Geoffrey Inc., one of the giant retailer's three Delaware-based subsidiaries, helped shave $1.3 million off Toys R Us' 1994 Maryland tax bill -- the latest year records were available.

This Delaware loophole, long used by some corporations to avoid paying state taxes, was closed this year by the General Assembly; the bill has yet to be signed into law. But that bit of Maryland's business tax code is just one of many that critics say big corporations' lawyers and accountants are exploiting to avoid paying their fair share.

If corporate income taxes are an indicator, businesses are shouldering a dwindling share of Maryland's tax burden. Corporate income tax receipts, as a share of total general fund revenue, have fallen 40 percent since 1970, according to data from the comptroller's office.

At least part of the reason, experts say, is tax avoidance, and one study calculates that Maryland loses $200 million in revenue annually to corporate tax loopholes.

"Every kid in a dilapidated classroom and every commuter stuck in traffic is a victim of corporate tax cheating," said Tom Hucker, executive director of Progressive Maryland, an advocacy group.

Business supporters point out that corporate income taxes are a small portion of the overall corporate tax burden, and when all property, income and sales taxes are added up, Maryland businesses paid a total of $7.3 billion in state and local levies.

Corporate tax avoidance "makes an easy headline, but the facts are more complex," said Sen. Rona E. Kramer (D-Dist. 14) of Olney.

Maryland state government relies mostly on individual income and sales taxes, and the $318 million the state is projected to collect in 2004 from taxes on corporate profits accounts for 3 percent of the roughly $10 billion in total general fund revenue, down from 5.3 percent in 1970. That year, the state collected 11 cents of corporate income for every dollar of individual income taxes; today it is 4 cents.

The $5 billion the state will collect in personal income taxes in 2004 accounts for half the state's general fund revenue. This is a larger share than most states, and the corporate income tax share of total revenue -- 3 percent -- is below the national average of 5 percent.

Other business taxes, such as the insurance premium tax and the business franchise tax, account for 7.3 percent of total revenue, down from 10.5 percent in 1970.

The decline in Maryland's corporate tax share reflects a long-term, nationwide development, and there are many legitimate explanations, said David Roose, director of the comptroller's Bureau of Revenue Estimates.

Maryland's 7 percent corporate income tax rate puts it near the middle of all states' rates. However, a study released by the Council on State Taxation, which studied the total business tax burden in each state -- including income, sales and property taxes -- ranked Maryland 50th in business share of total revenue.

At least part of the disparity is because Maryland is home to more government and nonprofits' employees than any other state, and those sectors do not pay corporate taxes. Their employees, however, do pay income taxes, serving to shrink the corporate percentage of taxes paid, said Karen Syrylo, a tax policy analyst with the Maryland Chamber of Commerce.

In addition to hikes in other taxes, which automatically decrease businesses' share of the total, more businesses are now operating as limited liability companies and partnerships, rather than corporations, with profits taxed on the owners' individual tax returns.

Still, tax avoidance is an increasingly significant factor, Roose said.

A 2003 study released by the Multistate Tax Commission estimated Maryland loses at least $200 million in corporate income tax revenue annually because of tax sheltering.

Among the shelters examined by the study was the Delaware loophole, in which corporations set up subsidiaries in Delaware to hold their copyrights, trademarks and other intellectual property. These companies then pay their subsidiaries hefty fees for the use of their trademarks, and because income from intellectual property is not taxed in Delaware, that money goes untaxed.

Other shelters include so-called "nowhere income" -- profits made by Maryland-based companies in other states where that income is not taxed in Maryland either -- and off-shore tax shelters.

Because of these shelters and other quirks in the business tax code, it is common for two-thirds of corporations in any given year to pay no income taxes, Roose said.

In 2002, 40 of the 130 largest corporate employers in Maryland paid income taxes.

Even with an improved economic outlook, it is hard to predict corporate income tax revenues because corporations can spread out one year's loss over several years to reduce their tax liability, Roose said.

Also, some large corporations may use multiple entities, separating payroll functions from profits, and a sister company may be paying taxes.

While the state chamber supports going after sham companies in Delaware, Syrylo warned that other efforts to close loopholes would adversely affect the state's business climate, resulting in decreased business activity and a net loss of revenue to the state.

"When taxes go up, businesses vote with their feet," Syrylo said.