LEGISLATIVE HANDBOOK SERIES VOLUME III MARYLAND’S REVENUE STRUCTURE • Maryland’s Revenue Structure Legislative Handbook Series Volume III 2018 For further information concerning this document contact: Library and Information Services Office of Policy Analysis Department of Legislative Services 90 State Circle Annapolis, Maryland 21401 Baltimore Area: 410-946-5400 • Washington Area: 301-970-5400 Other Areas: 1-800-492-7122, Extension 5400 TTY: 410-946-5401 • 301-970-5401 Maryland Relay Service: 1-800-735-2258 E-mail: [email protected] Home Page: http://mgaleg.maryland.gov The Department of Legislative Services does not discriminate on the basis of age, ancestry, color, creed, marital status, national origin, race, religion, gender, gender identity, sexual orientation, or disability in the admission or access to its programs, services, or activities. The Department's Information Officer has been designated to coordinate compliance with the nondiscrimination requirements contained in Section 35.107 of the Department of Justice Regulations. Requests for assistance should be directed to the Information Officer at the telephone numbers shown above. ii Foreword The consequences of State tax law affect a myriad of transactions ranging from typical consumer purchases to the financing of multimillion dollar bond issuances. Because legislators will be facing many important tax decisions, this handbook has been prepared to summarize the major features of Maryland’s revenue structure. Sections are devoted to key aspects of State imposed taxes. In addition, descriptions of nontax-related sources are included to provide background and insight into the funds that compose over half of the total revenues collected by the State. Of the estimated $44.6 billion in revenues supporting Maryland government expenditures in fiscal 2019, approximately $17.9 billion supports State general fund purposes. Two taxes − the individual income tax and the sales tax − constitute approximately 80% of general fund revenues. The remaining general fund revenues are derived primarily from other taxes, such as the corporate income tax and other business taxes, alcohol and tobacco taxes, death taxes and from the State lottery. Taxes and fees dedicated for specific purposes, known as special funds, will generate an estimated $9.1 billion in revenues in fiscal 2019. The primary special fund tax sources are the various transportation taxes and fees, the percentage of corporate income tax receipts dedicated for transportation purposes, the State property tax that is dedicated for debt service on general obligation bonds, and casino gaming. Other special fund revenues are derived from a variety of user fees and reimbursements to the State. Additionally, the State will receive almost $13.0 billion in federal funds designated for particular programs and approximately $4.6 billion in tuition, fees, and revenues from the State’s higher educational institutions. This is one of nine volumes of the 2018 Legislative Handbook Series prepared prior to the beginning of the General Assembly term by the Office of Policy Analysis, Department of Legislative Services. This volume was a combined effort of the staff of the department’s Office of Policy Analysis under the general direction and review of George H. Butler, Jr. and Heather N. Ruby. Contributors include Phillip S. Anthony, Sara J. Baker, Sierra S. Boney, Andrew D. Gray, Matthew B. Jackson, Jason A. Kramer, Heather M. Marchione, Steve D. McCulloch, Simon G. Powell, Robert J. Rehrmann, Rebecca J. Ruff, Michael D. Sanelli, Charity L. Scott, Kyle D. Siefering, Jared S. Sussman, Laura M. Vykol, Anne P. Wagner, Kenneth Weaver, and Tonya D. Zimmerman. Additional review was provided by Matthew J. Bennett and Ryan Bishop. This manuscript was prepared by Katylee M. Cannon, Maria S. Hartlein, Kamar Merritt, and Brett A. Ogden. iii The Department of Legislative Services trusts that this volume will be of use to all persons interested in the Maryland State government. The department welcomes comments on ways future editions may be improved. Victoria L. Gruber Ryan Bishop Executive Director Director, Office of Policy Analysis Department of Legislative Services Department of Legislative Services Maryland General Assembly Maryland General Assembly Annapolis, Maryland November 2018 iv Contents Foreword ........................................................................................................................... iii Exhibits .............................................................................................................................. ix Chapter 1. Overview of Revenue Structure .................................................................... 1 Maryland Revenue Sources ...................................................................................... 1 State Revenues by Fund Type .................................................................................. 6 Revenue Projections and Economic Outlook ........................................................... 9 Organization of the Handbook.................................................................................. 9 Chapter 2. Overview of Tax Revenue Sources ............................................................. 11 Maryland’s Tax Mix ............................................................................................... 11 Comparison to Taxes in Other States ..................................................................... 13 Chapter 3. Individual Income Tax ................................................................................. 19 Taxpayer ................................................................................................................. 19 Tax Base ................................................................................................................. 19 Valuation of Base ................................................................................................... 19 Tax Rates ................................................................................................................ 19 Computation of Tax ................................................................................................ 20 Special Provisions ................................................................................................... 22 Administration of Tax ............................................................................................. 34 Fines, Penalties, and Interest .................................................................................. 34 Local Taxing Authority .......................................................................................... 34 Revenues ................................................................................................................. 35 Comparison with Other States ................................................................................ 36 History of Major Changes ...................................................................................... 37 Chapter 4. Sales and Use Tax ......................................................................................... 43 Taxpayer ................................................................................................................. 43 Tax Base ................................................................................................................. 43 Valuation of Base ................................................................................................... 43 Tax Rates ................................................................................................................ 43 Special Provisions ................................................................................................... 44 Administration of Tax ............................................................................................. 48 Fines, Penalties, and Interest .................................................................................. 48 Local Taxing Authority .......................................................................................... 49 Revenues ................................................................................................................. 49 v vi Maryland’s Revenue Structure Comparison with Other States ................................................................................ 51 History of Major Changes ...................................................................................... 52 Chapter 5. Business Taxes .............................................................................................. 55 Corporate Income Tax ............................................................................................ 55 Public Service Company Franchise Tax ................................................................. 68 Insurance Premium Tax .......................................................................................... 73 Unemployment Insurance Contribution Tax .......................................................... 80 Business Organization Recording, Filing, and Organization and Capitalization Fees ...89 Chapter 6. Property Taxes .............................................................................................. 93 Real Property Tax ................................................................................................... 93 Personal Property Tax ........................................................................................... 107 Public Utility