SCOTUS on Online Sales Taxes? No Slam Dunk

Yesterday was not only a big tax day for federal income tax filers – it was also a big tax day for the Supreme Court, which heard oral arguments for South Dakota v. Wayfair – a much-followed case by state and local governments across the country which depend on sales tax revenue to fund their public services. The case sought to overturn Quill Corp. v. North Dakota. In Quill, the Supreme Court held that states cannot require retailers with no in-state physical presence to collect sales tax. The high court decided Quill in 1992, before internet sales became a commonplace occurrence.

In Direct Marketing Association v. Brohl, in 2015, Supreme Court Justice Kennedy stated that the “legal system should find an appropriate case for this court to reexamine Quill.”  Within a year, a number of state legislatures passed legislation in direct violation of Quill, requiring sales tax collection from internet sales platforms in some form or fashion.

The Maryland General Assembly considered similar legislation as recently as 2017 via the Main Street Fairness Act. This session, the Senate passed SB1025, Department of Legislative Services – Study – Sales and Use Tax Collection by Out-of-State Vendors, which would have required the Department of Legislative Services (DLS) to retain an independent consultant to study sales and use tax collections by out-of-state vendors. The bill never made it out of the Rules Committee in the House.

According to the State & Local Legal Center, South Dakota’s new law was the first ready for Supreme Court review.

Some thought that the case was a slam dunk for state and local governments which depend on sales tax. Unfortunately, yesterday’s line of questioning from the justices proved otherwise.

South Dakota Attorney General Marty Jackley, backed by the attorneys general from 42 other states, argued the case. According to SCOTUSblog, he was quickly peppered with questions.

Justice Sonia Sotomayor:

I’m concerned about the many unanswered questions that overturning precedents will create a massive amount of lawsuits about… How much contact is enough to justify placing this obligation on an out-of-town seller?…. What happens when the tax program breaks down, as it already has for the states who are using it, and merchants can’t keep track of who they’ve sold to?

Chief Justice John Roberts:

The suggestion in some of the briefs is that this is a problem that has peaked in the sense that the bigger e-commerce companies find themselves with physical presence in all 50 states. So they’re already covered. And the work-arounds that some of the states have employed are also bringing more [sellers] in. And if it is, in fact, a problem that is diminishing rather than expanding, why doesn’t that suggest that there [is] greater significance to the arguments that we should leave Quill in place?

Justice Elena Kagan:

From this court’s perspective, the choice is just binary. You either have the Quill rule or you don’t. But Congress is capable of crafting compromises and trying to figure out how to balance the wide range of interests involved here.

Justice Samuel Alito:

As things stand now, it seems that both the states and internet retailers have an incentive to ask for a congressional solution to this problem… There are incentives on both sides. But if Quill is overruled, what incentives do the states have to ask for any kind of congressional legislation?

Justice Ruth Bader Ginsburg came across more friendly to the tax collectors:

How about going back to the very basic issue? The assertion is that asking an out-of-state seller to collect tax on goods shipped in-state discriminates against interstate commerce. But, as I see it, why isn’t it, far from discriminating, equalizing sellers. That is, anyone who wants to sell in-state, whether an in-state shop, an out-of-state shop, everybody is treated to the same tax collection obligation. All who exploit an in-state market are subject to the in-state tax. Why isn’t that equalizing rather than discriminating?

Justice Stephen Breyer showed no cards:

When I read your briefs, I thought absolutely right. And then I read through the other briefs, and I thought absolutely right. And you cannot both be absolutely right.

Governing highlights other concerns expressed from the Justices:

They also raised concerns about whether states other than South Dakota would try to retroactively charge online retailers for the sales tax they didn’t impose in the past. Jackley said that 38 other states (of the 45 with sales taxes) have already asserted that they wouldn’t apply the taxes retroactively.

And several justices wondered whether Congress would be better equipped to deal with the issue, rather than the high court, because the federal lawmakers could better craft a nationwide scheme that would address many of the judges’ lingering concerns.

A decision is expected by late June 2018.

Maryland Congressman Proposes Comprehensive Federal Opioid Crisis Funding

Proposed CARE Act Funding: $4B to states; $2.7B for hard hit local governments; $1.8B for research; $1B for expanded services; $500M for naloxone; and $400M for CDC.

Maryland Representative Elijah Cummings in partnership with Senator Elizabeth Warren of Massachusetts is planning to introduce the Comprehensive Addiction Resources Emergency Act or CARE Act. Modeled after the 1990’s Ryan White Act, the CARE Act would provide $10 billion in annual federal funding to state and local government to tackle the opioid crisis.

As reported by The Baltimore Sun:

Cummings and Warren say the overdose epidemic must be dealt with in the same way the health crises of the past were. The Ryan White Act of 1990, they say, helped turn around the AIDS crisis and reduced deaths dramatically.

Cummings said he and Warren got the idea to fund a massive public health campaign against opioids from Baltimore Health Commissioner Dr. Leana Wen and her staff, who pitched the lawmakers on the need for increased funding.

“We have been calling for the same thing all along: Sustained funding,” Wen said. “It needs to be a proportional amount to the size of the epidemic. The funding needs to be given directly to the highest-need jurisdictions.”

Read the full article in The Baltimore Sun to learn more.

Maryland’s Tax Reform Response: County Impacts

The 2018 session is complete and with it, any changes to Maryland’s tax code for the next year. Over the session, the General Assembly made few changes to state and local income tax collections. However, those changes may be significant for county budgeting purposes.

Prior to any enactment of significant income tax changes at the state level, the Comptroller’s Office estimated that local income tax revenues would increase by an estimated $255.0 million in fiscal 2019 and $199.0 million in fiscal 2020, as a result of federal tax reform. A significant portion of that revenue gain is due to the shift in taxpayers who will now claim the standard deduction.

Bills passed by the General Assembly which subtract from the original estimate include:

  1. Senate Bill 318House Bill 570, which alter the value of the standard deduction beginning in tax year 2018 by increasing its maximum value from $2,000 to $2,250 for single taxpayers and from $4,000 to $4,500 for taxpayers filing jointly. Beginning in tax year 2019, the value of the standard deduction is indexed based on the annual change in the cost of living. MACo estimates that altering the value of the standard deduction will decrease county income tax revenues by $34.0 million in fiscal 2019, $26.5 million in fiscal 2020, $29.8 million in fiscal 2021, $33.24 million in fiscal 2022, and by $36.9 million in fiscal 2023.
  2. Senate Bill 996, as well as House Bills 296 and 327, expand the existing military retirement income tax subtraction modification by increasing from $10,000 to $15,000 the maximum amount of retirement income deductible from Maryland adjusted gross income. In order to qualify for the increased subtraction modification, the individual must be at least 55 years old. The bills also expand the existing subtraction modification for retired “hometown heroes” by extending eligibility to correctional officers.  Local income tax revenues are expected to decrease by $4.3 million in fiscal 2019 and by $4.7 million in fiscal 2023.
  3. House Bill 96 (Ch. 36) creates a subtraction modification for up to $7,500 of the qualified expenses incurred by a living organ donor.  Local revenues are expected to decrease by $13,000 in fiscal 2019 and by $16,000 in fiscal 2023.
  4. House Bill 43 creates a subtraction modification for up to $50,000 earned from the sale of a perpetual conservation easement on real property
    located in Maryland.  Local revenues are expected to decrease by $110,100 in fiscal 2019 and by $135,200 in fiscal 2023.
  5. House Bill 1069 increases to $7,000 the value of the subtraction modification for qualifying volunteer fire, rescue, or emergency medical services personnel – but not until fiscal 2021. Local revenues are expected to decrease by $332,000 in fiscal 2021 and by $663,000 in fiscal 2023.
  6. House Bill 671 creates a subtraction modification of up to $250 for classroom supplies that are purchased by an elementary or secondary classroom teacher.  Local revenues are expected to decrease by $588,000 annually beginning in fiscal 2019.

Income Tax Legislation - County Effects

BillWhat It DoesWhat It Earns (Costs) (FY19) (millions)What It Earns (Costs) (FY20) (millions)
TOTAL$216$167.38
Federal Tax Cuts and Jobs Act of 2017 Overhauls federal tax code$255
$199
SB 318 & HB 570Increases standard deduction & indexes to cost of living($34)($26.5)
SB 996; HB 296 & 327increases subtraction modification for military retirees and retired correctional officers($4.3)($4.4)
HB 96creates subtraction modification for organ donors($0.013)($0.014)
HB 43creates subtraction modification for sales of perpetual conservation easements($0.110)($0.115)
HB 1069increases subtraction modification for volunteer fire/EMS00
HB 671creates subtraction modification for classroom supplies($0.588)($0.588)

For a wealth of information regarding what happened this legislative session, including regarding income taxes, see the Department of Legislative Service’s 90 Report.

2018 Federal Foster Care Law and Its Effect on County Services

The National Association of Counties is hosting a webinar on the Family First Prevention Services Act and how it may impact your county.

As described by the Annie E Casey Foundation, legislation with bipartisan support included in the federal budget bill may have a major positive effect on the lives of children.

The National Association of Counties will host a webinar in the coming week regarding the effect of the law on county governments. NACo describes:

During the webinar, we will be joined by majority and minority staff from the U.S. House Ways and Means Committee and the U.S. Senate Finance Committee who will discuss the recently passed legislation and what counties can expect in the coming months. The webinar is on Friday, April 13 from 2:00pm – 3:30pm ET.

Guest Speakers:

  • Anne DeCesaro, Majority Staff Director, Subcommittee on Human Resources, U.S. House Committee on Ways and Means
  • Ryan Martin, Senior Human Services Advisor, Majority, U.S. Senate Committee on Finance
  • Morna Miller, Minority Staff Director,  Subcommittee on Human Resources, U.S. House Committee on Ways and Means
  • Laura Berntsen, Chief Human Services Advisor, Minority, U.S. Senate Committee on Finance

For more information and to register for the webinar, please click here

A U.S. Department of Infrastructure?

What if, rather than an infrastructure bill, the President’s administration created an entire department of infrastructure? That’s what Forbes‘ contributors Ellis Talton and Remington Tonar suggest in their latest editorial.  Eliminating “fragmentation and redundancy in the Executive Branch” could eliminate overlap and create new synergies among the many departments which play a role in infrastructure development, including the Departments of Transportation, Energy, Interior, Agriculture, Commerce, Housing and Urban Development, and the Army Corps of Engineers and the Environmental Protection Agency.

From the editorial:

Consolidating these entities into a Department of Infrastructure would give stakeholders — from the American Society of Civil Engineers to the American Water Works Association, from AECOM to Blackrock, from states to municipalities — much-needed clarity on how our physical systems are funded, regulated and operated.

The benefits of consolidating agencies into a Department of Infrastructure are legion.

The writers opine that the move would eliminate administrative overhead, simplify approval and permitting processes, and foster collaboration.

 

 

Counties Battle Many Bridge Trolls to Build Better Infrastructure, Report Shows

The National Association of Counties brief, Investing in America’s Infrastructure: County Funding for Capital Facilities, summarizes the robust efforts of county governments to maintain America’s roads, bridges and other infrastructure, and the difficulties of increasing costs, funding cuts, and regulatory burdens.

 

Screenshot 2018-04-05 13.06.48.png
#countiesbuild

According to the National Association of Counties, building infrastructure is no fairy tale. It’s serious work, with serious challenges.

As described in the Association’s report:

  • Counties build and maintain 46 percent of public road miles and more than 38 percent of bridges throughout America
  • Counties fund most of their activities with property taxes, which represent 72 percent of county general revenues.
  • Overall, nearly three-quarters (73 percent) of states are requiring counties to do more with what they already have, decreasing state funding to counties or a combination of both.

Investing in America’s Infrastructure: County Funding for Capital Facilities describes the issues facing counties and innovative county solutions, including a profile of a P3 in Montgomery County, Maryland.

“By leveraging a valuable asset, Montgomery County was able to work with a private developer to construct a new building at a low cost to the county and solve a capacity problem at the existing building.” – Mr. Timothy Firestine, Chief Administrative Officer, Montgomery County, Md.

MACo advocates for infrastructure funding for county governments, and relief from costly regulations and delays. In the 2018 Session, MACo won additional funding for county governments from the highway user revenues and supported legislation to increase the State’s school construction funding goal and allow for alternative financing of school construction projects.

For more information, including nationwide data on infrastructure, see the National Association of Counties.

General Assembly Strikes Deal On Tax Reform

General Assembly leadership has reached an agreement on how to return some of the State’s anticipated income tax revenue windfall resulting from federal tax reform to the taxpayers, reports The Baltimore Sun. The agreement would provide $100 million through a series of tax cuts and credits – and cost all counties a total of approximately $57 million in fiscal 2019.

According to The Sun, the plan includes passing:

  • SB 318,  Income Tax – Standard Deduction – Alteration – which increases standard deductions to $2,500 for single taxpayers and $5,000 for taxpayers filing jointly. This is estimated to cost the State $87 million in fiscal 2019, $61 million in fiscal 2020, and $31 million in fiscal 2021 – and counties $51 million in fiscal 2019, $36 million in fiscal 2020, and $18 million in fiscal 2021.
  • SB 830, Income Tax – Standard Deduction – Inflation Adjustment, which indexes Maryland’s standard deductions to inflation. This makes county revenues decrease by $0.2 million in fiscal 2019 and by $10.4 million
    in fiscal 2023. 
  • HB 296, which expands the existing State subtraction modification for “Hometown Heroes” to correctional officers, and costs about $0.9 million annually to counties;
  • HB 327, which expands the existing military retirement income tax subtraction modification by exempting all military retirement income from state and local income taxes by 2022, costing counties $2.6 million in fiscal 2020 and $20.5 by fiscal 2023; and
  •  SB 647, “Earned Income Tax Credit – Individuals Without Qualifying Children – Repeal of Minimum Age Requirement” – which extends eligibility of the State and local earned income tax credits to individuals who do not have qualifying children and are under 24 years old. The fiscal note indicates that this costs counties $4.5 million in fiscal 2019 and $3.5 million in fiscal 2023 – presumably only to counties which offer a local earned income tax credit.

According to the article, the deal may also include a number of state tax credits, which have no fiscal impact for counties.

Read the article here.

Massive Federal Spending Bill: What Does it Mean for Counties?

Last week, Congressional leaders came to a bipartisan agreement that would fund the federal government through the end of the fiscal year in September. President Trump signed the $1.3 trillion spending package into law on Friday, March 23. The government staves off a potential shutdown in the interim and introduces a massive spending package for non-defense and defense spending.

This agreement represents the highest level of funding for the federal government since FY 2011, and includes a significant amount of funding for counties. This includes $10 billion in new funding for local infrastructure, a $2 billion increase in funding for battling the opioid epidemic, and billions in new funding for disaster relief.

However, the funding increases for counties are not limited to those areas. Almost every department at the federal level is going to receive an increase compared to FY 2017, and counties will be a beneficiary of those increases in a number of areas.

Other highlights for counties include:

  • $600 million for a rural broadband pilot program

  • $2.5 billion in highway funding

  • $400 million in grants for the Water and Waste Disposal Program, which is actually a $171 million cut from FY 2017

  • $7.7 billion in funds to HUD’s community planning and development programs, an $866 million increase. These funds aid local economic development.

From the National Association of Counties:

The FY 2018 omnibus spending package features several significant victories for county governments.

The legislation includes historic levels of funding for public lands counties, augments efforts to revitalize America’s infrastructure, boosts support for public health and the fight against the opioid epidemic, increases justice and mental health grants, strengthens counties’ ability to prepare for and respond to disasters and increases investments in elections security.”

For more details on the comprehensive omnibus spending bill, look at NACo’s full omnibus overview.

Useful Links:

Federal Government Spending Explorer

Fed Ban Hinders Methadone Treatment Vans

Since 2007 the U.S. Drug Enforcement Administration (DEA) has not licensed any new methadone vans citing concerns over drug diversion. These mobile units have been used for decades to provide the FDA approved addiction treatment medicine to individuals in high-need, underserved areas.

As Route Fifty reports this has led to SAMHSA and local agencies across the nation, including some in Baltimore City, to urge the DEA to remove the ban so that they may expand current mobile methadone operations or launch new ones as they continue to battle an opioid epidemic.

In 1990, opioid treatment centers in Baltimore and Boston became the first in the nation to expand their urban drug treatment operations by outfitting vans to serve high-demand neighborhoods.

The drug treatment program in Baltimore, the Institutes for Behavior Resources, operated a DEA-licensed van and a backup van to dispense methadone to hundreds of patients for about 10 years, and then purchased new vans and used them for another 10 years before parking the vehicles and letting their licenses expire.

Two years ago, Behavior Resources leased one of those vans to another nonprofit program, the Behavioral Health Leadership Institute, which is using the vehicle to provide buprenorphine instead of methadone. Although the DEA also has authority over buprenorphine, it has not banned licensed prescribers of the medication from working out of a van.

Equipped with a bathroom and private counseling rooms, the van allows Behavioral Health Leadership to offer low-income residents drug screenings, addiction assessments, counseling and pre-paid prescriptions for buprenorphine.

Read Route Fifty to learn more.

Senate Committee Passes SB830 Indexing Deductions To Inflation

The Senate Budget and Taxation Committee has passed another piece of legislation addressing the income tax revenue windfalls coming to the State and counties: Senate Bill 830, Income Tax – Standard Deduction – Inflation Adjustment, which indexes Maryland’s standard deductions to cost of living. The bill is anticipated to decrease county income tax revenues by $0.2 million in fiscal 2019, and by $10.4 million in fiscal 2023.

From the bill’s fiscal note:

The Consumer Price Index (CPI) is a measure of the average monthly change in the price for goods and services paid by consumers between any two time periods and is the most commonly utilized measure to calculate inflation and deflation. The federal Tax Cuts and Jobs Act altered the indexation of the federal cost-of-living adjustment by requiring the use of the chained CPI. This measure is similar to the CPI but is designed to better account for changes in spending patterns and grows more slowly than the traditional CPI.

Major components of the federal income tax are indexed for changes in inflation, including federal income tax rate brackets. … Although the State’s income tax brackets are not indexed for inflation, several components of Maryland’s income tax system are influenced by inflation, including the State pension exclusion, State earned income tax credit, and poverty level tax credit. Income tax brackets and other important components of the income tax, such as the personal exemption and standard deduction, are not adjusted for inflation.

Click here for an accounting of the latest on bills addressing federal tax reform in the Maryland General Assembly.