2016 End of Session Wrap Up: Tax and Revenue – Income Taxes

This post summarizes the status of tax and revenue bills related to the income tax that MACo took a position on or considered during the 2016 General Assembly Session.

checkSubtraction Modifications and Exemptions: HB 227/SB 1166 would provide for a subtraction modification for the first $15,000 of retirement income for individuals at least 55 years of age who are retired law enforcement officers or fire, rescue or emergency services personnel of the United States, State, or local government.  MACo opposed the bill raising concerns with the fiscal effects of this legislation and the mandatory effect. MACo prefers approaches that provide local autonomy to determine the best way to provide these incentives, rather than those that mandate reductions in local revenue sources.

Final Status: Both bills failed. However, the subtraction modification was amended into the House and Senate tax packages, SB 840 and HB 452. SB 840 failed in conference committee and HB 452 passed third reader in the Senate, but time ran out before further action was taken.

MACo testimony on SB 1166

checkHB 455/SB 387 would increase the personal exemption for individuals 65 and older from $1,000 to $5,000 over four years beginning with tax year 2017. MACo opposed the bill raising concerns with the fiscal effects of this legislation and stated it would prefer approaches that provide local autonomy to determine the best way to provide these incentives, rather than those that mandate reductions in local revenue sources.

Final Status: HB 455 was heard in the House Ways and Means Committee and SB 387 was heard in the Senate Budget and Taxation Committee. No further action was taken on either bill.

MACo testimony on SB 387

checkHB 738/SB 293 would further expand an existing military retirement income tax subtraction modification from $10,000 to $15,000 for military retirees at least 65 years of age. MACo supported the bill with amendments to change it to a credit against the state income tax and give consideration to exploring whether a local option income tax credit is feasible. This approach would preserve local autonomy to determine the best way to provide these incentives, rather than mandate reductions in local revenue sources.

Final Status: HB 738 was heard in the House Ways and Means Committee and SB 293 was heard in the Senate Budget and Taxation Committee. No further action was taken on either bill.

MACo testimony on SB 293

checkHB 1250/SB 841 would provide for a subtraction modification of up to the first $20,000 of nonpassive income that is attributable to a pass-through entity. A pass-through entity is defined as an S Corporation, Partnership, Limited Liability Company or business trust that is not taxed as a corporation, or a sole proprietorship. To be eligible, the pass-through entity and taxpayer must meet several conditions and an income limitation.

MACo supported the bill with amendments to change it to a credit against the state income tax and give consideration to exploring whether a local option income tax credit is feasible. This approach would preserve local autonomy to determine the best way to provide these incentives, rather than mandate reductions in local revenue sources.

Final Status: HB 1250 was heard in the House Ways and Means Committee and SB 841 was heard in the Senate Budget and Taxation Committee. No further action was taken on either bill.

MACo testimony on SB 841 / HB 1250

Collection of Retirement Income Information: HB 1148 would require the Comptroller to collect and report to the General Assembly by January 1, 2018 on the following taxpayer information: (1) amount and sources of retirement income; (2) total Social Security benefits received; and (3) State pension exclusion claimed. This information would be collected through the personal income tax form. MACo did not take a position on this bill.

Final Status: HB 1148 has passed the General Assembly and is being reviewed for the Governor’s signature.

House and Senate Tax Packages Fail: SB 840 and HB 452, as introduced, would have expanded and the Earned Income Tax Credit. As amended by the House and Senate, these bills became vehicles for enacting income tax reductions. The Senate plan, SB 840, would have (1) reduced over five tax years, State income tax rates imposed on certain higher income taxpayers; (2) expanded the State earned income tax credit that can be claimed by individuals without qualifying children; and (3) increased over four tax years the value of the personal exemption that can be claimed by taxpayers with federal adjusted gross income (FAGI) of $100,000 or less, or $150,000 or less if married filing jointly. The House plan would have (1) reduced the State’s middle income tax rate from 4.75% to 4.65%; (2) expanded the earned income tax credit that can be claimed by individuals without children; (3) increased the subtraction modification for certain retirement income of law enforcement, fire, rescue, and emergency services personnel (identical to HB 227 above); and (4) enacted single sales factor apportionment in calculating the corporate income tax. The Senate also supported the subtraction modification for law enforcement, fire, rescue, and emergency services personnel.

MACo did not take a position on either bill as introduced or amended.

Final Status: SB 840 failed in conference committee and HB 452 passed third reader in the Senate, but time ran out before further action was taken.

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