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.

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. 

Legislation Would Ensure Fair and Effective Communication in Estate Transfers

MACo submitted written testimony in support of Senate Bill 466, “Estates and Trusts – Administration of Estates – Waiver of Fees”, to the House Health and Government Operations Committee on March 28, 2018.

This bill would allow for the waiver of probate and administration fees in certain circumstances where the heir of an estate is unable to afford the settlement of an estate. Additionally, if the heir continues to live on the property it is possible that they may not be receiving appropriate bills for property taxes or utility usage that would be sent in the owner of the property’s name.

MACo supports this bill in the effort to effectively settle estates to avoid proceeding to tax sale while also ensuring accurate land reports and reduce errant billing.

The bill and its cross-filed counterpart, House Bill 556, have already passed their respective houses unanimously.

From MACo Testimony:

Counties support this bill as a “good government,” wise approach to prevent properties from unnecessarily going to tax sale. Tax sale serves as an effective means of collection and one of last resort. However, it benefits everyone to make sure that the record owner of the property is correct, so that counties can provide notice of moneys owed and assistance to their residents effectively.

Because it helps put counties in contact with the correct resident of a property, and facilitates notice of moneys owed and assistance available to those who need it, MACo urges a FAVORABLE report on SB 466.”

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

 

Tax Credits an Alternative to Depleting County Coffers

MACo submitted written testimony in opposition to House Bill 296, “Income Tax – Subtraction Modification – Retirement Income of Correctional Officers”, to the Senate Budget and Taxation Committee on March 28, 2018.

This legislation is among a number of subtraction modification bills that would mandate reductions in local revenue by reducing an eligible individual’s taxable income. Due to the clear fiscal impact that these modifications would have on local governments and their ability to provide needed community services, counties generally oppose such changes.

Additionally, the effects from federal tax reform on local and county government revenues remain uncertain.

From MACo Testimony:

HB 296 is just one of many bills that have already been introduced this session to reduce or adjust the income taxes paid by residents of Maryland. According to the bill’s fiscal note, local revenues would decline by approximately $1 million in fiscal 2019. However, it is not clear from the fiscal note whether the thousands of local and federal correctional officers are included in that estimate. Nevertheless, this revenue effect combined with that of other bills already introduced this session, simply cannot be afforded as a statewide county mandate and could present substantial budget difficulties. This is exacerbated by the fact that counties do not know yet just how tax reform will affect their revenues.

MACo suggests that consideration be given instead to providing state tax credits, which do not mandate the depletion of resources from all counties for education, public safety, and needed community services.”

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

Comptroller Reminds Tax Payers to Be Aware of Phone Scams

As taxpayers work to file their taxes, criminals are also hard at work — attempting to steal their money. While there are several versions of tax scams, the classic telephone con continues to thrive, especially during filing season.

“Phone scammers are always looking for ways to steal taxpayers’ financial and identity information,” Maryland Comptroller Peter Franchot. “If someone calls you claiming to be from the IRS or the Comptroller’s Office, hang up. Don’t give them any personal or financial information. These are crooks trying to steal your identity.”

As a reminder, here’s how IRS says the scams work:

  • Scammers call taxpayers telling them they owe taxes and face arrest if they don’t pay. Sometimes, the first call is a recording, asking taxpayers to call back to clear up a tax matter or face arrest.
  • When taxpayers call back, the scammers often use threatening and hostile language. The thief claims the taxpayers may pay their debts using a gift card, other pre-paid cards or wire transfers.
  • Taxpayers who comply lose their money to the scammers.

Taxpayers should remember that the IRS and the Comptroller’s Office does not:

  • Call taxpayers demanding immediate payment using a specific payment method, but will first mail a bill.
  • Threaten to have taxpayers arrested for not paying taxes.
  • Demand payment without giving taxpayers an opportunity to question or appeal the amount the IRS believes they owe.
  • Ask for credit or debit card numbers over the phone.
  • Taxpayers who receive these phone calls should:
  • Hang up the phone immediately, without providing any information.

If Maryland taxpayers suspect fraud, they are asked to immediately report the issue to the Comptroller’s Office by calling 1-800-MD-TAXES (1-800-638-2937) or 410-260-7980 in Central Maryland or taxhelp@comp.state.md.us.

Calls also may be reported to:

Staving Off Tax Sale Keeps Options Open

House Bill 1465 allows counties to withhold properties from tax sale that have less than $750 in fees and taxes due on the property. This would be an increase in that figure from $250 for most jurisdictions. Tax sale is an effective last resort to collect overdue bills, but it is also a lengthy and arduous process for all involved. Counties have a vested interest in seeking to maintain continuity with properties that they often find frequently in tax sale. For property owners that owe a relatively small amount of fees on the property, it is best for all parties to work together to rectify the situation in a timely manner and avoid tax sale.

MACo submitted written testimony in support of HB 1465 to the Senate Budget and Taxation Committee on March 27, 2018. The bill passed the House 136-0.

From MACo Testimony:

Counties find tax sale as an effective means of last resort to collect overdue tax bills and other fees owed local governments. Of course, no county wants to send any property to tax sale if it can be avoided. All parties involved would strongly prefer that homeowners receive all counseling, education, information, and support which may be available to them, and more time when appropriate, to help them pay on time and avoid going through tax sale. To that end, MACo supports this bill as a wise approach to facilitating access to support services at the time when it is most helpful.”

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

Tidying Up Tax Credits: Counties Usually Administer Their Own

MACo Associate Director Barbara Zektick testified in support of House Bill 89, “Property Tax Credit – Public Safety Officers – Administration”, before the Senate Budget and Taxation Committee on March 27, 2018. The bill shifts administrative responsibilities from the State Department of Assessment and Taxation (SDAT) to the counties.

Counties usually handle the administration of property tax credits that they are responsible for offering. This legislation simply places the administrative nature of this tax credit in line with others and gives this responsibility back to the counties.

The House passed the bill 135-0.

From MACo Testimony:

SDAT does not generally perform administrative duties for tax credit programs like this, and does not administer the public safety officer tax credit for Baltimore City. Counties prefer to exercise control over administrative functions pertaining to their own tax credits – particularly ones like this, where credit duration, amount, and eligibility requirements may vary from county to county. This is especially true considering that counties must reimburse SDAT for expenses incurred for performing these administrative functions. Counties prefer to manage these administrative functions, and their respective costs, themselves. SDAT’s involvement in this particular case merely adds intergovernmental bureaucracy where it is not necessary.”

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

Tallying The Targets at Tax Reform

After long nights of noodling over multiple, changing forecasts of additional revenues to the State and counties as a result of federal tax reform, the General Assembly appears to be teetering closer to watching and waiting, instead of acting to hold all taxpayers harmless – citing uncertainty as a primary reason for refraining from taking action this year.

On Tuesday, the budget conference committee released its final report, marking the end of negotiations over the State’s operating budget. The Senate finalized its budget decisions in mid-March, and the House finalized its decisions last week.

The report shows the Bureau of Revenue Estimate’s forecast of $547.1 million in additional income tax revenues coming to the State in fiscal 2019. Of that, $200 million is dedicated to future education costs. The report does NOT suggest passage of any particular pieces of legislation addressing tax reform, but rather, states “TBD.”

One bill impacting income tax revenues has advanced through both the House and Senate: HB 365 / SB 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 the State or counties. The House added language requesting an update to the Comptroller’s 60-Day Report, which the Senate voted to remove last Friday.

In addition, both houses have signed off on SB 646 / HB 308, Maryland Estate Tax – Unified Credit, which specifies that the value of the federal unified credit used to calculate the Maryland estate tax is equal to the amount corresponding to an applicable exclusion amount of $5.0 million. This increases general fund revenues by at least $38 million beginning in fiscal 2020.

The Senate has passed 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. This bill, if passed by the House, would have the most significant impact on state and local income tax revenues. The House did not factor this revenue into its version of the budget, and does not appear included in the Conference Committee’s final report.

Instead, the House factored in a handful of subtraction modifications, including:

 

  • HB 58, which, as amended, expands the existing pension exclusion by allowing the deduction of otherwise eligible employee retirement system income which has been rolled over to an IRA ($10 million in fiscal 2019);
  • HB 296, which expands the existing State subtraction modification for “Hometown Heroes” to correctional officers ($1.2 million in fiscal 2019);
  • 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 ($0 in fiscal 2019, but $32.4 million by fiscal 2023); and
  • HB 570, which as amended, indexes the Maryland standard deduction to cost of living ($5.3 million in fiscal 2019).

 

In addition, the Senate has passed 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 between the ages of 18 and 24 years. This is estimated to cost the State approximately $7.5 million in fiscal 2019, and $6-7 million annually thereafter. The House has passed HB 856, which only extends eligibility of the credit to individuals between ages 21 and 24 – and costs the State even less.

The Senate has also passed SB 134, the Administration’s Small Business Relief Tax Credit, which  creates a credit against the State income tax for a small business that employs fewer than 25 employees and provides specified employee benefits to a qualified employee who earns $30,000 or less a year. This is expected to cost the State $5 million in fiscal 2019 (with no carryover effect to local income tax revenues).

The House may still pass SB 318, increasing the standard deductions – and the Senate may pass some, or all, of the House’s subtraction modifications. The conference committee left a closing balance of $201.4 million, and the Spending Affordability Committee only set a closing balance goal of $100 million.

Conduit Street Podcast: Post-Crossover Roundup, School Construction, School Safety, and More!

On the latest episode of the Conduit Street Podcast, Kevin Kinnally and Michael Sanderson provide listeners with a roundup of MACo’s 2018 Legislative Initiatives, as well as a host of other bills MACo has weighed in on this year, discuss the latest on school construction, and examine the debate on school safety. 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.

Listen here:

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

Senate Sets to Amaze Amazon With $6.5 Billion

The Maryland Senate has approved an incentive plan to woo Amazon to Montgomery County, reports Bethesda Magazine. Legislative analysts value the package at $6.5 billion, with the State funding $5.6 billion, and Montgomery funding $924 million via property tax credits.

The Senate amended the bill so that the availability of the incentives terminate in 2022 if Amazon chooses another location.

From  Bethesda Magazine:

The Seattle-based tech company is choosing between the county and 19 other locations for its massive project. The language of the bill would have enabled any Fortune 100 company that plans to bring more than 40,000 workers and pay most of them at least $60,000 to qualify for the tax breaks. However, the change ensures the legislation only impacts Amazon should it choose to locate in Montgomery County.

The House of Delegates is considering a companion bill.