Senate Moving “Net Taxable Income” Revision To Funding Formulas

As reported by the Washington Post, the Senate Budget and Taxation Committee voted favorable on a piece of legislation last week, SB 892, that would “authorize a full-fledged casino in Prince George’s County and allow Las Vegas-style table games at Maryland’s five previously authorized slots venues.”  Buried among the bill’s amendments is language to change the date used to measure local net taxable income.  Net taxable income (NTI) is used as an indicator to measure wealth within the education formulas.   With this change, NTI would be measured based on tax returns filed by November 1 of each year, instead of the current September 1.

This is a change that has been raised by some jurisdictions for the past several years to more accurately reflect a jurisdiction’s wealth.  Although most individuals file their taxes by April 15 of each year, those who apply (to the federal Internal Revenue Service) may receive an automatic six-month extension to October 15, with state extensions following the same timeline.  Since a number of returns come in after the current September 1 date, using this date to determine NTI results in a relative under-counting of total NTI and an inaccurate representation of each county’s wealth and tax capacity.

Of course, changing the date used to determine NTI from September 1 to November 1 would result in a redistribution of funding from more wealthy jurisdictions to those of less wealth.  Those jurisdictions that would be receiving less funding with this change, would receive a hold harmless grant to maintain their funding, while other jurisdictions would be granted more through the education formulas.

The changes specified in SB 892 would take effect for fiscal year 2016.

Similar legislation was introduced last session, SB 683.  The bill’s fiscal note provides an example of how this change would affect each local jurisdiction.

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