IDOT Workgroup Issues Final Report

As previously reported on Conduit Street, an IDOT Study Group (evaluating the recently passed taxation of indemnity deeds of trusts in the same manner as other similar transactions) was established in July by the State Department of Assessments and Taxation(SDAT) pursuant to Senate Bill 1302 of the 2012 special session, State and Local Revenue and Financing Act of 2012.   After months of meetings, the group recently issued its final report.

Besides summarizing the legislation that created the study group and its process, the final report summarizes findings from surveys conducted by the Maryland Bankers Association, the Maryland Chapter of the NAIOP Commercial Real Estate Development Corporation, the Homebuilders Association of Maryland, and the local government economic development community.

To determine the fiscal impact for local governments of applying the recordation tax to indemnity mortgages and deeds of trust, the State Archives provided data that allowed the local government representatives to compare the number of commercial transactions between August 1 and October 30, 2012, with August 1 and October 30, 2011 for eleven jurisdictions.  These selected jurisdictions represent large, medium and small counties containing urban, suburban, and rural areas of the State.  An analysis of this information, including the number of transactions, the total consideration,and recordation taxes paid for each period is included in the final report.

The Study Group’s conclusions are below:

The charge of the Indemnity Mortgage and Deed of Trust Workgroup to study the impact of the recordation tax on these instruments has been completed.  The Workgroup can report to you the following findings: (1)  the data collected for the two comparative periods indicates that the fiscal estimate of the tax revenues to be collected by local governments in the enabling legislation (SB 1302) will be met or exceeded for most jurisdictions in the State; (2) the volume of commercial transactions since the effective date of the new law is down although the tax revenues have increased in urban, suburban and rural areas alike within the jurisdictions; (3) neither the data collected nor the survey responses provided sufficient information to determine the impact on residential transactions; and (4) the full impact of the new law cannot be evaluated in the few months after the law’s July 1, 2012 effective date.  A separate issue arose regarding the uniform interpretation and applicability of the new law on these transactions. This issue is noted in the report only for informational purposes.

Although the Study Group found that the revenue collected by local governments during the time frame examined met or exceeded the fiscal estimate, it also pointed out that a some data limitations.

It should be emphasized that whatever trends are observed are subject to the certain qualifications. Given the time limitations that the Workgroup was under to submit its report before December 31, 2012, the sample size may be too small and the time period too narrow from which to draw reliable conclusions.  We are unable to conclude whether any of the observed trends are due exclusively to the change in the manner of taxing indemnity deeds of trust, or whether the changes we have observed will continue.  Other factors that could affect the data include, but are not limited to, the overall state of the economy.

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