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November 19, 2007

Special Session Results in $800 Million in New Business Taxes

The General Assembly concluded its 3 week special session today by enacting $1.4 billion in new taxes, $400 million in possible future state budget reductions, and authorizing slots at up to 5 locations, if approved at referendum by the voters in November of 2008. The share of new taxes paid by Maryland businesses will exceed $800 million. The final package of 6 bills differs significantly from the Governor’s original proposals, but should resolve the projected state general fund structural deficit and pump over $400 million annually into state transportation projects. See a detailed summary of the package prepared by the Department of Legislative Services here.

Corporate Taxes

  • The corporate income tax rate would increase from 7% to 8.25% effective for taxable years beginning after December 31, 2007.
  • Although combined reporting was defeated, a 17-member Maryland Business Tax Reform Commission will study changes to the state’s business taxes over the next 4 years. The Maryland Chamber of Commerce will have the only business member on the Commission.
  • New, extensive and onerous reporting requirements will be imposed on corporations as part of their corporate tax return or for publicly traded companies with any minimal business activity in Maryland, effective for taxable years beginning after December 31, 2005 (see pages 40 - 49 of SB 2).
Sales Tax
  • Sales tax rate increased from 5% to 6% effective January 3, 2008.
  • Vendor credit limited to $500 per return from January 3, 2008 to June 30, 2011
  • Vendors would be allowed to assume or absorb the sales tax.
  • Sales tax imposed on certain “computer services” from July 1, 2008 to June 30, 2013 (see pages 24 - 25 of SB 2).
Individual Income Tax
  • New brackets of:
    • 5% of income over $150,000 individual/$200,000 joint
    • 5.25% of income over $300,000 individual/ $350,000 joint
    • 5.5% of income over $500,000
  • Personal exemption is increased from $2,400 to $3,200, but phased-out at incomes above $125,000 individual and $175,000 joint.
Transportation
  • Titling tax increased from 5% to 6%, with a full trade-in allowance, for titles issued on or after January 1, 2008.
  • No gas tax increase.
  • Transportation to receive roughly 50% of the sales tax rate increase and other revenues for a total state transportation revenue increase of over $400 million annually.
Slots
  • Up to 15,000 video lottery terminals at no more than 5 locations.
  • Implementation of slots would be dependent on the passage of a state constitutional amendment at a referendum at the November 2008 election.
  • The state share of revenues would be dedicated to funding education aid, school construction and higher education construction.
Everything Else
  • Cigarette tax increased from $1 to $2 a pack effective January 1, 2008.
  • Transfer and recordation taxes will be imposed on transfers of controlling interests in business entities with Maryland real property as their primary asset, effective July 1, 2008.
  • Local governments would be authorized for the next 3 years to impose higher taxes on the equipment and machinery used to generate electricity, steam, or hot or chilled water for sale.
  • Higher education institutions will receive $16 million in fiscal year 2008 and $55.5 million in fiscal year 2009 in a Higher Education Investment Fund. Future funding would be dependent on legislation enacted in 2008.
  • State Medicaid eligibility would be increased to 116% of federal poverty guidelines, but services would be limited unless the state general fund achieves designated revenue targets. Employers with fewer than 10 employees who have not offered health insurance benefits within the past 12 months and agree to meet certain conditions would be eligible to receive a state subsidy to provide health insurance. Prominent health insurance carriers would be required to offer wellness programs in the small group market.
  • A Chesapeake Bay 2010 Trust Fund is established and annually funded at over $50 million of gas tax and rental vehicle revenues. The revenue from this special fund will be used by state and local agencies to pay for a variety of Chesapeake Bay-related projects.
See the enacted bills at the following links:

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