Revolutionary 2026 Budget Plan Unveiled: Maryland’s Game-changing Worldwide Combined Reporting Proposal!

Taxation has always been a hot topic, but Maryland’s proposed budget is bringing some new twists and turns to the table. While everyone is talking about the various tax increases and surtaxes, there is a sneaky move happening in the background that could shake things up—worldwide combined reporting. Let’s delve into the details and see what this means for Maryland and its businesses:

1. Separate Accounting vs. Combined Reporting: Maryland currently uses the separate accounting method for corporate income tax liability. In this system, each company is taxed individually based on profits apportioned from in-state sales. On the other hand, combined reporting treats related companies as a single entity for tax purposes, combining profits and losses before apportioning them.
2. Formulary Apportionment: States like Maryland rely on formulary apportionment to determine taxable income, often based solely on sales. This can lead to some interesting scenarios, as seen in the example of two subsidiaries with operations in different states.
3. Pros and Cons: While combined reporting can combat tax avoidance, it also has its downsides. Disputes over which entities are part of the unitary group can arise, potentially leading to incorrect taxation of income. Additionally, lumping together profits from all affiliated companies worldwide under mandatory worldwide combined reporting can complicate compliance and lead to potential double taxation.
4. Maryland’s Move: Despite having an addback regime in place, Maryland is considering adopting worldwide combined reporting in its budget bill. This would make it the only state in the nation with mandatory worldwide combined reporting, potentially increasing compliance costs for businesses with foreign operations.
5. Comptroller’s Authority: The legislation grants the Comptroller broad discretion in restricting or denying companies’ elections for waters’ edge treatment, a less invasive tax method. This could lead to arbitrary decisions and uncertainty for businesses.

In conclusion, the proposed budget in Maryland is not just about tax increases; it’s also about a fundamental shift in corporate tax reporting. Businesses in Maryland need to stay informed and engaged to understand the potential impacts of these changes on their operations.