356 [78 Op. Att’y

 The expenses of “grass-roots” lobbying have been, and remain, 1

nondeductible. 26 U.S.C. §162(e)(1)(c).

TAXATION ) INCOME TAX ) CORPORATE LOBBYING EXPENSES

ARE NO LONGER DEDUCTIBLE

December 22, 1993

Honorable Mary Louise Preis

House of Delegates

You have requested our opinion whether a change in federal

income tax law limiting the deduction of corporate lobbying

expenses affects the deductibility of such expenses under Maryland’s

corporate income tax law. 

For the reasons stated below, we conclude that, to precisely the

same extent as federal law will disallow the deduction of corporate

lobbying expenses starting January 1, 1994, so State law will

effectively disallow the deduction of such expenses for purposes of

the State corporate income tax. 

I

Federal Tax Law Change

The Budget Reconciliation Act urged by President Clinton and

passed by Congress on August 10, 1993, contained a number of

revenue-raising provisions. One of these, §13222 of the Act, will

deny corporate taxpayers a federal income tax deduction for certain

lobbying expenses. Pub. L. No. 103-66, 107 Stat. 477. 

Under the law applicable to the 1993 tax year, expenses

incurred in “direct” lobbying – that is, involvement with legislative

bodies, as distinct from “grass roots” lobbying – are deductible as

ordinary and necessary business expenses. Effective January 1, 1

1994, Congress has disallowed the deduction “for any amount paid

or incurred in connection with ... influencing legislation ....” 26

U.S.C. §162(e)(1)(A). The term “influencing legislation” is broadly
Gen. 356] 357

 The disallowance extends as well to expenses incurred in lobbying 2

senior officials of the executive branch of the federal government.

§162(e)(1)(D).

 There is also an exception for in-house expenditures not in excess 3

of $2,000. §162(e)(5)(B). 

defined to mean “any attempt to influence any legislation through

communication with any member or employee of a legislative body,

or with any government official or employee who may participate in

the formulation of legislation.” §162(e)(4)(A). Moreover, if a 2

corporation pays dues to a tax-exempt organization that uses a

portion of the dues to influence legislation, then the pro rata portion

of those dues is also not deductible. §162(e)(3). The one major

exception is for expenses in connection with lobbying on “legislation

of any local council or similar governing body ... with respect to

legislation of direct interests to the taxpayer ....” §162(e)(2).3

In its report, the House Ways and Means Committee stated

that, “in the context of deficit reduction legislation, it is appropriate

to limit the business deduction for lobbying expenses.” H.R. Rep.

No. 103-111, 103rd Cong., 1st Sess. at 659, reprinted in 1993 U.S.

Code Cong. and Admin. News 890. The legislative history makes

clear that the disallowance rule applies to attempts to influence state

legislation. Id. 

II

State Corporate Tax Law

“Maryland income tax laws were written with both eyes on the

federal tax laws.” Comptroller v. Chesapeake Corp., 54 Md. App.

208, 218, 458 A.2d 459, cert. denied, 296 Md. 653 (1983) (internal

quotation omitted). Subject to certain allocation rules for

corporations that conduct business both in Maryland and other states

and to certain modifications that are not pertinent to this issue, the

Maryland taxable income of a corporation is “the corporation’s

federal taxable income for the taxable year as determined under the

Internal Revenue Code ....” §§10-301 and 10-304(1) of the TaxGeneral Article, Maryland Code. The incorporation by reference of

the Internal Revenue Code includes any amendments to the Code:

“Whenever a provision of the public general ... laws of this State
358 [78 Op. Att’y

The Board of Revenue Estimates, in fact, has included the increase 4

in corporate taxes resulting from the federal disallowance in estimating

next year’s tax revenues. 

refers to any portion of this Code, or to any other law, the reference

applies to any subsequent amendment to that portion of the Code or

other law, unless the referring provisions expressly provides

otherwise.” Article 1, §21 of the Maryland Code. 

A corporation’s federal taxable income is determined after the

corporation takes whatever deductions are allowed by federal law.

See 26 U.S.C. §63(a). Hence, when a corporate taxpayer calculates

its federal taxable income for the 1994 tax year, the disallowance of

lobbying expenses contained in the federal Budget Reconciliation

Act will result in a higher federal taxable income than would have

been the case under former law. That same higher federal taxable

income will also be used for calculating the Maryland corporate

income tax. Therefore, the disallowance of lobbying expenses for

federal corporate income tax purposes effects an identical

disallowance for the Maryland corporate income tax. 

4

III

Conclusion

It is our opinion that, as a result of a disallowance of lobbying

expenses as a deduction under federal income tax law, lobbying

expenses generally will no longer result in a reduction of a

corporation’s Maryland corporate income tax liability. 

J. Joseph Curran, Jr.

Attorney General

Jack Schwartz

Chief Counsel 

 Opinions & Advice