2022 Session Primer: When Do State Tax Changes Spill Over Into County Budgets?

With the 2022 session just around the corner, state tax policy is top of mind for lawmakers and advocates alike. A level deeper, though – do changes in state tax policy have direct or carryover effects on county revenues?

A quick primer:


The state income tax is the top source of general revenue. Since county income tax rates are independent of state rates, some changes affect counties, but not all. In essence:

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


As policymakers discuss business competitiveness, the corporate income tax rate often takes center stage. The corporate income tax is virtually all State revenue, and there is no county-level taxation of corporate profits.


Taxes on real property (land and buildings) are a relatively minor source of state revenue, with the levies 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), 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 total dollars.


Maryland’s taxation of business personal property (equipment and some inventory) is entirely local, with most counties levying a tax but granting several exemptions authorized (but not mandated) by the State. As such, 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 of the income tax and property taxes.

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

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