Maryland Joins Three States In SALT Suit

Attorney General Brian Frosh has joined Maryland with Connecticut, New Jersey and New York in suing the federal government over capping the state and local tax (SALT) deduction through last year’s tax reform. The claim alleges that the new $10,000 SALT cap violates the U.S. Constitution’s Equal Protection Clause and the 10th Amendment, which protects states’ rights, according to Governing.

From that coverage:

Calling the deduction cap an “unconstitutional assault” on state governance, the lawsuit accuses the federal government of meddling in state taxation and fiscal policies by making it more difficult for them, politically, to raise revenue if needed.

“The new cap disregards Congress’ hitherto unbroken respect for the states’ distinct and inviolable role in our federalist scheme,” the lawsuit says. “And, as many members of Congress transparently admitted, it deliberately seeks to compel certain states to reduce their public spending.”

In January, Governing interviewed tax law experts who opined that winning a lawsuit just like this would be very difficult.

The New York Times article expresses similar sentiments:

The lawsuit, filed in the Southern District of New York, was dismissed as a long-shot political stunt by supporters of the new tax code, but New York Gov. Andrew Cuomo said it is a practical act of self-defense against an adversarial federal government. …

When it comes to taxing Americans, “Congress can really do what it wants,” said Tax Foundation executive vice president Joseph Bishop-Henchman. “It’s really not much of a case.”

Attorney General Frosh stated:

Eliminating the SALT deduction will jack up taxes for more than half a million Marylanders. It is an attack on state sovereignty. It will reduce funding for local law enforcement and for construction of infrastructure statewide, and it will cripple our ability to educate our kids.

Helpful Links

Complaint

Maryland Attorney General’s press release

Bethesda Magazine coverage

Governing coverage

New York Times coverage

IRS to 501(c)s: Keep Your Irrelevant Donor Data

The IRS has announced that it is no longer requiring 501(c) organizations, other than 501(c)(3) charitable non-profits, to report lists of their donors. The new rule means that issue advocacy groups, labor unions, veterans groups, political organizations, and other 501(c) non-profits will no longer have to  proactively disclose their contributors to the IRS.

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The change does not affect 501(c)(3)s, as the IRS still needs the lists of donors entitled to claim charitable income tax deductions. Since the deduction is not available for contributions to political campaigns and other 501(c)s, however, the IRS does not need this information.

According to U.S. Treasury Secretary Steven T. Mnuchin:

Americans shouldn’t be required to send the IRS information that it doesn’t need to effectively enforce our tax laws, and the IRS simply does not need tax returns with donor names and addresses to do its job in this area. It is important to emphasize that this change will in no way limit transparency.  The same information about tax-exempt organizations that was previously available to the public will continue to be available, while private taxpayer information will be better protected.  The IRS’s new policy for certain tax-exempt organizations will make our tax system simpler and less susceptible to abuse.

It might deserve noting that the requirement elimination has no bearing on any state or federal campaign finance disclosure requirements. That’s a completely different issue.

The IRS press release is available here. Formal guidance is here.

Single-payer Health Care Carries Hefty Price Tag

The Department of Legislative Services (DLS) estimates that State-sponsored health care could cost the State’s general fund as much as $24 billion annually, according to The Baltimore Sun. For perspective, the State’s general operating budget is $44 billion.

The report, which at this time is not available online, has sparked a firestorm between gubernatorial candidates Ben Jealous and incumbent Governor Larry Hogan. Jealous contends that the analysis is inaccurate, or at least premature, according to the Sun. Meanwhile, Hogan’s campaign spokesperson called Jealous’ plan for State-sponsored health care “dangerously irresponsible, unaffordable and unworkable.”

National Nurses United, a union supporting Jealous, estimates that a single-payer system would save the average resident about 10.5 percent a year. It also would provide coverage for nearly 400,000 state residents who currently go without health insurance.

On the other hand, Gene M. Ransom III, CEO of the Maryland State Medical Society – which represents Maryland doctors – told The Sun that

…. he worries about the disruption caused by a shift toward a single-payer system. He thinks it will cost much more than the state analysts say.

“I have a small percentage of doctors who really want to do single-payer,” he said. “I have more who don’t. This would be a major, major change. I’m really worried about these practical aspects.”

Such a change would inevitably result in a change to the State’s tax scheme to pay for it – perhaps either higher sales taxes, a new payroll tax, or fees charged for the service – or some combination of a variety of menu items.

Read the article here.

Hear Jealous and Hogan directly on issues like health care reform at the MACo Summer Conference Gubernatorial Candidates Forum, on Saturday morning, August 18 at 11:30 a.m.

The 2018 MACo Summer Conference will be held August 15-18 at the Roland Powell Convention Center in Ocean City, Maryland. This year’s theme is “Water, Water Everywhere.”

Learn more about MACo’s Summer Conference:

 

Tax Foundation: Wayfair Q&A

Confused about the impacts of the Supreme Court’s Wayfair decision?  That’s ok: the Tax Foundation has you covered.

Their helpful Q&A answers questions like, “I thought states were prohibited by law from Supreme Court Buildingtaxing the internet?” (they are – they are prohibited from taxing access to the internet, not sales of things over the internet), and “Is my state going to receive a ton of revenue?” (Probably not; but, there will be some. The Government Accountability Office (GAO) estimates uncollected e-commerce revenue nationwide to be about $8-$13 billion.)

What will the landscape look like in one to two years because of this decision, versus 10 years from now?

If states simplify their tax systems as set out by Wayfair, there will likely be only small changes in the e-commerce landscape. Sellers may need to monitor their new compliance requirements and seek a new software solution, but these costs can be minimized if states provide the necessary simplifications and protections. However, if some states ignore the features of the South Dakota law in crafting their own laws, and put crushing burdens on interstate sellers, there will be more litigation and a higher potential for action by Congress.

The Tax Foundation will be working with states to include seller protections in their laws and will help challenge laws that ignore the Wayfair rules, and educating policymakers on the value of congressional action to codify seller protections in federal law.

In short, the Tax Foundation advises state legislators to craft their own states’ e-commerce sales tax laws closely like South Dakota’s – or risk legal scrutiny and federal preemption.

Counties Conclude FY17 Tax Sales

Happy new [fiscal] year! This means that all counties have concluded their tax sales – if they had one at all.

The process used by counties to collect overdue taxes by sending properties to tax sale has received a lot of attention in the General Assembly of late – particularly as it relates to collection of overdue water bills. The flurry of legislative activity followed the completion of the report of the Task Force to Study Tax Sales in Maryland.

Below is a brief schedule of Maryland counties’ tax sales.

Allegany held ts tax sale on May 23, 2018. Data available here.

Anne Arundel held its tax sale on June 5, 2018. Data is available here.

Baltimore City held its tax sale on May 14, 2018. Data available here. Property list available here.

Baltimore County held its tax sale on June 1, 2018. Data available here.

Calvert holds its tax sale in late April.

Caroline held its tax sale on June 13, 2018. Data available here.

Carroll held its tax sale on June 29, 2018. Sixty-two liens were sold, totaling $217,000. Data available here.

Cecil held its tax sale on June 4, 2018. Data available here.

Charles held its tax sale online from May 3, 2018 through May 8, 2018.  Data available here.

Dorchester held its tax sale on June 19, 2018. Data available here.

Frederick held its tax sale on May 14, 2018. Data available here.

Garrett held its tax sale on June 8, 2018. Data available here.

Harford held its tax sale online on June 18, 2018. Data available here.

Howard held its tax sale online on May 2, 2018. Data available here.

Kent helds its tax sale on May 10, 2018. Data available here.

Montgomery held its sale on June 11, 2018. Data available here.

Prince George’s held its tax sale online from May 7, 2018 to May 14, 2018.

Queen Anne’s held its tax sale on , 2018. Data available here.

Somerset held its tax sale on June 14, 2018. Data available here.

St. Mary’s held its tax sale on March 9, 2018. Data available here.

Talbot held its tax sale on May 16, 2018.

Washington held its tax sale on June 5, 2018.

Wicomico did not have a tax sale this year.

Worcester held its tax sale on May 18, 2018. Data available here.

Supernatural Psychics or Budget Experts? Revenue Estimators Awe at #MACoCon

County revenues generally come from property and income taxes – but how much shouldmoney-rain-1013702__340 an administrator, elected official or budget officer expect to receive each year? This question has become increasingly difficult as counties still recover from the Great Recession, tax reform leads to uncertainty, and growth trends shift with an aging population and changing income sources. Even the State has modified its revenue projection processes, accounting for increased volatility. What’s a county to do?

Find out how revenue estimating experts at the State and County levels predict the future in an unpredictable environment at the MACo Summer Conference session, “Navigating Murky Waters: Predicting Unpredictable Revenue Streams.”

Title: Navigating Murky Waters: Predicting Unpredictable Revenue Streams

Description: Reliably estimating revenues is hard enough during any time – it’s always a guessing game, albeit an educated one. But now, accurately estimating county revenues spot-on would be like walking on water. Recovery from the Great Recession is slow-moving, income tax revenues are particularly volatile as baby boomers retire and the work force dwindles, and with federal tax reform, no one knows how taxpayers will actually file. What’s a legislator, county official, or budget officer to do? Find out how county finance officers are navigating these uncharted waters in this panel focusing on ways and means.

Speakers:

  • John Hammond, Budget Officer, Anne Arundel County
  • Andrew Schaufele, Director, Bureau of Revenue Estimates, State Comptroller’s Office

Moderator: The Honorable Kevin Hornberger, Maryland House of Delegates

Date/Time: Friday, August 17, 2018; 2:15 pm – 3:15 pm

MACo’s 2018 Summer Conference will be held Aug. 15-18 at the Roland Powell Convention Center, in Ocean City, MD.

Learn more about MACo’s Summer Conference:

Conduit Street Podcast: SCOTUS Sounds Off, Early Voting Boom, Riveting Races, & More!

On the latest episode of the Conduit Street Podcast, Kevin Kinnally and Michael Sanderson discuss the surge in early voting numbers in this year’s primary election, explore the role of county governments in state and local elections, examine the impacts of three major Supreme Court decisions, review MACo’s Legislative Initiatives process, and look ahead to the 2018 MACo Summer Conference.

*Note: We’ll be back next week with a special edition of the Conduit Street Podcast to breakdown the results of the primary election.

Listen here:

MACo has made the podcast available through both iTunes and Google Play Music by searching Conduit Street Podcast. You can also listen on our Conduit Street blog with a recap and link to the podcast.

You can listen to previous episodes of the Conduit Street Podcast on our website.

Useful Links

Previous Conduit Street Coverage: SCOTUS Opens Door To State Taxation of Internet, “Remote” Sales

Previous Conduit Street Coverage: SCOTUS Sides With Lower Court In Maryland “Gerrymandering” Case, But Questions Remain

Previous Conduit Street Coverage: Early Voting Numbers Up 53% from 2014

Previous Conduit Street Coverage: MACo Soliciting 2019 Legislative Initiative Proposals

SCOTUS Opens Door To State Taxation of Internet, “Remote” Sales

In a widely anticipated decision, the US Supreme Court has struck down a longstanding rule preventing states from imposing their sales taxes on sellers who do not have a physical presence in that state.

Today’s decision in the case South Dakota v. Wayfair, Inc. represents a stark turnaround from longstanding federal policy precluding state enforcement of sales taxes on sellers without a “nexus” (typically a physical presence such as a retail location) within that state. The decision, long sought by state and local governments, could promote far broader application of sales taxes, and remove a lingering tax inequity between local and remote sales.

Maryland does not authorize broad-based local sales taxes (like many other states do), so the local effects for county governments are likely to be far lesser than elsewhere. However, the potential effects on the state fiscal posture are significant. As the state grapples with a forecasted structural deficit, and anticipates substantial new education spending commitments, a broadened application of sales tax collection responsibilities by non-Maryland retailers could play a role in state fiscal planning.

Like in many states, Maryland’s sales tax is technically written as a “Sales and Use Tax,” meaning it obliges tax payment not only on taxable purchases within the state, but also on taxable items purchased elsewhere but brought into Maryland for use. The enforcement of those provisions, especially upon individuals, is understandably troublesome. Some Marylanders may receive notification from the Office of the Comptroller indicating a tax obligation after purchasing out-of-state furniture, for example, independent of whether the retailer collected sales tax. Taxpayers are able, and indeed obligated, to directly remit the “use tax” on such purchases. But implementation on smaller cross-border sales is administratively impossible. Efficient sales tax administration inherently relies on the seller’s willingness to calculate, collect, and remit the taxes due.

A more complex matter arises with online retailers, whose physical presence may be very limited geographically to one site, but who solicit and conduct business in Maryland and other states with similar tax laws. For decades, under previous court holdings, states could not impose any collection/remittance obligation onto such retailers, unless there was a physical tie to the collecting state. In today’s Wayfair ruling, the courts overturned that principle, and seemingly opened the doors for states, through legislation and/or administration, to seek broader application and collection of existing taxes.

In a joint statement, numerous local government organizations comments on the ruling:

State and local organizations applaud the U.S. Supreme Court’s decision recognizing that the 1992 Quill ruling put Main Street retailers at a competitive disadvantage to remote sellers and the efforts by states to simplify the sales tax collection process and giving those states remote sales tax collection authority. For 26 years Congress has failed to act and through the efforts of Justice Anthony Kennedy, the federal government has finally recognized the changing nature of commerce and state efforts to simplify the collection process.

For more background on the Wayfair case:

The SCOTOSblog site with links to arguments, filings, and other resources

The NACo coverage of April oral arguments on the Wayfair case

MD AG Seeks Judicial Review of Wynne Whammy

The Office of the Attorney General has formally requested the Circuit Court of Anne Arundel County to review the Maryland Tax Court’s ruling which essentially raises the Wynne Case refund interest rate from three to 13 percent – a decision which would likely cost Maryland counties $30 to $40 million.

On May 23, the Maryland Tax Court ruled that providing taxpayers lower interest rate payments on Wynne refunds than on other refunds is unconstitutional, because it violates the Commerce Clause. From the opinion:

The Wynne refunds are the result of income tax provisions relating to income earned in other states by Maryland residents that only allow credits against the state income tax and not against county “piggyback” taxes. The U.S. Supreme Court ruled this was unconstitutional.

Following the exact same logic, granting interest at a lower rate must also be unconstitutional.

The Budget Reconciliation and Financing Act of 2014 altered the annual interest rate paid for income tax refunds resulting from Wynne, requiring the Comptroller’s Office to use an annual interest rate equal to the average prime rate of interest during fiscal 2015: three percent.

MACo President Jerry Walker, Council Vice Chairman, Anne Arundel County submitted a letter to Attorney General Brian Frosh on June 11, 2018 requesting that his office seek judicial review of the tax court’s opinion. From that letter:

On behalf of Maryland’s 24 county jurisdictions, the Maryland Association of Counties (MACo) respectfully requests that your office appeal the Maryland Tax Court’s May 23, 2018, decision …. Counties stand at the ready to assist on this front however deemed most helpful and appropriate.

We hope that you can represent the Comptroller, and practically, all of Maryland’s counties, by distinguishing the matter of how the refund interest rate is set from the fundamental Commerce Clause issues inherent in the Wynne case.

[Emphasis added.]

Four days later, the Attorney General’s Office filed its Petition for Judicial Review, and Counsel to the Comptroller Brian Oliner sent MACo this response.

From that letter:

We would like to thank the Counties for offering assistance.

To this end, county attorneys willing to lend their expertise on this matter should contact MACo Associate Director Barbara Zektick, Esquire at bzektick@mdcounties.org.

The case number for this matter is C-02-CV-18-001788. For the most recent information on this case, visit the Maryland Judiciary Case Search website and search this case number in the Anne Arundel County Circuit Court.

Prior Conduit Street coverage on Wynne is available here.

See Attorney General Brian Frosh moderate the panel, Like a Bridge Over Troubled Water: Know Your Water Lawat the MACo Summer Conference. The MACo Summer Conference will be held August 15-18, 2018 at the Rowland Powell Convention Center in Ocean City, Maryland. This year the conference’s theme is “Water, Water Everywhere.”

Learn more about MACo’s Summer Conference:

Got PILT? The Feds May Owe You Money

The Payment in Lieu of Taxes (PILT) program was created in 1976 to compensate counties and other local governments for losses in tax revenues due to the presence of substantial federal land acreage within their jurisdictions. Because local governments are unable to tax the property values or products derived from federal lands, PILT payments are necessary to support essential local government services. Maryland received $111,289 in PILT payments in 2017.

FY 2017 PILT Payments (Courtesy of United States Department of the Interior)

In 2008, Congress significantly amended the PILT statute by mandating full funding through 2014 and removing language that limited the federal government’s payment obligation to the amounts appropriated by Congress. Congress has never reinserted that language. For 2015-17, because of insufficient appropriations, PILT recipients did not receive the full amount to which they were entitled under the PILT statute based on the U.S. Department of the Interior’s full payment calculation.

Kane County, Utah filed a lawsuit in the U.S. Court of Federal Claims, seeking to recover its own underpayments and the underpayments of a class made up of all other PILT recipients in those years. Several months ago, the Court ruled in Kane County’s favor and certified the lawsuit as a class action. The Court also named Smith Currie & Hancock, LLP, Kane County’s lawyers, as Class Counsel to represent all members of the class. The Court ordered that an official Notice of these events be sent to each underpaid PILT recipient. That Notice will be mailed on June 19 to all PILT recipients.

The Notice explains that to participate in the class action lawsuit, and collect the amounts due to them through the class action lawsuit, each underpaid PILT recipient must complete and submit a form “opting into” the lawsuit. If you do not submit the form, you will not be included in the class action lawsuit—and will not receive what would otherwise be your share of any monies recovered.

Additionally, the National Association of Counties (NACo) is scheduling a conference call with the Class Counsel on June 19 at 3 pm. All PILT recipients and state associations of counties are invited to join that call, where Alan Saltman from Smith, Currie & Hancock, LLP will be available to answer any questions.

PILT Lawsuit Conference Call

Jonathan Shuffield, NACo; and Alan Saltman, Smith, Currie & Hancock, LLP (Class Counsel)
Call Date: Tuesday, June 19; 3 pm
Dial-In: (719) 457-0816
Passcode: 782427

Contact Kevin Kinnally at MACo for more information.