Counties Oppose Expansion of "IDOT" Tax Avoidance Scheme

On February 14, 2023, MACo Legislative Director Kevin Kinnally testified before the House Ways and Means Committee in opposition to HB 0371 – Recordation Tax – Indemnity Mortgage Exemption – Threshold Amount.

This bill would restore and invigorate a tax avoidance scheme for commercial property owners to avoid paying Maryland taxes on substantial financial transactions. Doing so is unwise and unfair tax policy, granting a tax break not promoting socially beneficial behavior, but merely rewarding complex paper schemes unavailable to homeowners and other taxpayers.

HB 371 would meaningfully re-open a tax loophole for the financing of commercial transactions through indemnity deeds of trust (IDOTs). In addition to shifting a greater share of the tax burden onto homeowners in favor of large companies, this bill would have an unfair, sweeping, negative effect on local revenues sorely needed to fund schools, housing, public health, public safety, roadway maintenance, and other essential public services.

Several county professionals attended the hearing and testified against the bill:

Trevor Ashbarry, Division Chief, Finance and Procurement, Montgomery County Attorney’s Office
Diane Fox, Treasury Director, Frederick County
Mike Coveyou, Director of Finance, Montgomery County

From the MACo Testimony:

Unique to Maryland, IDOTs are a tricky method to borrow money through a third party (most often a pop-up “disregarded entity” corporation just for this purpose) to avoid paying taxes that would apply to conventional mortgages. MACo has argued that these business relationships, and the artificial “distance” they create, are for the sole purpose of avoiding taxes. The General Assembly promoted tax fairness in 2012 when it closed this loophole, effectively saying that commercial transactions should be treated and taxed the same regardless of the structural arrangement.