As the 2026 Maryland General Assembly gets underway, tax policy once again sits at the center of the legislative agenda. With lawmakers weighing new credits, deductions, exemptions, and structural tax changes, a familiar and critical question:
Which State tax changes affect county budgets — and which do not?
The distinction matters. Counties must balance budgets every year, and even small State-level tax decisions can ripple through local revenues. Here’s a practical primer for navigating where State tax policy intersects with county finances.
Personal Income Taxes
The State income tax remains Maryland’s single largest source of general revenue. Counties levy their own local income tax on the same taxable income base, which creates a clear dividing line between harmless changes and costly ones.
In short:
- State income tax rate changes do not affect counties. Adjusting the State rate changes only the State’s share, not taxable income.
- State income tax credits do not affect counties. Credits reduce State liability but leave taxable income unchanged.
- Subtraction modifications do affect counties. Any change that reduces taxable income automatically reduces local income tax revenues, with no local say and no offset.
This distinction matters because subtraction modifications reflect policy choices made without any local role in the decision, yet they automatically and uniformly reduce county revenues.
When tax relief makes sense, State income tax credits provide the most direct and transparent option. By contrast, changes that reduce taxable income automatically flow through to county revenues, leaving counties to absorb the impact later and without any local say.
Corporate Income Taxes
Corporate tax policy frequently enters debates about competitiveness and economic growth. For counties, however, the fiscal impact is straightforward:
- Corporate income taxes are almost entirely a State revenue source.
- Counties do not tax corporate profits.
- Changes to corporate tax rates, credits, or deductions do not directly affect county budgets.
Real Property Taxes
The State imposes a modest statewide property tax that primarily supports State debt service. Counties, by contrast, rely on property taxes as a central source of revenue to fund schools, public safety, infrastructure, and core local services.
While State decisions affecting property tax structure or administration can raise policy concerns, most State-level changes to property taxation do not alter county revenues unless they directly restrict or redefine local taxing authority.
Other Taxes
Other tax categories frequently arise during the legislative session, but generally have limited interaction with county revenues:
- State excise or “sin” taxes on alcohol and tobacco no longer include local distributions.
- Hotel taxes and admissions and amusement taxes remain local revenue sources and do not change based on State tax actions.
- Corporate and business-related State taxes typically do not affect county revenue bases.
County Budget Security — A 2026 MACo Legislative Initiative
County Budget Security anchors MACo’s 2026 Legislative Initiatives. Counties must balance budgets each year while managing rising service demands, limited revenue flexibility, unfunded mandates, and increasing federal uncertainty. When State tax policy changes automatically flow through to local revenues, counties absorb the impact without any local input.
MACo urges the governor and General Assembly to reaffirm shared fiscal responsibility and avoid State decisions that weaken county budgets or undermine local budgetary planning. Counties need stable and predictable state–local fiscal partnerships that respect local budgets and preserve the ability to fund core services and community priorities.
Stay tuned to Conduit Street for more information.
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