Maryland Tax Law Changes

The SALT Shaker

 On May 22, 2012 Governor O’ Malley signed the legislative bills passed in the Regular and Special Sessions of the legislature.  Earlier this week I sent information regarding the tax law changes from the Special Legislative session. Copied below is a summary of the tax bills from the Regular session of the Legislature.

 General Tax Laws

Credit for cost of security clearances. L. 2012, S296 (c. 478), effective 07/01/2012, allows a credit against income tax for the costs incurred to obtain federal security clearances and for construction and equipment costs incurred to construct or renovate a sensitive compartmented information facility, subject to certain limits. It provides for applications to the Department of Business and Economic Development for approval of the credit and certification by the Department to taxpayers of approved credit amounts.

Discharge of certain indebtedness related to principal residence. L. 2012, H600 (c. 545), effective 07/01/2012 and applicable to tax years beginning after 12/31/2012, allows a subtraction modification from the federal adjusted gross income of Maryland residents in determining their Maryland adjusted gross income for the amount that would have been allowed for indebtedness discharged for qualified principal residence indebtedness under the federal Mortgage Forgiveness Debt Relief Act of 2007, as amended, before the expiration of that Act on December 31, 2012. The amount of the subtraction modification is limited to $1 million for individuals, or $2 million for married couples filing jointly, household heads, or surviving spouses. This bill requires an addition modification to federal adjusted gross income for taxpayers who sold or exchanged property for which that subtraction modification has been claimed. The amount of the addition modification is equal to the difference between the taxpayer’s federal adjusted gross income as reportable under the federal Mortgage Forgiveness Debt Relief Act of 2007, as amended, before the expiration of that Act on December 31, 2012, and the taxpayer’s federal adjusted gross income as claimed in the tax year.

Condemnation payments. L. 2012, S807 (c. 587), effective 07/01/2012 and applicable to tax years beginning after 12/31/2011, allows a subtraction modification from the federal adjusted gross income of Maryland residents in determining their Maryland adjusted gross income for the amount of gain resulting from a payment made by the Maryland Department of Transportation to an individual for the acquisition of a portion of the individual’s property on which his or her principal residence is located. The amount of the subtraction modification cannot exceed the amount that can be excluded from income for the condemnation of an individual’s principal residence under IRC § 121.

Exclusion from gross estate of value of certain agricultural property. L. 2012, H444 (c. 449), effective 07/01/2012 and applicable to decedents dying after 12/31/2011, alters the determination of the Maryland estate tax by excluding from the value of gross estate up to $5 million of the value of qualified agricultural property. Qualified agricultural property means real or personal property used primarily for farming purposes that passes from the decedent to or for the use of a qualified recipient. A qualified recipient is an individual who enters into an agreement to use qualified agricultural property for farming purposes after the decedent’s death. It limits the Maryland estate tax imposed on the Maryland estate of a decedent if the value of qualified agricultural property that passes from the decedent to or for the use of a qualified recipient exceeds $5 million. It also provides for the recapture of the estate tax if the qualified agricultural property ceases to be used for farming purposes within 10 years after the decedent’s death.

Qualified conservation program applicant’s expenses. L. 2012, H975 (c. 693), effective 07/01/2012 and applicable to tax years beginning after 12/31/2011, allows a subtraction modification from the federal adjusted gross income of Maryland residents in determining their Maryland adjusted gross income for up to $500 of qualified conservation program expenses paid by an individual who applies to enter into a forest conservation and management plan with the Department of Natural Resources, if the individual’s application is approved by the Department.

Income tax refund withholding L. 2012, S8 (c. 451), effective 10/01/2012 until 09/30/2013, authorizes a warrant official to certify to the Comptroller the existence of an outstanding warrant to an individual who is a resident of Anne Arundel County or has an outstanding warrant from Anne Arundel County requesting the Comptroller to withhold any refund to which the individual is entitled. It exempts an individual who is an active duty member of the Armed Forces of the United States or who files a joint Maryland income tax return.

Alcoholic beverages—calculation of tax.  L. 2012, S852 (c. 597), effective 07/01/2012 , imposes the sales and use tax rate of 6% on a mandatory gratuity charge or service charge in the nature of a tip for serving food or any type of beverage to a group of more than 10 individuals. The bill also provides that the sales and use tax rate is 6% of a charge for labor, materials, or property used in connection with the sale of an alcoholic beverage that is separately stated.

Sales/Use Tax Exemptions

Machinery and equipment—Energy Star windows and doors. L. 2012, S40 (c. 456), effective 07/01/2012 , exempts from the sales and use tax sales of machinery and equipment to be used directly and predominantly to produce Energy Star windows or Energy Star entry doors for residential real property, and electricity, fuel and other utilities used to operate the machinery or equipment.

Exemption—veterans’ organizations. L. 2012, S19 (c. 452), effective 06/01/2012 , repeals the termination provision applicable to a sales and use tax exemption for sales to veterans’ organizations or an auxiliary of the organizations if the organization is exempt under IRC § 501(c)(4) or IRC § 501(c)(19). Prior to this legislation, the exemption was set to expire on June 30, 2012.

Tax Credits – Extended, Modified and Evaluated

Employees with disabilities credit extended. L. 2012, S167 (c. 467), effective 06/01/2012 and applicable to all taxable years beginning before 01/01/2016, extends the sunset date for the credit for employing qualifying employees with disabilities for individuals hired through June 30, 2013 (previously through June 30, 2012). The bill also extends the time that any excess credit may be carried forward and applied as a credit for taxable years beginning on or after January 1, 2016 (was January 1, 2015). Finally, the bill provides that the credit will be abrogated at the end of June 30, 2013 (was June 30, 2012).

Job creation credit for specific industries extended. L. 2012, H1107 (c. 522), effective 07/01/2012, extends the sunset date for the job credit for specific industries in revitalization areas to January 1, 2020 (previously, January 1, 2014). The bill also provides that after termination of the credit, a business entity may be considered for eligibility for the tax credit based on positions filled before termination of the credit if the other requirements of the credit are satisfied.

One Maryland economic development credit. L. 2012, H1289 (c. 715), effective 07/01/2012 and applicable to all taxable years beginning after 12/31/2010, amends the One Maryland economic development credit’s definition of “qualified distressed county” to include counties with unemployment rates at least two percentage points higher than the state average. The bill also authorizes qualified business entities to claim a prorated share of the One Maryland tax credits awarded by the Department of Business and Economic Development is specified circumstances. The amended definition of “qualified distressed county” terminates on June 30, 2016.

Sustainable communities tax credit. L. 2012, H568 (c. 668), effective 07/01/2012, allows the sustainable communities tax credit to be allocated among the partners, members, or shareholders of an entity in any manner agreed to by those persons in writing. The bill provides that this provision does not apply to any commercial rehabilitation project for which an application was approved by the Maryland Historic Trust before the effective date of the bill.

Tax credit evaluation act. L. 2012, H764 (c. 569), effective 07/01/2012, enacts the Tax Credit Evaluation Act to establish a process for evaluating state tax credits over a 4-year period from July 1, 2014 through July 1, 2017. Credits included in the evaluation are: the enterprise zone; taxes paid to another state; installment sales; earned income; film production activity; job creation; sustainable communities; neighborhood and community assistance contributions; qualified employees with disabilities; Maryland-mined coal; businesses that create new jobs; certain residential real estate property; telecommunication business property; poverty level; employer-provided long-term care insurance; work-based learning program; One Maryland economic development; employment; employee commuter benefits; child and dependent care expenses; quality teacher incentive; long-term care insurance; clean energy incentive; research and development; green buildings; preservation and conservation easements; aquaculture oyster floats; biotechnology investment; cellulosic ethanol technology; bio-heating oil; and qualified electric vehicle recharging property. The bill also repeals the credit for long-term employment of ex-felons.

The SALT Shaker is prepared by Andy Bareham, Chair of the KatzAbosch SALT Group

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