United States: Could Maryland Become The Next State To Adopt Single Sales Factor? Maryland Senate Passes Apportionment Bill And House Holds Public Hearing

At a Glance...

Maryland may be catching on to the single sales factor trend. A recently proposed bill, S.B. 1090, passed by a wide margin in the Maryland Senate on March 19, 2018, and was the subject of a public hearing before the Maryland House Ways & Means Committee on March 28, 2018. If enacted, S.B. 1090 would change the state's standard corporate income tax apportionment formula from the current three-factor formula with double-weighted sales to a single sales factor formula for tax years beginning after December 31, 2017. The Bill also would provide an election to opt out of single sales factor apportionment for qualifying taxpayers.

Under current Maryland law, corporate taxpayers are required to apportion income to the state using a three-factor formula with double-weighted sales. Maryland has flirted with adopting single sales factor apportionment for several years. (It has already moved to market-based sourcing for sales other than tangible personal property). In 2016, single sales factor legislation was introduced in both chambers of the General Assembly. The House passed its proposed bill, but ultimately, both bills died in the Senate. A similar bill was introduced in the Senate in 2017 but never made it out of the Senate's Budget and Taxation Committee.

The current legislative session also features competing legislation. Senate Bill 1090 (S.B. 1090) was introduced on February 12, 2018, and House Bill 1794 (H.B. 1794) was introduced on March 2, 2018. Both bills would generally require corporate income taxpayers to use to single sales factor apportionment. However, as discussed below, S.B. 1090 includes carveouts for particular industries, while H.B. 1794 has no exceptions.

The House Ways & Means Committee held a hearing on H.B. 1794 on March 12, 2018, but that Bill appears to have taken a backseat to S.B. 1090. The Senate voted 42 to 5 to pass S.B. 1090 on March 19, 2018, and the Bill has moved to the House for consideration. This year marks the first time in recent years that the Senate has been able to move forward on a single sales factor bill.

A Closer Look at S.B. 1090

S.B. 1090 would require most corporations to use a single sales factor to apportion income to Maryland for tax years beginning after December 31, 2017. However, certain corporations would be allowed to opt out of single sales factor apportionment. Specifically, corporations regulated by the Public Service Commission or the Federal Energy Regulatory Commission, communications corporations, "worldwide headquartered companies,"1 and banks would still have the option to apportion income to Maryland using a three-factor formula with double-weighted sales.

S.B. 1090 also includes a special rule for intangible income that would require "worldwide headquartered companies" that elect to use a three-factor apportionment formula to include gross income from intangible investments from the sale of intangible property in the calculation of the numerator based on the average of the property and payroll factors.

The Bill also would allow the Comptroller to continue to apply an alternative apportionment formula to "reflect clearly the income allocable to Maryland. . .if circumstances warrant."

Finally, S.B. 1090 would require the Public Service Commission to report the anticipated reduction in the corporate income tax liabilities of corporations regulated by the Public Service Commission or the Federal Energy Regulatory Commission to the Senate Budget and Taxation Committee and the House Ways & Means Committee by December 31, 2018. The report must also detail when and how Maryland public utility companies expect to pass the tax savings on to their customers, which is what the General Assembly would like to see happen.

House Ways & Means Committee Hearing

Once a delegate or senator introduces a bill, the bill is assigned to an appropriate committee, where the bill can will be discussed and voted upon. On Wednesday, March 28, the Maryland House Ways & Means Committee held a hearing for constituents and interested parties to testify in favor of or against the bills. The sponsor of S.B. 1090, Senator Douglas J.J. Peters, testified before the House Ways & Means Committee that S.B. 1090 is different from bills introduced in prior sessions, as it provides exceptions for some industries. The Senator stated that the selected industries came before the Senate and proved that they had substantial infrastructure in the state of Maryland that warranted special treatment. The Senator also noted Maryland's Economic Development and Business Climate Commission (known as the Augustine Commission) recommended the adoption of single sales factor apportionment. No members of the Committee expressed any opposition to the proposed Bill at the hearing.

The House Ways & Means Committee will now vote on the Bill and make any amendments that it deems necessary. If the Bill makes it out of the committee, it will go to a floor vote of the entire House. If the Bill passes the House without amendments, it will be sent to the Governor's desk. If amendments are added, both chambers will have to vote again on the amended Bill before it goes to the Governor.

Reed Smith's Observations

Twenty-two states and the District of Columbia have adopted single sales factor apportionment to date. In-state companies with property and payroll typically would pay less under single sales factor apportionment, while out-of-state companies could be forced to pay more. Although it is not uncommon for states to adopt special apportionment rules for different industries, at least one member of the House Ways & Means Committee, Delegate Jimmy Tarlau, has publicly stated that he would not support a bill with any carve outs.

S.B. 1090 appears to have more momentum than past bills, but it remains unclear whether both chambers can agree on final form. Reed Smith is monitoring the pending single sales factor bills. If you have questions or concerns about the proposed legislation and its potential impact on your business, please contact one of the authors of this alert or your regular Reed Smith state tax attorney.


1. A "worldwide headquartered company" is a company that filed a federal corporate income tax return for the taxable year, filed a specified form with the Securities and Exchange Commission, has its principal executive office in the State, and employs at least 500 full-time employees between July 1, 2017, and June 30, 2020.

This article is presented for informational purposes only and is not intended to constitute legal advice.

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