Comptroller of Maryland. Serving the People. Peter Franchot, Comptroller
Maryland Taxes
Maryland Taxes: Find all tax-related information and services. Maryland's Money: Resource for transparent financial reporting. Comptroller of Maryland: Information and resources for government agencies, state employees, vendors, and the general public. Media Services: Outlet for agency and Comptroller news. Online Services: Links to all agency online services and applications. Search Engine: Find it Fast! Translate the website to many languages Home Page

2007 Legislative Summary

The following is a summary of Maryland income tax legislation that was passed during the 2007 session of the General Assembly and signed into law by Governor Martin O'Malley. No bills affecting the sales and use tax, admissions and amusement tax and estate tax were passed.(except for a clarification affecting conservation easements in estate tax matters). All references are to the Tax-General Article (TG), Annotated Code of Maryland, unless otherwise noted. For information about other tax legislation, visit the Maryland General Assembly's Web site

INCOME TAX

Expensing of Section 179 Property

House Bill 22 (Chapter 587, Acts of 2007) - Income Tax - Expensing of Section 179 Property

This Act amends Tax-General Article 10-210.1 to clarify that the state is "decoupled" from the increased expensing allowed under Section 179 of the Internal Revenue Code as enacted by the federal Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA). Previously, the state decoupled from increasing Section 179 expensing allowed by the federal Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA) and the American Jobs Creation Act (AJCA) of 2004. Accordingly, taxpayers are required to make an adjustment to Maryland adjusted gross income to reflect the changes made to the maximum aggregate cost of expensing enacted by JGTRRA, AJCA and TIPRA.

Prior to JGTRRA, businesses could expense up to $25,000 under Section 179. The amount that could be expensed was reduced on a dollar-for-dollar basis by the amount by which the cost of qualifying property exceeded $200,000. Therefore, capital investments over $225,000 did not qualify. For Maryland tax purposes, these pre-JGTRRA limits are still in effect for tax year 2007.

JGTRRA amended Section 179 to increase the maximum amount of expensing to $100,000 and the phase-out to $400,000, allowing purchases of qualifying property up to $500,000 in cost to qualify. JGTRRA applied to tax years 2003 through 2005. AJCA extended JGTRRA's provisions to tax year 2006 and 2007, while TIPRA extended increased expensing for small businesses to tax year 2008 and 2009.

The federal Small Business and Work Opportunity Tax Act of 2007 (SBWOTA) was signed into law on May 25, 2007. It increases the maximum amount of expensing to $125,000 and the phase-out to $500,000, beginning in tax year 2007 and extending through tax year 2010. Pursuant to Tax-General Article 10-108, Maryland is "decoupled" from the increased expensing provisions of SBWOTA for tax year 2007.

For Maryland tax purposes, taxpayers are only allowed to expense up to $25,000, reduced dollar-for-dollar by the amount over $200,000, of the cost of depreciable tangible personal property that is purchased for use in the active conduct of a trade or business for tax year 2007.

This Act shall take effect July 1, 2007, and shall be applicable to all taxable years beginning after December 31, 2006.

Military Retirement Income

House Bill 392 (Chapter 553, Acts of 2007) and Senate Bill 419 (Chapter 552, Acts of 2007) - Income Tax - Subtraction Modification - Military Retirement Income for Commissioned Officers

These Acts expand the existing military retirement income subtraction modification by allowing individuals who retired before July 1, 1991 from active duty with the Commissioned Corps of the Public Health Service, the National Oceanic and Atmospheric Administration (NOAA), or the Coast and Geodetic Survey to qualify for the subtraction modification.

Chapter 226 of 2006 expanded a $2,500 military retirement income subtraction that was limited to enlisted military members with a federal adjusted gross income of $22,500 or less. Chapter 226 provided for an exemption of the first $5,000 of military retirement income from state taxation if the retirement income resulted from:

  • Service in an active or reserve component of the armed forces of the United States;
  • Service in the Maryland National Guard; or
  • Separation after July 1, 1991 from active duty with the Commissioned Corps of the Public Health Service, NOAA or the Coast and Geodetic Survey. Military retirement income exempted under this provision cannot be counted towards the state pension exclusion.

Pursuant to this Act, individuals who retire from active duty with the Commissioned Corps of the Public Health Service, the National Oceanic and Atmospheric Administration (NOAA), or the Coast and Geodetic Survey qualify for the subtraction modification regardless of their date of retirement.

This Act shall take effect July 1, 2007, and shall be applicable to all taxable years beginning after December 31, 2006.

Solar Energy Devices

House Bill 590 (Chapter 615, Acts of 2007) - State Taxes - Solar Energy Grants and Devices

This Act creates a new subtraction modification under Tax-General Article 10-207 for an amount received as a grant under the Solar Energy Grant Program under 9-2007 of the State Government Article. Chapter 128 of 2004 created a Solar Energy Grant Program administered by the Maryland Energy Administration which provides funding for a portion of the costs to install certain qualifying solar energy systems:

Solar water heating property: 20 percent of system costs up to a maximum grant amount of $2,000; Residential photovoltaic property: 20 percent of system costs up to a maximum grant amount of $3,000; and Non-residential photovoltaic property: 20 percent of system costs up to a maximum grant amount of $5,000.

This Act shall take effect June 1, 2007, and shall be applicable to all taxable years beginning after December 31, 2006.

Heritage Structure Rehabilitation Tax Credit

House Bill 598 (Chapter 567, Acts of 2007) and Senate Bill 613 (Chapter 566, Acts of 2007)

These Acts make several significant changes to the Maryland Heritage Structure Rehabilitation Tax Credit Program as follows:

  • Extend Program Termination Date and Funding: These Acts extend the program's termination date through fiscal year 2010 for commercial and owner-occupied residential property rehabilitations. The Acts do not require or suggest an amount that should be appropriated in each year.
  • Alter Geographic Restrictions: These Acts amend prior law which required the Director of the Maryland Historical Trust to adopt regulations to ensure tax credits were awarded in a manner that reflected the geographic diversity of the State. Pursuant to these Acts, the Director is now required instead to adopt regulations that favor the award of tax credits for rehabilitation projects located in jurisdictions that have been historically underrepresented in the award of tax credits for commercial rehabilitations, based on the number of structures in each jurisdiction that are either listed on the National Register of Historic Places (NRHP), or located in a historic district listed on the NRHP and certified by the Director of the Maryland Historical Trust as contributing to the significance of the district. In addition, these Acts increase from 50 percent to 75 percent the maximum percentage of the total credit amounts under initial credit certificates issued for any fiscal year that may be issued for projects in a single county or Baltimore City. If, as a result of the 75 percent limitation, the total of the credit amounts under initial credit certificates issued is less than the amount appropriated for the fiscal year to the Heritage Structure Rehabilitation Tax Credit Reserve Fund, the excess amount may be issued under initial credit certificates for projects in a county or Baltimore City in the same fiscal year, without regard to the 75 percent limitation.
  • Eliminate Set Aside: These Acts eliminate the requirement that at least 10 percent of all commercial credits be awarded to nonprofit organizations.
  • Extend Rehabilitation Deadline: Under current law, any initial credit certificate issued for a commercial rehabilitation project expires if the project is not completed by the end of the fiscal year following the fiscal year in which the certificate was issued. These Acts extend this deadline by providing that an initial credit certificate issued for a commercial rehabilitation would not expire until 30 months after the issuance of the certificate. The Maryland Historic Trust can extend this deadline as provided under current law.
  • Alter Administrative Aspects: These Acts extend the fee charged to certify the rehabilitation of commercial projects to residential rehabilitations. The Maryland Historic Trust must adopt criteria that are consistent with the rehabilitation standards of the U.S. Secretary of the Interior. These Acts eliminate the requirement that the Maryland Historic Trust can only accept commercial rehabilitation applications between January 1 and March 31 of each fiscal year.

Distributions from Deferred Compensation Plans, Retirement Plans, and Annuities House Bill 776 (Chapter 433, Acts of 2007) - Income Tax Withholding - Distributions from Deferred Compensation Plans, Retirement Plans, and Annuities

This Act amends Tax-General Article 10-905, 10-907(b), and 10-908(c). All of these amendments are to specifically address Maryland withholding treatment for "Designated Distributions" as defined in IRC 3405(e) other than those Designated Distributions that are considered Eligible Rollover Distributions within the meaning of IRC 3405.

The amendment to Tax-General Article 10-905 adds "Annuity, Sick Pay, and Retirement Distribution" as a new defined term. This term means:

  • An Annuity or Sick Pay payment described in IRC 3402(o), or
  • A Designated Distribution as defined in IRC 3405(e) other than an eligible rollover distribution within the meaning of IRC 3405(c).

Under IRC 3402(o)(2), "Annuity" is defined to mean any amount paid to an individual as a pension or annuity and "Sick Pay" is defined to mean any amount paid to an employee pursuant to a plan to which the employer is a party, and constitutes remuneration or a payment in lieu of remuneration for any period during which the employee is temporarily absent from work on account of sickness or personal injuries. Under IRC 3405(e), "Designated Distribution" is defined to include certain types of distributions or payments from an employer deferred compensation plan, and individual retirement account (as defined in IRC 7701(a)(37) or a commercial annuity.

The bill also amends Tax-General Article 10-905 to provide that the term "Payment Subject to Withholding" includes an Annuity, Sick Pay, or Retirement Distribution (the words "Retirement Distribution" having been added).

The amendment to Tax-General Article 10-907 provides that unless a payee specifically asks that income tax be withheld from an Annuity, Sick Pay, or Retirement Distribution, income tax is not required to be withheld from that payment.

The amendment to Tax-General Article 10-908 provides that a payor must withhold only the amount from an Annuity, Sick Pay, or Retirement Distribution that the payee specifically requests to withhold from the payment.

This Act shall take effect July 1, 2007.

Repeal of Income Tax Withholding for Nonresident Contractors House Bill 1143 (Chapter 640, Acts of 2007) - Income Tax Withholding - Nonresident Contractors

This Act repeals Tax-General 13-803 "Withholding portion of contract price of nonresident contractors pending verification of payment of taxes." Pursuant to this Act, persons, including business entities, who enter into contracts or subcontracts to improve real property with nonresident contractors for $50,000 or more, if the total value of the improvement is $500,000 or more, will no longer be required to withhold 3 percent of the total contract price upon completion of the contract pending receipt of a Tax-Clearance Certificate from the Comptroller.

This Act shall take effect July 1, 2007, and shall be applicable to contracts entered into on or after July 1, 2007.

Maryland Research and Development Tax Credit
House Bill 1197 (Chapter 90, Acts of 2007) - Business and Economic Development - Maryland Research and Development Tax Credit

This Act clarifies that Maryland Research and Development Tax Credits would still be available if the federal Research and Development Tax Credit Program is repealed or terminated. Pursuant to this Act, Tax-General Article 10-721 is amended to provide that if the provisions of 41 of the Internal Revenue Code governing the federal Research and Development Tax Credit are repealed or terminate, the provisions of Tax-General Article 721 continue to operate as if the provisions of 41 of the Internal Revenue Code remain in effect, and that the Maryland Research and Development Tax Credit under Tax-General Article 721 shall continue to be available.

The federal Research and Development Tax Credit temporarily expired on December 31, 2005 and was not extended until the Tax Relief and Health Care Act of 2006 (P.L. 109-432) was passed in December 2006. The Act extended the credit retroactively to January 1, 2006 and through tax year 2007. With the retroactive extension, all of the qualifying research and development expenses incurred by companies could be claimed in tax year 2006. The temporary extension of the credit was the 12th temporary lapse in the credit in its 25-year history.

Tax-General Article 10-721 is tied inextricably to 41 of the Internal Revenue Code governing the federal Research and Development Tax Credit. As a result, if the federal Research and Development Tax Credit were to be repealed or terminated, the provisions of Tax-General Article 10-721 would have no foundation under federal law.

This Act shall take effect July 1, 2007.

Captive Real Estate Investment Trusts

House Bill 1257 (Chapter 584, Acts of 2007) and Senate Bill 945 (Chapter 583, Acts of 2007) - Income Tax - Captive Real Estate Investment Trusts

This Act provides for a new addition modification to be added as Tax-General Article 10-306.2. Under this section, an addition modification would be required to determine the Maryland modified income of a "Captive Real Estate Investment Trust" in an amount equal to the amount of the dividends paid deduction allowed under the Internal Revenue Code for the taxable year. The effect of this Act is to limit a company's ability to avoid the Maryland corporate income tax by shifting income away from the state through the use of a Captive Real Estate Investment Trust (REIT). Pursuant to this Act, for state income tax purposes, the dividends paid deduction allowed under the Internal Revenue Code for a Captive Real Estate Investment Trust (REIT) would be disallowed.

The Act defines a Captive REIT as:

  • A corporation, trust, or association that is a REIT under 856 of the Internal Revenue Code;
  • Is not regularly traded on an established securities market; and
  • More than 50 percent of the voting power or value of the beneficial interests or shares of which is owned or controlled, indirectly or directly, at any time during the last half of the tax year by a single entity that is subject to the provisions of Subchapter C of Chapter 1 of the Internal Revenue Code.

However, a Captive REIT does not include:

  • A REIT that does not meet the three conditions specified for a Captive REIT as discussed above;
  • A person exempt from taxation under 501 of the Internal Revenue Code;
  • A listed Australian property trust; or
  • Subject to regulations adopted by the Comptroller, a REIT that is intended to become regularly traded on an established securities market and that meets the requirements of 856(a)(5) and (6) of the Internal Revenue Code by reason of 856(h)(2) of the Internal Revenue Code.

In addition, for purposes of this Act, the constructive ownership rules prescribed under 318(a) of the Internal Revenue Code, as modified by 856(d)(5) of the Internal Revenue Code, shall apply in determining the ownership of stock, assets, or net profits of any person.

This Act shall take effect July 1, 2007, and shall be applicable to all taxable years beginning after December 31, 2006.

Earned Income Tax Credit and Guaranteed Access Grant

Senate Bill 834 (Chapter 491, Acts of 2007) - Delegate Howard P. Rawlings Program of Educational Excellence Awards - Guaranteed Access Grants - Eligibility Determination

This Act prohibits the Office of Student Financial Assistance from considering an amount received as an earned income credit when determining the financial need of an applicant for a Guaranteed Access Grant. Prior to this Act, in order to determine the financial need of applicants for state financial aid under the Educational Excellence Award Program, which includes Guaranteed Access Grants, the Office of Student Financial Assistance used the Free Application for Federal Student Aid (FAFSA), which includes any earned income credit amounts received by an applicant.

This Act shall take effect July 1, 2007.

Tax Credit for Individuals Facing Employment Barriers

Senate Bill 1033 (Chapter 370, Acts of 2007) - Tax Credit for Individuals Facing Employment Barriers - Sunset Extension

This Act extends the termination provision and dates of applicability of the tax credits for wages and child care expenses for qualified employment opportunity employees. The termination provision is extended from June 30, 2007 to June 30, 2008. The dates of applicability are extended to all taxable years beginning before January 1, 2011 and to employees hired before July 1, 2008.

Subject to the limitations of Tax-General Article 10-704.3, any excess credit may be carried forward and be applied as a credit for taxable years beginning on or after January 1, 2011.

In addition, this Act extends the termination provision and dates of applicability of the credit under Tax-General Article 10-704.7 for wages, child care, and transportation for qualified employees with disabilities. The termination provision is extended from June 30, 2007 to June 30, 2008. The dates of applicability are extended to all taxable years beginning before January 1, 2011 and to employees hired before July 1, 2008. Subject to the limitations of the Educational Article 21-209, any excess credit may be carried forward and may be applied as a credit for taxable years beginning on or after January 1, 2011.

Finally, this Act also repeals Article 88A - Department of Human Resources, 54 - Tax Credits for Wages and Child Care Expenses for Qualified Employment Opportunities, and reenacts the same by amending Tax-General Article 10-704.3 to include those provisions as 10-704.3(a) through (i). As a result, former 10-704.3(a) and (b) become (j) and (k), respectively.

This Act will take effect July 1, 2007.

ESTATE TAX

Donations of Conservation Easements

House Bill 187 (Chapter 19, Acts of 2007) and Senate Bill 219

This Act clarifies that the personal representative of an estate may donate a conservation easement on real property if the donation is authorized under the will. A fiduciary, or the trustee of a trust, may donate, or consent to the donation of, a conservation easement on real property if the donation is authorized under the governing instrument. The donation of a conservation easement on real property qualifies as a federal estate tax exclusion.

This Act becomes effective October 1, 2007 and can be applied retroactively to a conservation easement donation from an estate of a decedent who died on or after January 1, 1998.



 
Links for Legislative Summaries
Tax Law and Regulations
State Regulations
Legislative Summaries
  2013 Legislative Summary
  2012 Legislative Summary
  2011 Legislative Summary
  2010 Legislative Summary
  2009 Legislative Summary
  2008 Legislative Summary
  2007 Legislative Summary
  2014 Legislative Summary
 
Download for Adobe Reader

Maryland.gov Homepage