As the 2025 Maryland General Assembly begins, tax policy is front and center for lawmakers and advocates alike. A closer look reveals a crucial question: do changes in State tax policy directly or indirectly affect county revenues?

Here’s a quick primer to help navigate the intersection of State and county fiscal matters:

Personal Income Taxes

The State income tax is Maryland’s largest source of general revenue. While county income tax rates operate independently of State rates, some changes to State income tax policy impact counties, but not all.

In essence:

• Changes to State income tax rates do not affect counties since they do not alter a taxpayer’s taxable income.
• State income tax credits also do not affect counties because they do not change taxable income.
• Changes to income tax deductions (subtraction modifications) affect county governments by altering their taxable income base, which counties rely on for local income tax revenues.

Corporate Income Taxes

Corporate income taxes often dominate discussions about business competitiveness. However, Maryland’s corporate income tax is almost entirely a State revenue source. Counties do not tax corporate profits, so corporate income tax rate changes have no direct fiscal impact on county budgets.

Real Property Taxes

Property taxes on real estate (land and buildings) represent a small source of revenue for the State, primarily funding the annuity bond fund for debt service.

• The State property tax rate (11.2 cents per $100 of assessed value) is roughly one-tenth of the typical county property tax rate.

• Property taxes are a critical revenue source for counties, accounting for a significant portion of their budgets in total dollars and as a percentage.

Other Taxes

Several other taxes arise in State and local policy discussions, but most have minimal or no carryover effects on county revenues:

• State “sin taxes” on alcohol and tobacco do not benefit counties because lawmakers abolished local distributions in the 1990s.

• Hotel and admissions/amusement taxes are exclusively local revenue sources unaffected by State-level changes.

Navigating Budget Pressures: Protecting County Resources

Counties face significant budget challenges, including balancing rising costs for essential services, managing limited revenue growth, and addressing long-term infrastructure needs.

As the State grapples with its budget challenges, MACo remains vigilant in protecting local revenue streams and opposing unfunded mandates that could strain already stretched budgets.

MACo remains committed to advocating for practical, balanced solutions that ensure counties can effectively fund essential services, address fiscal challenges, and support their communities—stay tuned for updates as the legislative session unfolds.

Useful Links

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