At the local level, counties and municipalities share in the delivery of public services. To cover the costs of these services, residents of municipalities pay property taxes to the county and municipal governments.
To compensate municipalities for services provided instead of similar county services, many counties in Maryland have established a tax set-off system by providing either a tax differential or tax rebate to the municipality.
A tax differential is a lower county property tax rate within the municipality. A tax rebate is a direct county payment to the municipality; however, the county property tax rate within the municipality remains the same.
Background
Section 6-305 of the Tax-Property Article of the Annotated Code of Maryland mandates that Allegany, Anne Arundel, Baltimore, Garrett, Harford, Howard, Montgomery, and Prince George’s counties meet annually with the governing bodies of municipalities to discuss the property tax rate to be set for assessments of property in the municipality. Suppose it is demonstrated that a municipality performs services or programs instead of similar county services and programs. In that case, the county’s governing body must impose the county property tax on assessments of property in the municipality at a rate less than the general county property tax rate.
Section 6-305.1 requires Frederick County to meet annually with the governing bodies of municipalities to discuss the property tax rate to be set for property assessments in the municipality. Suppose it can be demonstrated that a municipality performs services or programs instead of similar county services and programs. In that case, Frederick County must grant a tax set-off to the municipality by a formula agreed to by the county and the municipality.
If Frederick County and a municipality disagree on the formula by which a tax set-off is to be calculated, Frederick County must grant a tax set-off using the formula for the preceding taxable year.
Section 6-306 governs the procedure for setting a tax differential in the other counties. The governing bodies of the counties must meet annually with governing bodies of municipalities to discuss the property tax rate to be set for assessments of property in the municipality. Suppose it is demonstrated that the municipality performs services or programs instead of similar county services. In that case, the county may establish a county property tax rate for property in the municipality lower than the general county property tax rate.
Alternatively, both of the above sections provide the counties with the option of making a payment to the municipality to aid the city in funding municipal services or programs that are similar to county services or programs. This is commonly known as a tax rebate.
Summary of Fiscal 2023 Property Tax Set-Offs
According to the Department of Legislative Services, 18 counties granted property tax set-offs for municipalities in fiscal 2023. Of the five remaining counties, Baltimore and Howard counties have no municipalities, while Kent, Wicomico, and Worcester counties chose not to establish tax set-offs.
In fiscal 2023, tax differentials and rebates totaled $128.3 million, a 9.8 percent increase compared to the prior year. Property tax set-off amounts were higher in 17 counties and lower in one county. Local funding for tax differentials and rebates in fiscal 2023 ranged from $70,929 in St. Mary’s County to $35.1 million in Prince George’s County.
On a per capita basis, local funding ranged from less than $1 in St. Mary’s County to $100 in Talbot County, with the statewide average at $29, excluding those counties with no municipalities.
Seven counties (Allegany, Anne Arundel, Calvert, Caroline, Charles, Talbot, and Washington) provided tax rate differentials totaling $43.1 million for the municipalities in their jurisdictions. Five counties (Carroll, Cecil, Montgomery, St. Mary’s, and Somerset) returned to the municipalities rebates totaling $21.7 million. Six counties (Dorchester, Frederick, Garrett, Harford, Prince George’s, and Queen Anne’s) provided tax differentials and rebates to their municipalities totaling $63.5 million.
Prince George’s County provided tax rebates and tax rate differentials to all of its municipalities, totaling $35.1 million, as did Harford County, totaling $10.2 million. Frederick County provided tax rate differentials to Frederick and Myersville, totaling $10.7 million, and provided ten other municipalities with $5.2 million in tax rebates.
Dorchester County provided tax differentials to Cambridge and Hurlock, totaling $752,022, and tax rebates to seven other municipalities totaling $6,050. Garrett County had a tax rate differential totaling $72,326 for Mountain Lake Park and provided $297,000 in rebates to seven other municipalities. Queen Anne’s County provided tax rate differentials to Centreville and Millington, totaling $808,708, and provided six other cities with $282,101 in tax rebates.
The City of Annapolis (Anne Arundel County) received the most significant tax set-off in fiscal 2023. The county real property tax rate within the city was reduced by $0.374 per $100 of assessed value, resulting in a property tax revenue offset of $25.6 million in fiscal 2023, or $629 per city resident.
The City of Bowie (Prince George’s County) received the next largest tax set-off amount with a property tax differential of $11.2 million. The City of Frederick (Frederick County) received a property tax differential of $10.5 million, the third highest amount.
For a majority of municipalities in Maryland, the per capita tax differential or rebate amount is under $75 per municipal resident. In 23 municipalities, the county government did not grant a tax differential or tax rebate. In 13 municipalities, the tax differential or rebate amount exceeded $200 per municipal resident.
