Delaware has long been known as a tax haven for companies that set up holding companies as tax shelters in the state. The Maryland House of Delegates passed a bill this week that would close the loophole that makes it possible for Maryland companies to use the Delaware tax shelter. The Senate passed a similar bill last week, the Baltimore Sun reported.

Maryland Gov. Robert L. Ehrlich Jr. vetoed a similar bill last year that would have closed the tax loophole, but his strongest objections were focused on other parts of the bill, the Sun reported.

The way the loophole works is that companies transfer property to a holding company in Delaware and then pay royalties to use the assets, which reduces their tax burden in their home states.

"This is the bill that closes the infamous Delaware loophole," said Maryland Delegate Anne Healey, vice chair of the Ways and Means Committee.

Maryland State Comptroller William Donald Schaefer has claimed that hundreds of corporations in his state have dodged Maryland state taxes by taking advantage of the Delaware loophole. Schaefer opposes the Senate version of the bill, which provides amnesty for debts before 1995 and removes penalties and cuts in half the interest on taxes owed after that date, the Sun reported.

"It basically gives away the store," Michael D. Golden, a comptroller spokesman, told the Sun because it would wipe away more than $78 million owed.