Maryland State Delegate Sam Arora today introduced legislation to close an arcane state tax loophole that has inadvertently placed millions of dollars in state income tax revenue outside the reach of the Comptroller.

The Electing Small Business Trust Tax Loophole Elimination Act would amend a defect in Maryland’s tax code that has inadvertently enabled a particular type oflegal trust to avoid State income taxes on income from certain corporations.

“This is a way to raise revenue without raising tax rates,” Arora said.  “We have a serious budget problem, and we can start fixing it by closing special-interest loopholes like this one.”

Electing small business trusts (ESBTs) were created by Congress in 1996 to allow stock in certain corporations to be held in trust and accumulate income (i.e. create a trust fund) for beneficiaries.  These trust funds are treated as taxable income by the federal and state government, but because several key terms in inadequately defined in the Maryland Code, ESBTs in Maryland have only been required to pay federal income taxes.

Because the Comptroller’s Office has not tracked ESBTs, there is no precise figure yet as to how much revenuewould be raised as a result of the change but estimates are in the millions.

“There is a saying in Annapolis that ‘a million here, a million there, and pretty soon you're talking real money,’” Arora said.

Similarly purposed bills have won passage in the state Senate and House of Delegates in previous years but never cleared both chambers during the same legislative session.