government are holding back its progress, the commission concluded.

Maryland Gov. Martin O’Malley says he is committed to reforming the state’s regulatory environment in the upcoming legislative session, during which the General Assembly also will be tasked with closing a $1 billion budget gap. – Hayley Peterson