When Do State Tax Changes Spill Over Into County Budgets?

As the 2019 session ramps up, talk of state tax changes have filled the headlines. A level deeper, though – what state tax decisions might have direct or carryover effects on county budgets?

A quick primer:


The state income tax is the top source of general revenue, and the biggest overall target for policy changes. Since county tax rates are independent of the state rates – counties are affected by some state changes, but not all of them. In essence:

  • changes to state tax rates do not affect counties, since they don’t affect a taxpayer’s taxable income
  • changes to deductions (called “subtraction modifications”) affect the taxable income base, and do flow through to county revenues


As the state discusses business competitiveness, the corporate income tax rate has also taken center stage. The corporate income tax is virtually all state revenue, with only a small sliver being shared through the Highway User Revenues distribution. There is no major direct sharing of corporate taxes, nor any counterpart county-level taxation of corporate profits.


Taxes on real property (land and buildings) are a fairly minor state revenue, with the revenue dedicated to the state’s annuity bond fund (to pay debt service). The state rate is 0.112 (or 11.2 cents per $100 of assessed value) – which is roughly a tenth of the typical county rate. Property taxes are a much larger part of county budgets than the state – both as a share of the county budget and in total dollars.


Maryland’s taxation of business personal property (equipment and some inventory) is completely local, with most counties levying a tax but granting several major exemptions authorized (but not mandated) by the state. The state receives no direct revenue from personal property taxation.


Amidst the discussion of tax policy, other items come up – with details arising from case law, taxpayer concerns, or legislative proposals. Many of these are a mix of state and local revenues, but hardly any have the “carryover” effects that the income tax and property taxes do.

State “sin taxes” on products like alcohol and tobacco do not have a local component (local distributions were abolished in the early 1990s), and some functions like the hotel tax and admissions and amusements tax are exclusively local.

= = = = =

In 2018, facing a wide range of proposed changes to state and local taxes, MACo adopted a general statement on tax matters – expressing a preference for local flexibility, rather than mandated participation in state changes.

MACo offers thanks to readers who have found this analysis useful, and sought to have it run again.