Comptroller’s Office Provides Guidance for County Assessments on Uber, Lyft, and Sidecar

As previously reported on Conduit Street, Governor Hogan signed legislation recently that would create a regulatory framework for transportation network operators (TNO) such as Uber, Lyft, and Sidecar. This legislation, SB 868, also authorizes local jurisdictions to impose an assessment on TNOs operating within the jurisdictions.

The Comptroller’s Office recently sent a letter to county budget and finance directors explaining the legislation and the process to be followed if a jurisdiction intends to impose an assessment. From the Comptroller’s letter:

Each county is permitted to impose an assessment of up to $0.25 on each trip that originates within the county.  Starting July 1, 2015, the affected companies (Uber, Lyft, and Sidecar, etc.) must collect the assessments that have been imposed and remit them quarterly with reports to the Office of the Comptroller. The actions a county must take to impose the assessment depends upon when the assessment is imposed…

The letter continues to explain the process for each timeframe in which a fee can be imposed.

Under the bill, Baltimore City is authorized to impose a 25 cent per passenger, per ride assessment since that is the amount currently imposed on taxi cabs.

Guidance Letter

Wynne Income Tax Case Has Severe Fiscal Consequences for Counties

As reported on Conduit Street yesterday, the US Supreme Court ruled in a 5-4 decision that Maryland’s income tax system, specifically the application of the local income tax, is unconstitutional and must be altered to grant more credits for Maryland residents’ out-of-state income. At issue in the case, Maryland State Comptroller of the Treasury v. Brian Wynne, was whether the failure to allow a credit against the county income tax violates the commerce clause because it discriminates against interstate commerce.

The decision, which divided the conservative members of the Court, will have severe fiscal consequences for local governments. As reported by the Washington Post,

The ruling affects about 55,000 Maryland taxpayers, according to the state comptroller’s office.

Those who tried to claim the credit on their county income tax returns between 2006 and 2014 are likely to be eligible for refunds, which officials estimate could total $200 million with interest.

Going forward, certain small-business owners who pay income taxes to another state on income earned in that state will be able to claim a credit for both the state and county portions of the Maryland tax, costing Maryland an estimated $42 million a year in revenue.

Many local governments had begun planning for the worst, but it will still strain their budgets. As reported by Baltimore Sun,

Officials in Baltimore established a $4.2 million reserve early in the litigation to cover the estimated cost of reimbursing city taxpayers. Going forward, officials expect to lose about $1.4 million in revenue annually.

“This decision will obviously cost the city some revenue which will require some difficult choices be made down the road,” said Kevin Harris a spokesman for Baltimore Mayor Stephanie Rawlings-Blake. “However, the mayor thought it was important that the city be proactive and plan ahead [and] funds were set aside to cover potential loss of revenue.”

Montgomery County will take the largest hit, according to estimates from the comptroller’s office and county officials, at just over $24 million per year — more than half the statewide total.

When the cost of reimbursing taxpayers is added to lost revenue, Montgomery County Executive Isiah “Ike” Leggett said Monday, the impact in fiscal year 2017 could exceed $50 million.

The next largest (annual) losses would fall in Baltimore County, at $4.5 million, and Anne Arundel County, at $3.6 million, according to state estimates.

A spokeswoman for Baltimore County described it as “a significant cut” that would “necessitate some difficult choices in the future.”

For more details on the case, see previous Conduit Street coverage:

Maryland Loses Wynne Income Tax Case – Counties Brace for Impact
With Income Tax Case Looming, State Adopts Follow-Through Plan
Wynne Income Tax Case Provokes Conversation and Questions at Supreme Court
U.S. Solicitor General Backs Maryland In Local Income Tax Case
Supreme Court Demonstrates Interest in County Income Tax

Full coverage of the case, including all legal documents and filings, is available at the SCOTUSblog website.

Wynne Income Tax Decision Puts Conservative Justices at Odds

The US Supreme Court ruled today that Maryland’s income tax system, specifically the application of the local income tax, is unconstitutional and must be altered to grant more credits for Maryland residents’ out-of-state income. This 5 – 4 decision in the Maryland State Comptroller of the Treasury v. Brian Wynne  has put the author of the majority opinion, Justice Samuel Alito, at odds with his conservative colleagues.  

A post in the “Hit & Run” blog describes the findings of the majority and dissenting opinions.

Because Maryland “creates an incentive for taxpayers to opt for intrastate rather than interstate economic activity,” declared the majority opinion of Justice Samuel Alito, “its law has the same economic effect as a state tariff, the quintessential evil targeted by the dormant Commerce Clause.”

The dormant Commerce Clause refers to the idea that the Commerce Clause, in addition to granting Congress a limited power to regulate interstate commerce, also provides a check on the regulatory and taxing authority of the states. That check, Alito explained, forbids the states “from discriminating against or imposing excessive burdens on interstate commerce.”

Alito’s sharpest critics proved to be two of his most conservative colleagues, Justices Antonin Scalia and Clarence Thomas. Scalia and Thomas each filed separate dissenting opinions, as did Justice Ruth Bader Ginsburg, whose dissent was joined by Justice Elena Kagan. According to Scalia, the dormant Commerce Clause is a “judicial fraud” that allows federal judges to rewrite state laws according to their own preferences. Thomas, meanwhile, argued that Alito’s take was totally at odds with constitutional history. “It seems highly implausible that those who ratified the Commerce Clause understood it to conflict with the income tax laws of their States and nonetheless adopted it without a word of concern,” Thomas wrote.

Chief Justice John Roberts and Justices Anthony Kennedy, Stephen Breyer, and Sonia Sotomayor all supported Alito’s opinion.

For more details on the case, see previous Conduit Street coverage:

Maryland Loses Wynne Income Tax Case – Counties Brace for Impact
With Income Tax Case Looming, State Adopts Follow-Through Plan
Wynne Income Tax Case Provokes Conversation and Questions at Supreme Court
U.S. Solicitor General Backs Maryland In Local Income Tax Case
Supreme Court Demonstrates Interest in County Income Tax

Full coverage of the case, including all legal documents and filings, is available at the SCOTUSblog website.

Maryland Loses Wynne Income Tax Case – Counties Brace for Impact

In the much-anticipated decision on the case Comptroller v. Wynne, the US Supreme Court has ruled that Maryland’s income tax system – specifically its application of county income taxes – is unconstitutional and must be altered to grant more credits for Maryland residents’ out-of-state income. This 5-4 decision likely carries a great fiscal consequence for Maryland’s counties – with some $200 million in tax refunds likely to accumulate, and an ongoing effect of $40-50 million per year.

MACo joined a multi-party brief, fighting alongside the Maryland Solicitor General, arguing that the state’s system of income taxes does not unfairly discriminate on income, and that states and counties have the right to tax residents for local services.

The Maryland Office of the Comptroller had prepared a summary of the case and its potential fiscal impacts prior to the final filings, which remains a relevant summary of the fiscal issues.

For more details on the case, see previous Conduit Street coverage:

With Income Tax Case Looming, State Adopts Follow-Through Plan
Wynne Income Tax Case Provokes Conversation and Questions at Supreme Court
U.S. Solicitor General Backs Maryland In Local Income Tax Case
Supreme Court Demonstrates Interest in County Income Tax

Full coverage of the case, including all legal documents and filings, is available at the SCOTUSblog website.

Several Key Bills in Limbo Awaiting Governor’s Final Action

Now that the Governor’s bill signings are behind us, there are still four pieces of  legislation that have yet to be resolved. These bills were not signed during the final wave of bill signings this week, and have not yet been vetoed by the Governor. Two such bills pertain to funding levels provided in the state budget. One bill, SB 183, would require the Governor to provide additional education funding to 13 jurisdiction in future years through the Geographic Cost of Education Index (GCEI). The Governor announced yesterday that he would let this bill become law automatically without his signature.

The other budget related bill is HB 72, the Budget Reconciliation and Financing Act (BRFA), which makes changes to numerous funding requirements to balance the state spending plan for FY 2016. The other two bills with county effect are HB 552, a bill that could increase health insurance costs for small businesses and small governments that self-insure; and SB 190, a bill that would require online travel companies to pay Maryland state sales taxes on hotel rooms booked online based on the retail rate of the room.

The Governor has until May 21 to determine whether he plans to formally veto these bills or let them take effect without his signature. Should the Governor veto any of this legislation, the General Assembly may override the Governor’s veto at the next regular or special session with a vote of three-fifths of the members of each house.  As mentioned above, the Governor announced yesterday that he would let SB 183 take effect without his signature. Continue to follow Conduit Street for the final outcome of the other pieces of legislation.

Each piece of legislation is further described below.

Geographic Cost of Education Index (GCEI)

SB 183 Education – Geographic Cost of Education – Requirement changes the GCEI formula from discretionary to mandatory, if full funding of GCEI is not provided for in the fiscal 2016 operating budget. GCEI is state aid provided to counties with higher costs of education. The bill takes effect July 1, 2015. The funding was previously discretionary and Governor Hogan’s proposed budget funded GCEI at 50%. SB 183 and the General Assembly budget plan funds GCEI at 100% ($136.2 million) in fiscal 2016. Most of the funding from GCEI is directed towards Baltimore City, Montgomery and Prince George’s counties. Read MACo’s letter requesting full funding for the GCEI formula here. The Governor announced yesterday that he would not fully fund GCEI in fiscal 2016 and that he would let SB 183 take effect without his signature.

Budget Reconciliation and Financing Act of 2015 (BRFA)

HB 72  Budget Reconciliation and Financing Act of 2015 (BRFA), accompanies the budget bill (HB 70) and makes numerous changes to statutory funding formulas and requirements to bring the budget into balance for fiscal 2016.  The funding formula changes to provide additional dollars for health departments, community colleges, local impact grants, disparity grants, and other programs are included in this bill.  HB 72 also includes language to repeal the corridor funding method for the State pension system and provides for a $75 million supplemental payment to the State pension system to address the unfunded liability instead of the formerly required $150 million.

Medical Stop-loss Insurance

HB 552 Health Insurance – Medical Stop-Loss Insurance – Small Employers, makes several changes to laws regulating the medical self-insurance market. In part, the bill increases the minimum attachment point for medical stop-loss insurance policies, creating potential cost increases for small businesses and small local governments who self-insure. MACo opposed the bill’s restriction of local options for county governments providing health insurance for their own employees. For more background, read our article, MACo, MML Request Veto of Bill Restricting Medical Insurance Market.

Imposition of Sales Tax on Hotel Rooms

SB 190 Sales and Use Tax – Taxable Price Accommodations, would require online travel companies to remit the state sales tax based on the retail price of a hotel room, not the wholesale rate the online travel companies pays to a hotel. MACo offered amendments to include local hotel taxes in the scope of the bill, but was unsuccessful. Now, some advocacy groups are urging a veto. Grover G. Norquist, President, Americans for Tax Reform, has sent a letter urging Governor Hogan to veto this legislation. For more background, read our article, Equitable Hotel Tax Passes, May A Veto Loom?

Montgomery County Council Passes New Tax on E-Cigarettes, Clarifies Hotel Tax

The Montgomery County Council approved legislation during its meeting yesterday to impose a tax on e-cigarettes and clarify the application of the hotel tax on rooms book through online travel companies. As reported by the Washington Post,

Council members unanimously approved a 30-percent excise tax on the wholesale price of e-cigarettes. If signed into law by County Executive Isiah Leggett (D), who supports the measure, it will make Montgomery one of the first jurisdictions in the nation to impose such a levy.

…Montgomery officials say the tax could bring in from $1.5 million to $2.5 million annually, depending on the county’s success in collecting from online wholesalers, who account for between 30 and 50 percent of all sales.

The second bill extends the county’s definition of “hotel” or “motel” to include spare rooms or other private lodging travelers can book through Airbnb, HomeAway, Loft and other online services.

Such rooms would be subject to the county’s 7 percent hotel tax. Officials estimate that it would yield about $230,000 a year in revenue.

As previously reported on Conduit Street, Council Members also voted against further reducing the county’s energy tax by a 5 – 4 vote.

Montgomery Council Votes Against Reducing Energy Tax

By a narrow margin, the Montgomery County Council voted today against a further reduction in the county’s energy tax. As reported by the Bethesda Magazine,

Council member Nancy Floreen had proposed a 10-percent cut that would’ve meant about $11.5 million less in revenue next fiscal year.

It would have followed similar cuts in the last three budgets to the roughly 85-percent increase pushed for by County Executive Ike Leggett and approved by the council in 2010.

Leggett proposed doubling the energy tax during the county’s fiscal crisis and bringing in an extra $133 million in revenue, with the promise of letting the increase sunset after two years.

But Leggett reconsidered the idea of letting the increase sunset, leading representatives from chamber of commerce groups and the building industry to lobby council members to make the change to Leggett’s budget.

Today’s council debate was likely the most contentious the nine-member body has had during this budget cycle.

The proposal failed by a vote of 5 – 4.

Baltimore City Council Approves Urban Tax Credit

The Baltimore City Council has approved legislation that would provide a 90% tax credit to urban farmers. Farmers would need to grow and sell at least $5,000 of fruit and vegetables a year to be eligible. The credit would be applied for 5 years, but could be renewed for a total of 10 years.

As reported by the Baltimore Sun,

Councilman William “Pete” Welch, the bill’s sponsor, said the credits could help improve eating habits in the city, and in turn address some of Baltimore’s health disparities. The credits could be used for five years before they would need to be renewed.

“We have to make available fresh fruit and vegetables, and we have to reduce the price of fruits and vegetables,” Welch said. Some “people make decisions based on price, not on health.”

Welch said the majority of his district is in a food desert, and residents lack easy access to supermarkets.

The Mayor is expected to sign the legislation.

Calvert County Explores Expanding Business Incentives, Tax Credits

Calvert County officials are considering a number of tax incentives for businesses that create jobs in the county. The incentives, offered by the county economic development office, include an expansion of existing programs and tax credits.

An article in the Calvert Reporter describes the proposals.

The county already has an incentive fund that requires businesses to create 25 new jobs in the county’s target market industries, have a capital investment of $1 million and remain in the county for five years. The suggested change is to lower the job creation threshold to 10 new jobs.

Another option to be pursued is a change in the real property tax credit. Like the incentive fund, the credit can only apply to businesses that create 25 or more jobs in the target market industries. The businesses must invest at least $2.5 million, compensate greater than the annual average salary in Calvert County for similar or equivalent positions in the industry and have authority to provide up to 50 percent for 15 years.

The recommended changes to this incentive, subject to General Assembly approval, would be to decrease the job creation threshold from 25 to 10 and expand access, allowing the target market industries to qualify for a tax credit of up to 50 percent and non-target market industries to qualify for a tax credit of up to 25 percent.

Two new tax credits are also being proposed.

A new proposed incentive would be a five-year 50 percent tax credit to correct blighted commercial property through demolition, construction or rehabilitation in the Town Center, Industrial, Marine Commercial or Rural Commercial zones.

Another new incentive would be a local job creation tax credit of up to $20,000 for target market industries ($1,000 per job) and up to $10,000 for non-target market industries ($500 per job) for at least 10 new jobs and remaining in the county for five years.

Calvert County Commissioners have agreed to pursue all options, which would need General Assembly approval prior to being enacted.

City Gives Preliminary Approval to Tax Credit for Urban Farms

The Baltimore City Council has given preliminary approval to local legislation that would provide a tax credit to urban farmers. As reported by the Baltimore Sun,

The bill, sponsored by City Councilman William “Pete” Welch, would provide a 90 percent property tax break for urban farmers who grow and sell at least $5,000 of fruit and vegetables a year. The credits, which must be approved by the city’s Office of Sustainability, are good for five years, but can be renewed for a total of 10 years, according to the bill.

The bill needs one more vote before it can become law. Mayor Stephanie Rawlings-Blake as said she supports the legislation.

Although urban farming has grown over the past several years, the bill’s sponsor and others believe the tax credit would provide an incentive to grow more fruits and vegetables on urban farms to drive down prices in the City. Since urban farms are smaller, they would not qualify for an existing tax credit offered by the State.