Tax News

CCH (cch.taxgroup.com) reports:

  Maryland has passed two identical bills that would, among other things, alter the information that corporate income tax taxpayers are required to report to the Comptroller's Office, pursuant to Chapter 3 of the 2007 special session. For example, corporations will now be required to submit a pro forma "waters edge" combined corporate income tax return, provide information concerning income tax impacts of a single sales factor apportionment as well as calculate throwback and nonoperational income tax differently. In addition, many of the arduous reporting requirements created by Chapter 3 of the 2007 special session are eliminated. The bills are effective July 1, 2008.

  The legislation alters the definitions of "corporate group" so that the term does not include (1) a corporation that, for any reason, is not subject to federal income tax; (2) an insurer as defined in §1-101 of the Insurance Article; or (3) a regulated investment company as defined in §851(A) of the IRC.

  The bills make numerous changes to the reporting requirements for corporate groups. For example, corporate groups are no longer required to report (1) the states where each member of the group files an income tax return and (2) for any state that requires a combined or consolidated return, the members of the group that are included in the combined or consolidated return under the proposed legislation.

  The legislation requires each corporation required to file an income tax return that is a member of a corporate group to file a pro forma "waters edge" corporate income tax return filed in accordance with regulations adopted by the Comptroller. The return will need to reflect the sales factor that would be calculated for Maryland and the difference in Maryland income tax that would be owed if the corporation were required to include in the numerator of the sales factor all sales of property shipped from an office, store, warehouse, factory, or other place of storage in Maryland where (1) the purchaser is the federal government or (2) the property is shipped or delivered to a customer in a state in which the selling corporation is not subject to a state corporate income tax or state franchise tax measured by net income and could not be subjected to such a tax if the state were to impose it.

  Each corporation required to file an income tax return that is a member of a corporate group also is required to report, for any income that the taxpayer has identified as income that is nonoperational and therefore not apportionable, (1) the amount and source of that nonoperational income and (2) if the commercial domicile of the corporation is in Maryland, the difference in tax that would be owed if the corporation were required to allocate 100% of the nonoperational income to Maryland to the fullest extent allowed under the U.S. Constitution.

  Some of the reporting requirements created by Chapter 3 of the 2007 special session that are eliminated by the current legislation include the requirement that Maryland corporate taxpayers file detailed information returns including (1) statements identifying each member of the corporate group and affiliated groups, as defined by IRC §§ 1504 or 1563; (2) statements identifying whether each member filed a Maryland return and in which states they filed a return; (3) the total sales worldwide and within Maryland; and (4) a list of members included in combined or consolidated reports for states that require such reporting.

  Publicly traded corporations are no longer required to include the name of any corporation owning (directly or not) at least 50% of its voting stock as well as information reported on or used to prepare the corporation's tax returns. Nor must publicly traded corporations that are not required to file a return in Maryland, provide the information that would be required to be reported on or used in preparing the tax return if one were required. Under the prior law, publicly traded corporations with worldwide gross receipts greater than $100,000,000 had to provide information regarding (1) how much would be owed if water's edge combined reporting were required; (2) throwback sales calculations if they were to be required; (3) where income was allocated that is not apportionable if the corporation's principal executive office is not in Maryland; and (4) the profits before tax reported on SEC Form 10-K for the corporation or corporation group. These requirements have also been removed.

  Additionally, the legislation terminates the reporting requirements for manufacturing corporations with more than 25 employees January 1, 2011; changes the date by which the Comptroller must annually report specified information from December 1 to March 1 of each year; alters the circumstances under which an individual is required to attach, or otherwise file with the Comptroller, a copy of the individual's federal income tax return to an income tax return; and makes various other changes.

H.B. 664; S.B. 444, Laws 2008, effective as noted above; Revised Fiscal and Policy Note, Department of Legislative Services.