Sweeping Tax Changes OK’d In Legislature’s Special Session

BERLIN – While the slots issue garnered the most attention from local residents during the three-week General Assembly special session that concluded in the wee hours of the morning on Monday, sweeping tax reforms and other measures approved by the state legislature could have an equal or greater impact in the long run.

The General Assembly special session adjourned early Monday with the approval for a statewide referendum on slots approved as well as a considerable number of changes in the tax structure in the state. Gov. Martin O’Malley’s broad tax reform package made it through relatively unscathed for the most part although there were concessions made on both sides of the aisle.

The most glaring change from a local standpoint will likely be an increase in the sales tax. Local opposition to the sales tax increase from the beginning has cited the resort area’s proximity to sale tax-free Delaware, and although the sales tax increase from 5 cents on the dollar to 6 cents on the dollar represents just a penny on the surface, in reality it amounts to a 20-percent increase. According to the state’s Department of Legislative Services, the sales tax increase will cost the typical family of four in Maryland about $190 a year.

Delegate Jim Mathias (D-38B) said this week he voted against the sales tax for those very reasons, although he said he was pleased the tax increase would not be levied on certain services previously not taxed such as property management services.

“I couldn’t in good conscience vote for the sales tax increase, but I am happy some of the services it would have applied to were taken out of the equation,” he said. “They did extend it to cover computer repair services, but I’m not sure to what extent that will affect most people in our district.”

Another component of the tax reform package was an adjustment in the personal income tax structure, which was pitched as a savings for low to middle income families with higher income families paying a larger share of the burden. The income tax restructuring was approved with some changes. For example, the rate was left the same for individuals earning less than $150,000 and couples making less that $200,000, but goes up on a graduated scale for earners making more than those thresholds.

Mathias said he voted for the personal income tax reforms for a variety of reasons, but most importantly because he felt it helped the majority of residents in his district.

“I voted for the income tax structure changes because I believe they are favorable to the average person in Worcester and Wicomico counties,” he said.

Also approved was a measure doubling the tax on a pack of cigarettes from $1 per pack to $2 and an increase in the new vehicle titling tax from 5 percent to 6 percent although an exemption was included on the value of trade-ins. Another objective accomplished in the special session was closing loopholes in the corporate tax structure including increasing the rate from 7 percent to 8 percent. In the end, state lawmakers increased the rate to 8.25 percent and split the anticipated revenue increase between the general fund and higher education.

Most of the tax and fee increases approved during the session will be directed at specific programs. For example, the legislature approved sweeping changes in health care which could provide coverage to 100,000 uninsured residents in Maryland and expand Medicaid benefits for thousands more.

State lawmakers also approved increasing transportation funding by about $400,000 a year through the corporate and vehicle titling tax increases.