Stakeholders Agree to Amendments on Recordation Tax Exemptions

MACo Associate Director Barbara Zektick testified, on the sponsor panel along with NAIOP Maryland Chapters Vice President for Policy and Government Relations Tom Ballentine, on Senate Bill 999 before the Senate Budget and Taxation Committee. As introduced, the bill would have broadly exempted certain real property transfers from the county recordation tax. However, NAIOP and MACo agreed to consensus amendments which limited the application of the bill to limited partnerships and only certain refinances performed by parties other than the original mortgagor.

From MACo Testimony:

This bill would exempt certain property transfers from recordation taxes – some of which are already exempt under existing law, or else a solid policy reason exists to make them exempt through this bill. Other property transfers that would be exempted by the bill, however, are unintentional, substantive changes to existing law that may significantly affect county revenue. Counties request that those transfers be amended out of the bill.

For more on this and other legislation, follow MACo’s advocacy efforts during the 2018 legislative session here.

Counties Need Security When Issuing TIFs

MACo Associate Director Barbara Zektick testified in support of Senate Bill 925, “Property Tax – Liability for Payment of Tax on Leased Property”, before the Senate Budget and Taxation Committee on March 13, 2018.

This bill allows for the attachment of tax liens in special circumstances where the government leases property for private development, and they utilize tax increment financing (TIF) bonds to finance the project or development. When businesses lease government property and perform taxable activity but fail to pay property taxes, governments have been unable to place a tax lien on the property because government property is typically non-taxable. This legislation closes that loophole.

From MACo Testimony:

For traditional transit-oriented development projects and other economic development public-private partnership development projects, a government entity will frequently make its property available under a long-term ground lease to a developer, who will build taxable development on the property. The local government creates a TIF district, pledging the new property tax revenues from the development to repay TIF bonds issued to pay for roads, water and sewer pipes, and other needed public infrastructure.

This bond is usually guaranteed by revenues from a special taxing district, created on the same property as the TIF district. However, if the county cannot establish a tax lien on the property if those new property taxes go unpaid – as is the case under current law – the TIF bond is less valuable, because it is less assured it will get repaid.

This bill closes that loophole. It ensures that in specific cases where a government owns the land and ground leases it for economic development, the county can create tax liens on the development in order to collect the property taxes owed – ensuring that the TIF bond has the value it is intended to have.

For more on this and other legislation, follow MACo’s advocacy efforts during the 2018 legislative session here.

Tax Reform: What’s the State To Do?

The General Assembly has entertained a long list of bills dealing with the impacts of federal tax reform on State and county coffers. The question still remains, however, which – if any – the two chambers will choose to move.

One bill has advanced through both the House and Senate: HB 365SB 184, “Income Tax – Personal Exemptions – Alteration.” The bill clarifies that state taxpayers can still take personal exemptions in Maryland, even if these exemptions are zeroed out at the federal level. According to the analysis by the Department of Legislative Services,  the bill is simply clarifying in nature, and does not have a meaningful fiscal impact on counties.

In addition,  SB 0318 – “Income Tax – Standard Deduction – Alteration” has moved out of the Senate Budget and Taxation Committee and onto the floor. As drafted, this would have increased the standard deductions in Maryland to an extent that would have essentially wiped out the entire windfall from tax reform for both the state and local governments. However, it was amended to simply cap the standard deductions at $2,500 instead of $2,000 for individual filers, and $5,000 instead of $4,000 for joint filers – a relatively small fiscal impact.

All of the other bills – which are listed below – have either been killed, or have received no action thus far.

Of course, there is still time – the crossover deadline isn’t until next Monday.

HB 99 / SB 134 – Small Business Relief Tax Credit
HB 587 / SB 194 – Calculation of Taxable Income – Itemized Deductions – Property Taxes
HB 588 – Income Tax – Rate Brackets, Personal Exemptions, and Standard Deduction – Cost-of-Living Adjustments
HB 589 / SB 191 – Income Tax – Itemized Deductions
HB 644 – State Income Tax – Subtraction Modification – Elementary and Secondary
Education Expenses
HB 697 – Individual Income Tax – Itemized Deductions on State Income Tax Return
HB 875 / SB 733 – Protecting Maryland Taxpayers Act of 2018
HB 906 – Income Tax – Itemized Deductions and Personal Exemptions
HB 1039 – Income Tax – Itemized Deductions on State Income Tax Return
HB 1146 – Income Tax – Rates and Itemized Deductions
HB 1190 – Income Tax – Standard Deduction – Alteration
HB 1336 – Income Tax – Calculation of Maryland Taxable Income – Itemized Deductions
HB 1710 – Income Tax — Addition and Subtraction Modifications — Alimony or Separate Maintenance Payments
SB 567 – Income Tax Rates – Reductions
SB 828 – Income Tax – Personal Exemptions – Inflation Adjustment
SB 830 – Income Tax – Standard Deduction – Inflation Adjustment


Simplified Tax Credit Encourages Economic Growth in Targeted Counties

MACo Associate Director Barbara Zektick testified in support of House Bill 1295, “One Maryland Economic Development Tax Credits – Simplification and Alteration”, before the House Ways and Means Committee on March 9, 2018. This bill streamlines and simplifies the One Maryland Tax Credit, providing easier access for businesses and promoting economic development in the counties. This legislation consolidates start-up and project into one tax credit and promotes growth of new businesses by allowing them to take the credit in their first year. It also reduces the limit on the number of employees that a business can hire and still be eligible for the credit.

From MACo Testimony:

MACo generally supports legislation that promotes greater access to economic development incentives. For this reason, MACo particularly supports the component of the bill which opens up eligibility of the credit to new businesses in the state that hire 10 to 25 qualifying employees. An economic development incentive in an urban area might appropriately require creation of at least 25 new qualifying jobs. In rural parts of the state, however, this bar can be too high to practically encourage economic growth. State programs that offer varying metrics and qualification criteria generally support more of Maryland’s counties – and promote significant job growth throughout our entire state.

Counties also appreciate components of the bill that strengthen reporting requirements on businesses – providing increased access to data and analysis of the effectiveness of the program.

MACo supports HB 1295 because it makes economic incentives available to more counties by broadening the criteria for qualification, while still targeting distribution of limited resources based upon objective criteria.”

For more on this and other legislation, follow MACo’s advocacy efforts during the 2018 legislative session here.




Comptroller: Aging Taxpayers Means Two More Slow Decades

In his ample spare time, Bureau of Revenue Estimates Director Andrew Schaufele of the Comptroller’s Office managed to put together The Impact of Age Demographics on Maryland’s Economic and Tax Revenue Outlook – complete with county-level demographics data.

The report examines the age structure of Maryland’s tax paying population in order to attempt to get to the bottom of the cause of the State’s – and counties’ – slowing economic growth. The changing age composition of our labor force has generally been blamed as one of the contributors, and this report evaluates the theory.

It not only found it reliable, it also found that the effects are not going away any time soon.

This assessment finds that the changing age structure has and will continue to restrain Maryland’s tax revenue growth throughout the existing six year budgetary planning window. It helps explain why income tax revenue growth has not returned to historical levels. Furthermore, while a host of assumptions apply, it is possible to estimate the level of its impact through 2040. Three findings in particular demonstrate Maryland’s vulnerability:

1. In the time period for which the Bureau has reliable data, from 2001 forward, changes in age structure between tax years 2010 and 2014 account for a reduction of $109.3 million in 2014 revenue.

2. The data revealed a post-Great Recession decline of 3-5% in the Taxpayer Participation Rate (TPR) of the most productive segment of its labor force, the 45-64 age cohort.

3. All else equal, the age structure will depress revenue through at least 2040, with the most intense pressure on revenues occurring around 2030, at which point it may be subtracting up to 3% of the year’s income tax revenue, or about $330 million in 2015 dollars per year.

The report and data is available here.

Congressional Dems Announce $1 Trillion Federal Infrastructure Plan

Congressional Democrats are proposing their own federal infrastructure plan – and it varies significantly from what the Trump Administration and Republican leadership have put forward so far.

Democrats are proposing investing just over $1 trillion into a wide range of infrastructure needs, including $140 billion for roads and bridges, $115 billion for water and sewer infrastructure and $50 billion to rebuild schools. To fund this, they propose rolling back the recently passed tax reform: reinstating the top income tax rate of 39.6 percent, restoring the individual alternative minimum tax, reversing cuts to the estate tax, and raising the corporate income tax from 21 percent to 25 percent.

From the Washington Post:

Senate Minority Leader Charles E. Schumer (D-N.Y.) said in an interview Tuesday that the plan sets up a stark contrast for voters ahead of the midterm elections.

“We believe overwhelmingly the American people will prefer building infrastructure and creating close to 15 million middle-class jobs than giving tax breaks for the wealthy,” he said.

Comptroller Releases County-level Tax Reform Data

The Comptroller’s Office has updated its analysis of the impacts of federal tax reform on the state and local governments. The new “optimized model” used permits analysis by county.

The updated report indicates that Howard and Montgomery counties have the greatest percentages of adversely impacted taxpayers (26 and 25 percent, respectively). Ironically, Montgomery also has the greatest percentage of taxpayers who are most favorably impacted by the changes, along with Talbot and Worcester (8 percent). Baltimore City, Dorchester and Somerset have the greatest percentages of taxpayers who will experience no change to their tax bills.

The updated memo is available here.

Revenue Estimates Board Updates Projections – by $434 Million

The state’s Board of Revenue Estimates updated its revenue projections for fiscal 2019 – increasing its projection by $433.6 million as a result of federal tax reform. It also decreased its projections for fiscal 2018 by $39.4 million.

Comptroller Peter Franchot indicated the following in a statement:

These new estimates are heavily influenced by the Tax Cuts and Jobs Act passed by Congress and signed into law by President Trump. While I am optimistic about this considerable increase in the General Fund, I want to offer a note of caution, as there are two stories to tell.

First and foremost, our revenue estimating team reports a 34 percent growth in our fourth quarter estimated payments, which was highly unusual. This is three times what we would normally witness. Attempting to determine if this was an intentional taxpayer strategy to pay tax bills in full in an effort to receive a vast federal refund before that option is gone — or something else entirely — remains to be seen.

Another concern with the new tax code is what I call Sticker Shock. While the potential federal refund may be tantalizing, citizens used to getting a state refund might not get one or may end up owing money. For those living paycheck to paycheck, this could be devastating.

In addition, this overall revenue windfall is masking another economic reality: reductions to both withholding by $30 million and sales tax by $15 million annually. Serving as a reminder that Maryland is still feeling the long tentacles of the Great Recession pulling down our economy. This is a true-up to our underlying wage and retail sales tax base that are small in the grand scheme of things, but reflective of lethargic wage growth and subdued consumer spending.

Proposed Addition to Homestead Tax Credit Would Negate the Program

MACo Associate Director Barbara Zektick testified in opposition to House Bill 1445, “Homestead Property Tax Credit – Calculation of Credit for Dwelling Purchased by First-Time Homeowner”, before the House Ways and Means Committee on March 6, 2018.

This bill would add first-time homebuyers to property tax savings under the Homestead credit and phase out the savings over five years.

The Homestead credit acts essentially as a cap on assessments of an owner-occupied space to manage the increase in property taxes. The inclusion of all first-time homebuyers, including those from out-of-state, would burn an estimated $85 million hole in county budgets. Additionally, it would stop counties from expanding the already existing credit and hurt general services provided by the counties because of the deep fiscal impact.

From MACo Testimony:

MACo opposes this bill because it compromises the basic nature of the Homestead Property Tax Credit, and threatens a severe fiscal impact to county budgets. The Homestead Property Tax Credit acts to essentially cap assessments of owner-occupied residences, so that a resident’s tax bill does not increase too substantially over the prior year. It provides consistency for taxpayers who live in and own their homes. Nearly every county has exercised their authority to lower their caps, providing security to homeowners beyond that which is required by the State.

MACo understands that the sponsor of HB 1445 is considering requesting an amendment to this bill to provide a county option to enable this expansion. However, it deserves noting that no county has expressed interest in implementing this. This is because it undermines the purpose of the credit’s inception, and because the extent and unpredictable nature of its fiscal impact are so substantial. Even as an option, this bill would run contrary to the program’s basic goals.

HB 1445 subverts the main policy goal of this longstanding and successful homeowner program.”

For more on this and other legislation, follow MACo’s advocacy efforts during the 2018 legislative session here.

Extra Grant Funding Will Help Counties Catch Up

MACo Research Director Robin Eilenberg testified in support of House Bill 1624, “Local Governments – Income Tax Disparity Grants – Amounts”, before the House Appropriations Committee on March 6, 2018. This bill would add a two-year enhancement of grant funding to four counties: Caroline, Prince George’s, Somerset, and Wicomico.

This funding helps counties who do not yield as much income tax revenue as other counties and require additional funding to maintain essential services in their respective jurisdiction.

From MACo Testimony:

MACo supports this bill as a reasonable and appreciated effort to mitigate the impact of these caps. The extension of this relief, offered to those aforementioned counties with the maximum local income tax rate of 3.2 percent, offers $6 to $7 million a year for two years for public services in counties where this assistance is necessary.

Over the last six years, five counties have raised their local income tax rates. Somerset raised its rate to the maximum rate of 3.2 percent beginning in calendar year 2017. Caroline recently raised its income tax rate to the maximum rate of 3.2 percent in early November 2017, with the expectation that the new revenue could help fund a new elementary school and sheriff’s department.

This bill will provide needed revenues to counties with limited revenue generation potential, to help fund necessary public services such as public safety, schools, infrastructure, and community services.”

For more on this and other legislation, follow MACo’s advocacy efforts during the 2018 legislative session here.