In the wake of the Tax Cuts and Jobs Act of 2017, the Maryland Chamber convened a task force (dubbed the Business Tax Task Force) to examine changes the federal government made to the federal tax code and how it would affect Maryland. In understanding the positive and negative ramifications, the task force produced legislative recommendations for the state to adopt in order to mitigate the negative impacts of this Act.
We focused on three areas that, if implemented, would help Maryland employers. These included: (1) a corporate income tax rate reduction from 8.25% down to 7% to be competitive with our neighbors (Virginia is at 6%); (2) an income tax subtraction modification for small businesses (pass-through entities) many of whom are currently taxed at the individual income marginal tax rate of 8.95%; and, (3) a private letter ruling process which will provide clarity to taxpayers avoiding over and under payment and other uncertainties.
We were successful in getting partial funding for the last provision (private letter rulings) during the 2019 Legislative Session. Since then, we have continued to engage our Business Tax Task Force, and have also begun meeting with policymakers in order to advance the other two legislative fixes as we plan for the 2020 session.
Maryland Chamber Business Tax Task Force Recommendations
Augustine Commission Recommendations (2016)
|Recommendations||Was it enacted? (as of 06/01/19)|
|Recommendation 1: Provide an individual income tax exemption for certain income of members of pass-through entities.||NO|
|Recommendation 2: Accelerate the phase-in of the currently planned increase in the refundable earned income tax credit.||N/A – The phase-in occurred in 2018|
|Recommendation 3: Reduce, over three years, the corporate income tax rate from 8.25% to 7.0%.||NO – we have been pushing this legislation since this recommendation came out|
|Recommendation 4: Provide single sales factor apportionment for all corporations.||YES –HB 1794 (2018)|
|Recommendation 5: Do not adopt combined reporting and indicate clearly the intent not to do so.||YES – we have been fighting year after year to stop combined reporting from being adopted|
|Recommendation 6: Adopt a policy that eliminates Maryland corporate income tax from being imposed on repatriated overseas earnings that have been taxed abroad, to the extent that the funds are invested in Maryland.||NO – we have been pushing this legislation since this recommendation came out|
|Recommendation 7: Accelerate to 2016 the timeframe for recoupling of the State estate tax exclusion amount to the federal estate tax exclusion amount.||PARTLY – we coupled then partially decoupled in 2018 to $5 million|
|Recommendation 8: Provide funds to implement a modern integrated tax system that enables better collection, analysis, and dissemination of tax data.||YES – beginning implementation in 2019|
|Recommendation 9: Rigorously evaluate tax incentive programs and make changes necessary to assure that these programs are effective.||YES – SB 843 (2016)|
|Recommendation 10: Provide sunset provisions when approving business tax credits and amend the Tax Credit Evaluation Act to provide for periodic review of tax credits well before the related sunset provisions take effect.||YES – SB 843 (2016)|
|Recommendation 11: Develop methods to better analyze and track claims for tax credits, particularly for tax credits that are filed electronically, and to report such information to the Governor and the General Assembly.||PARTLY – HB 365 (2018)|
|Recommendation 12: Reduce to the prime rate, over a three-year period, the interest rate for tax deficiencies and refunds.||PARTLY – HB 422 (2016) changed rate to 9% by 2023 but this is not the 5% sought by the Commission|
|Recommendation 13: Institute a private letter ruling process to provide tax guidance and adopt an appropriate administrative fee to be paid by the requesting taxpayer.||PARTLY – SB 843 (2016) but it wasn’t funded until 2019 (HB 100), and this appropriation is less than half of what was requested|
|Recommendation 14: Review State and local individual income tax rates and brackets to determine reductions that will reduce tax burdens and implement such reductions as soon as the State’s fiscal circumstances permit.||NO|
What does the federal Tax Cuts and Jobs Acts of 2017 do?
What did Maryland do in the 2018 Legislative Session in response to the federal tax law?
What happened during the 2019 Legislative Session?
Private Letter Ruling – We successfully managed to include $255,946 in general fund appropriations to pay for implementing a private letter ruling process. This was Recommendation 13 of the Augustine Commission, which was passed during the 2016 Legislative Session, however no funding mechanism was attached. (HB 110, Page 32)
Corporate Income Tax Rate – There were five bills in both the House and Senate, which would have reduced the corporate income tax rate by certain percentages over a period of time. The intent behind these bills was to reduce the cost of doing business in Maryland and make the state more competitive with its main rival to the south – Virginia (six percent corporate tax rate) and other states in the region. None of these bills advanced out of their initial committees.
Create an exemption for PTEs (Qualified Business Income Deduction) – A bill was introduced into the House and Senate which would have created a subtraction modification against the state income tax equal to the amount of qualified business income under Section 199A of the Internal Revenue Code. Small businesses could have claimed the subtraction modification and benefited from lower state and local income taxes. Neither bill advanced out of their respective committees.
For Maryland to be regionally competitive with its neighbors (see below), it needs to make meaningful reforms in both corporate and personal income tax rates.
Comparative Regional Metrics:
|State||Corporate||Individual Income||Sales||Max. Local Sales||Unemployment Insurance (2017)||Property (2015)||Tax Foundation rank|
|Maryland||8.25%||3.75% to 8.95%||6%||0%||0.3% to 7.5%||1.1%||43|
|Virginia||6%||2% to 5.75%||5.3%||0.7%||0.17% to 6.27%||0.78%||31|
|Delaware||8.7%||2.2% to 6.6%||0%||0%||0.1% to 8%||0.55%||15|
|West Virginia||6.5%||3% to 6.5%||6%||1%||1.5% to 7.5%||0.59%||19|
|District of Columbia||8.25%||4% to 8.95%||5.75%||0%||1.6% to 7%||0.57%||47|
|New Jersey||9% (>$100,000)||1.4% to 8.97%||6.625%||3.31%||0.5% to 5.8%||2.38%||50|
|Pennsylvania||9.99%||3.07%||6%||2%||2.801% to 10.8937%||1.54%||26|
The Maryland Chamber Tax Task Force will continue to meet and talk about pertinent tax issues in Maryland. We encourage you to get involved in tax issues here in the State of Maryland. If you are interested in sharing your expertise and shaping policy during the 2020 General Assembly Legislative Session, and beyond, join our taxation policy committee. For more information please email email@example.com.