Article Highlights the Complexity of Business Tax Reforms

There has been much discussion about providing tax relief to businesses since the gubernatorial election. Governor Hogan ran on providing tax relief and the presiding officers in the House and Senate have appointed a commission to examine the State’s business climate and recommend tax changes.

Now that the 2016 session is around the corner and the commission is formulating its recommendations, an article in the Washington Post highlights the complexity of providing tax relief for Maryland businesses.

Tax analysts have indicated that property tax and personal income taxes should be the focus of reforms.

The tax rates for personal property vary by jurisdiction, ranging from zero in Frederick County to 5.62 percent in the city of Baltimore. Baltimore’s tax rate on personal property is 50 times higher than the state rate on land.

Many experts say high rates on tangible personal property disproportionately affect start-ups and manufacturers, which are most in need of new machines, furniture and supplies. They say the rates can discourage companies from moving to or expanding within the state.

Maryland’s personal income tax rates also are among the highest in the country, which is a problem for the many small business owners who choose to count their business income as personal earnings, rather than filing a more complicated corporate tax return.

Maryland’s combined state and local taxes on personal income, which range from 2 percent to 6.07 percent, “are by far the most burdensome” compared with neighboring states, according to a recent Moody’s Analytics report for the state panel.

However, the fiscal ramifications in the short and long-term  make this difficult.

…reducing personal income taxes, which account for 38 percent of all revenue from Maryland’s local and state collections, would have little chance of advancing in either the Senate or the House of Delegates, both of which have strong Democratic majorities.

Some Republican lawmakers said they doubt Hogan will fight hard for tax cuts next year because he is negotiating ways to resolve the state’s looming structural deficit, which, according to the Department of Legislative Services, could reach $1 billion over the next four years.

Hogan’s office declined to discuss specifics about the governor’s legislative proposals for the next session, but spokesman Matt Clark said the administration will focus on holding the line on spending and standing firm against any tax increases.

The full Washington Post article, which includes the differing views of legislators and Maryland businesses, can be found here.