The House of Delegates gave final approval this morning to legislation increasing state and local taxes by over $300 million and a related budget funding bill that will require local school boards to pay a portion of teacher pension costs. The House and Senate have adjourned their special session, and Governor O’Malley is expected to sign the bills into law next week. Detailed information is available regarding SB 1301 (BRFA bill) and SB 1302 (Tax bill), including copies of the bills, fiscal notes and votes, and special session materials provided by the Department of Legislative Services.
Maryland employers will benefit from some aspects of the enacted legislation, including restored funding for higher education and the Biotechnology Tax Credit. The Maryland Chamber also supported requiring local school boards to assume a portion of teacher pension costs as a means of containing state expenditures.
However, the following actions taken at the special session will cause Maryland to be a less competitive place to do business:
- Individual Income Tax Increase – Maryland’s top marginal individual income tax rate will increase to 8.95%, equaling the District of Columbia, and widening the tax rate gap with all surrounding states. Combined with a phase-out of personal exemptions, the bill will increase state and local individual income taxes by $278 million in FY 13. Overwhelmingly, business owners pay individual income taxes as sole proprietors, and owners of businesses organized as LLCs and S corporations.
- IWIF Raid – The BRFA bill allows the Governor to transfer $50 million from the Injured Workers’ Insurance Fund to the state general fund in FY 13, and additional unlimited amounts over the next 10 years based on a consultant’s study. The 21,000 Maryland employers that have built substantial reserves in IWIF through their workers compensation premiums will see those reserves siphoned off by the state for other uses.
- Recordation Tax on IDOTs – The cost of to obtain a loan will increase for small businesses as the county recordation tax will be imposed on indemnity mortgage deeds of trust of over $1 million.
- Repeal of Telecom Tax Credit – Maryland telecommunications companies will now have to pay real property taxes at rates 2.5 times all other property owners as a result of the repeal of a tax credit enacted originally in 1997.