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2009 State Legislative Summary

The following links offer summaries of Maryland tax legislation that was passed during the 2009 session of the General Assembly and signed into law by Governor Martin O'Malley. 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 website.

INCOME TAX


SB552: Tax Amnesty Program

Senate Bill 552(Chapter 277, Acts of 2009)

This Act requires the Comptroller to declare an amnesty period from September 1, 2009 to October 30, 2009, both inclusive, during which the Comptroller shall waive all civil penalties (except previously assessed fraud penalties) and one-half of the interest that would have been imposed on certain delinquent taxpayers for nonreporting of tax liability, underreporting of tax liability, and nonpayment of tax liability.


The waiver of civil penalties and interest under this amnesty program generally applies to a delinquent taxpayer who:

  1. on or before December 31, 2008, failed to file a return required or pay the tax imposed for individual income tax, corporate income tax, withholding tax, sales and use tax, or admissions and amusement tax; and
  2. during the tax amnesty period, files a delinquent return, pays the tax due under the return or has an agreement with the Comptroller to pay the tax due in accordance with the terms and schedules established in the agreement.

The Comptroller has the discretion as to whether the Comptroller is to enter into an agreement. The Comptroller further has the full discretion as to the terms and schedule for payment set forth under the agreement, provided that the delinquent tax under the agreement shall be paid in full on or before December 31, 2010. The waiver of civil penalties and interest under the agreement does not apply to interest accrued for periods after October 30, 2009. The waiver of civil penalties and interest under the agreement is void if the taxpayer fails to comply strictly with the terms and schedule for payment under the agreement.


This amnesty program does not apply to:

  • any taxpayer that, as of September 1, 2009, has more than 500 employees in the United States or is a member of a corporate group that has more than 500 employees in the United States;
  • any tax for which a taxpayer was granted amnesty under the 2001 Maryland tax amnesty program; or
  • any taxpayer who was eligible for the July 1, 2004, through November 1, 2004, Settlement Period, as provided in Chapter 557 of the Acts of 2004, regardless whether or not the taxpayer participated in the Settlement Period.

A taxpayer will not be charged with a criminal tax offense arising out of any return filed and tax paid during the amnesty period, except for:

  • any criminal charges pending in the courts of the State; or
  • any criminal charges under investigation by an office with the constitutional authority to prosecute a person for violation of criminal laws.

The Comptroller, on or before March 15, 2010, shall report to the Governor the revenues raised under this amnesty program.


This Act takes effect June 1, 2009.

SB554: Tax Amnesty Program

Senate Bill 554 - House bill 176 (Chapter 280, Acts of 2009)

This Act adds §9-1108 to the Environment Article to prohibit a person from installing, or having installed, on property a person owns in the State in the Chesapeake and Atlantic Coastal Bays Critical Area, an on-site sewage disposal system to service a newly constructed building, unless the on-site sewage disposal system utilizes nitrogen removal technology. The Act also prohibits a person from replacing or having replaced, an existing on-site sewage disposal system on property a person owns in the State in the Chesapeake and Atlantic Coastal Bays Critical Area, unless the replacement on-site sewage disposal system utilizes nitrogen removal technology. The Act defines "nitrogen removal technology" as the best available technology for nitrogen removal. The Act also defines "on-site sewage disposal system" as a sewage treatment unit, collection system, disposal area, and related appurtenances.


The Act provides that the Department of the Environment shall assist homeowners in paying the cost difference between a conventional on-site sewage disposal system and a system that utilizes nitrogen removal technology with money from the Bay Restoration Fund if sufficient funds are available. This must be done in accordance with §9-1605.2(h) of the Environment Article.


The Act also provides that a person who installs or replaces a system not utilizing nitrogen removal technology is subject to civil and administrative penalties and enforcement mechanisms provided in §§9-334 through 9-342 of the Environment Article. The penalties cannot exceed $8,000.


The Act also provides that the Department of the Environment must adopt regulations and that the regulations shall include provisions to ensure that appropriate management measures are provided for the operation and maintenance of nitrogen removal technology.


The Act also provides for a new subtraction modification, codified as Tax-General Article §10-208(q). An individual will be allowed a subtraction for the amount by which the cost difference between a conventional on-site sewage disposal system and a system that utilizes nitrogen removal technology exceeds the amount of assistance the individual receives from the Department of the Environment under §9-1108 of the Environment Article.


This Act takes effect October 1, 2009, but the subtraction modification in Tax-General Article §10-208(q) will be applicable to all taxable years beginning after December 31, 2009.

SB604: Tax Credits for Qualifying Employees with Disabilities - Sunset Extension

Senate Bill 604 (Chapter 290, Acts of 2009)

This Act extends by one year the termination provision and dates of applicability of the tax credit that an employer may claim, pursuant to §10-704.7 of the Tax-General Article, for wages, child care and transportation expenses for qualified employees with disabilities The new termination date for this Qualifying Employees with Disability Tax Credit is June 30, 2010.


This Act takes effect on June 1, 2009.

SB698-HB883: Income Tax Refund - Direct Deposit - Multiple Accounts

Senate Bill 698 - House Bill 883 (Chapter 593, Acts of 2009)

These Acts are cross-filed and are identical. These Acts add §13-905(f) to the Tax-General Article to require the Comptroller to directly deposit portions of an income tax refund into at least two accounts at one or more financial institutions, if requested by a refund claimant.


These Acts will take effect January 1, 2011.

SB800-HB493: Changes to Biotechnology Investment Incentive Tax Credit

Senate Bill 800 - House Bill 493 (Chapter 605, Acts of 2009)

These Acts were cross-filed bills and are identical. The Acts amend the Biotechnology Investment Incentive Tax Credit, found in §10-725 of the Tax-General Article. These Acts first clarify that a qualified investor includes both an individual and entity. Second, these Acts provide that a tax credit under this section must be claimed for the taxable year in which the investment in a qualified Maryland biotechnology company is made. Following this change, the Acts delete obsolete language from the statute regarding when the investor could redeem a final credit certificate.


The Acts change the language of the recapture found in §10-725(f) to conform with the timing of the credit. The language is changed from the taxable year in which the credit is approved to the taxable year for which the credit is claimed.


Finally, the Acts make a change to enacted Chapter 518 of the Acts of 2008. The Acts provide that Chapter 518 remains effective as of July 1, 2008, but removes the language that the Chapter applies to all taxable years after December 31, 2008. The Acts provide that for Chapter 518, a tax credit for an investment under §10-725 of the Tax-General Article as amended by these Acts shall be claimed for the taxable year in which the investments were made.


This Act takes effect July 1, 2009.

SB909: Workplace Fraud Act of 2009

Senate Bill 909 - House Bill 819 (Chapter 188, Acts of 2009)

This Act establishes a presumption that work performed by an individual paid by an employer creates an employer-employee relationship, unless the employer can show that the individual is an exempt person or an independent contractor, as defined by the statute established under this Act and the classifying regulations that the Commissioner of Labor and Industry (the "Commissioner") of the Department of Labor, Licensing, and Regulation (DLLR) shall issue.


This Act specifically prohibits an employer in the construction services and landscaping services industries from:

  • improperly misclassifying an employee; or
  • knowingly misclassifying an employee.

This Act sets forth the procedures and penalties for employer noncompliance that three areas of State government-labor and industry, workers' compensation, and unemployment insurance-may enforce. Any one of these three government units may impose civil penalties on an employer who is found to have improperly or knowingly misclassified employees. But only one set of penalties may be assessed against an employer who violates any of the Act's provisions. Penalties are more severe for an employer who is guilty of knowingly misclassifying an employee.


The Commissioner is authorized to investigate and enforce compliance with this Act and the regulations thereunder. To overcome the presumption of an employer-employee relationship, an employer may show that an individual is an "independent contractor" pursuant to the DLLR's "ABC" test, which is found under § 8-205 of the Labor and Employment Article, and Code of Maryland Regulations 09.32.01.18. If the Commissioner determines that the employer is in violation for failing to properly classify an employee, the Commissioner shall notify the Comptroller, the Office of Unemployment Insurance, the Maryland Insurance Administration, and the Workers' Compensation Commission to enable these agencies to assure the employer's compliance with the agencies' laws, utilizing their own definitions, standards, and procedures.


Upon notice, the Comptroller shall take its own actions pursuant to its authorities under the Tax-General Article to ensure that income tax withholdings for wages, as defined under Tax-General Article § 10-905(f), are recovered and credited to the affected employees, and that appropriate interest and penalties are assessed and collected.


A person who knowingly advises an employer to take action for the purpose of violating this Act is subject to a civil penalty of not more than $20,000. Under the provisions set forth for the DLLR's Labor and Industry Division, a person who holds a professional license as a lawyer or an accountant who commits such a violation is not subject to civil fines, but is subject to sanctions by the regulatory bodies in the State responsible for oversight of these professions. However, the penalty provisions for the DLLR's Division of Unemployment Insurance and the State Workers' Compensation Commission do not make this distinction, and thus a person who holds a professional license as a lawyer or an accountant and who commits such a violation may still be subject to civil fines.


This Act takes effect October 1, 2009.

HB101: Budget Reconciliation and Financing Act of 2009

House Bill 101 (Chapter 487, Acts of 2009)

This Act contains multiple provisions related to balancing the State budget. There are a few provisions that directly impact the Comptroller.


This Act amends Tax-General Article §8-406(b)(2)(iv) to reduce the money appropriated for the Maryland-mined Coal tax credit. The total amount of credits approved by the State Department of Assessments and Taxation (the "Department") for a calendar year beginning after December 31, 2008, but before January 1, 2013 may not exceed $4,500,000. The total amount of credits approved by the Department for a calendar year beginning after December 31, 2012, but before January 1, 2015 may not exceed $6,000,000. The total amount of credits approved by the Department for a calendar year beginning after December 31, 2014, but before January 1, 2021 did not change and that amount may not exceed $3,000,000.


This Act amends Tax-General Article §10-210.1(b)(2) to provide that in addition to the modifications under §§10-204 through 10-210 of Subtitle 2, to determine the Maryland adjusted gross income of an individual, an amount is added to or subtracted from federal adjusted gross income to determine the net operating loss deduction allowed under §172 of the Internal Revenue Code without regard to an election under §172(b)(1)(H) of the Internal Revenue Code for a carryback period of up to five years.


The Act also adds Tax-General Article §10-210.1(b)(4) to provide that in addition to the modifications under §§10-204 through 10-210 of Subtitle 2, to determine the Maryland adjusted gross income of an individual, an amount is added to or subtracted from federal adjusted gross income to reflect the recognition of income from discharge of indebtedness and the allowance of any deduction with respect to original issue discount without regard to §108(i) of the Internal Revenue Code.


The provisions of §10-210.1(b) of the Tax-General Article as amended by this Act shall be applicable to any taxable year to which §108(i), §168(k), §172(b)(1)(H), or §179 of the Internal Revenue Code, as amended by the American Recovery and Reinvestment Act of 2009 (P.L. 111-5), apply.


The Act also provides that, notwithstanding the changes to §10-210.1(b)(2) of the Tax-General Article as enacted by this Act, the provisions of former §10-210.1(b)(2) of the Tax-General Article as in effect prior to the July 1, 2009 effective date of Section 2 of this Act shall continue to apply to net operating loss carryovers in the case of net operating losses for taxable years ending during 2001 or 2002, to which the provisions of former §172(b)(1)(H) as in effect prior to the amendment of that section by the American Recovery and Reinvestment Act of 2009 (P.L. 111-5) applied.


The Act provides in Section 24 of the Act that notwithstanding any other provision of law, §10-108(a) of the Tax-General Article does not apply to any amendment of the Internal Revenue Code that was enacted by the American Recovery and Reinvestment Act of 2009 ("ARRA") (P.L. 111-5). This provision means that Maryland's automatic decoupling provisions do not apply to any change included in the ARRA. This means that Maryland is coupled to any amendment of the Internal Revenue Code provided for in the ARRA unless Maryland has specifically decoupled from an amendment by statute. The effect of this provision is that Maryland is coupled with three provisions in the ARRA that would flow through to the Maryland tax calculation. Those three provisions are the federal Earned Income Credit (EIC) increase, the unemployment insurance benefits exclusion, and the sales and use tax deduction for new vehicle purchases.


The ARRA provides for an increase in the federal EIC for families with three or more children and for married individuals filing a joint return. Since Maryland's nonrefundable EIC is up to one-half the federal EIC, and the state's refundable EIC one quarter of the federal EIC, there will be an increased credit at the state level. This will increase the local refundable EIC as well. This increase is only valid for tax years 2009 and 2010. It sunsets at the end of the 2010 tax year.


The ARRA also excludes up to $2,400 of unemployment insurance benefits from federal adjusted gross income for tax year 2009. While this change would normally be automatically decoupled, it will not be due to the provision in this Act. It will flow through to the Maryland tax calculation.


Finally, the ARRA provides for a one-time deduction for the sales or excise tax paid on the purchase of a new vehicle, claimed as either as an addition to the federal standard deduction or as an itemized deduction. For taxpayers who claim the exemption as an additional federal standard deduction, the exemption will not flow through to Maryland tax. In addition, this provision will not affect taxpayers who already deduct the sales tax instead of state income taxes as an itemized deduction, since the sales tax paid on a car is already included in that deduction. A taxpayer, who normally takes the standard deduction at the federal and state level, may switch from the standard deduction to itemized deductions at the federal level in order to take advantage of this deduction at the state level. A taxpayer would have to itemize at the federal level to be able to itemize at the state level and receive the benefit of the deduction for sales or excise tax paid on the purchase of a new vehicle through this method.


The ARRA allows income recognized from the cancellation of debt (CODI) in 2009 and 2010 to be deferred for five years. However, House Bill 101 explicitly decouples Maryland income tax law from this change. Therefore, this amendment will not affect Maryland income tax calculations.


This Act takes effect June 1, 2009 (except for the changes to Tax-General Article §10-210.1(b) enacted by this Act, which take effect July 1, 2009) and Tax-General Article §8-406(b)(2)(iv) as enacted by this Act shall be applicable to all taxable years beginning after December 31, 2008.

Mandatory Income Tax Return Preparer Requirements

House Bill 810 (Chapter 422, Acts of 2009)

This Act adds §10-824 to the Tax-General Article, which provides the mandatory requirements for filing income tax returns by electronic means. This Acts also adds Tax-General Article §13-717 to provide the circumstances under which penalty would apply for failure to comply with Tax-General Article §10-824.


This Act requires income tax return preparers who have prepared, for compensation, more than a certain number of qualified State income tax returns in the prior taxable year to file all qualified State income tax returns electronically. An income tax return preparer does not include a person who merely performs those acts described under Section 7701(a)(36)(B) of the Internal Revenue Code. A qualified State income tax return is any original return of individual income tax imposed by Title 10 of the Tax-General Article, regardless of whether a tax is due or a refund is claimed. For a taxable year beginning after December 31, 2008 but before January 1, 2010, a preparer who has prepared more than 300 qualified returns in the prior taxable year is required to file the returns electronically. For a taxable year beginning after December 31, 2009 but before January 1, 2011, it is more than 200 qualified returns in the prior taxable year. For any taxable year beginning after December 31, 2010, it is more than 100.


This Act authorizes the Comptroller to impose on a preparer a $50 penalty for each return that is not filed electronically in compliance with this Act, unless the preparer is able to show that the failure to comply is due to reasonable cause and not due to willful neglect. The total penalties assessed may not exceed $500 for all returns filed by the preparer in a taxable year. The penalty does not apply if a taxpayer does not want the taxpayer's return filed by electronic means or if the preparer has sought by written request, and received, a waiver from the Comptroller. The written waiver request must establish to the satisfaction of the Comptroller either reasonable cause for not filing returns by electronic means or undue hardship due to lack of feasible means to file returns electronically.


This Act takes effect July 1, 2009, and shall be applicable to all taxable years beginning after December 31, 2008.


HB1399: Neighborhood and Community Assistance Program - Individual Donor Eligibility for Tax Credit

House Bill 1399 (Chapter 166, Acts of 2009)

This Act amends applicable sections under Title 6 Subtitle 4 of the Housing and Community Development Article providing for the Neighborhood and Community Assistance Program, to expand the Neighborhood and Community Assistance Tax Credit by allowing the credit to be claimed by an individual, as defined under Section 10-101 of the Tax-General Article.


Currently, the Neighborhood and Community Assistance Tax Credit is available only to a business entity. This Act provides that the credit is allowed to either a business entity or an individual for contributions of $500 or more in goods, money or real property to a Department of Housing and Community Development (DHCD) approved project conducted by a nonprofit organization in a priority funding area. The allowable credit is equal to 50 percent of the amount contributed. However, the amount of credit that may be claimed in a taxable year may not exceed the lesser of $250,000 and the contributor's tax liability for the taxable year. Any excess credit may be carried over for up to 5 taxable years after the year in which the contribution was made or until the full amount of the excess credit is used, whichever is earlier.


To be eligible for this tax credit, the contributor is required to submit an application to the DHCD and receive an approval for the contribution.


This Act takes effect July 1, 2009, and shall be applicable to all taxable years beginning after December 31, 2009.


SALES AND USE TAX


SB44: Sales and Use Tax Exemption for Veterans' Organizations

Senate Bill 44 (Chapter 506, Acts of 2009)

This Act extends by three years the termination date for the sales and use tax exemption for sales to certain veterans' organizations, from June 30, 2009 to June 30, 2012.


This Act takes effect June 1, 2009.


SB621: Sales and Use and Property Tax Exemptions for Solar Energy Equipment and Property

Senate Bill 621 (Chapter 574, Acts of 2009)

This Act expands the definition of "Solar energy equipment" in Tax-General Article §11-230(a)(3)(i) and Tax-Property Article 7-242(a) to include that the sales and use tax and real property tax does not apply to solar energy equipment that uses solar energy to generate electricity that is supplied to the electric grid.


This Act takes effect July 1, 2009.


HB1171: Alternative Energy Tax Incentive Act of 2009

House Bill 1171 (Chapter 444, Acts of 2009)

This Act expands Tax-General Article §11-230 and Tax-Property Article 7-242 to provide an exemption from sales and use tax and real property tax on the sale of residential wind energy equipment installed on residential property that uses wind energy to generate electricity for use in a residential structure on the property.


This Act takes effect July 1, 2009.


ADMISSIONS AND AMUSEMENT TAX


HB193: Gaming and Bingo

House Bill 193 (Chapter 661, Acts of 2009)

This Act adds new §4-801 to a new subtitle in the Economic Development Article. This new subtitle, "Subtitle 8. Special Fund for Preservation of the Cultural Arts in Maryland," provides for this special fund. This new fund is for the purpose of providing emergency grants to cultural arts organizations, including museums, or similar entities in the State. The Act provides that the Comptroller must account for the fund.


The Act also amends Tax-General Article §2-202 to provide for a new revenue distribution. The Act adds §2-202(1)(i) and (ii) to provide that after making the required distribution in §2-201 of the Tax-General Article, the Comptroller shall distribute specified amounts from the revenue from admissions and amusement tax on electronic bingo and electronic tip jars under §4-102(d). First, the Comptroller must distribute the revenue attributable to a tax rate of 20 percent to the General Fund and then the revenue attributable to a tax rate in excess of 20 percent to the Special Fund for Preservation of the Cultural Arts in Maryland. The remaining distribution schedule in §2-202(2) remains unchanged.


The Act also amends §4-105(a-1) of the Tax-General Article to provide that except as provided in new §4-105(a-1)(2), the rate of admissions and amusement tax imposed on electronic bingo or electronic tip jars under §4-102(d) is increased to 30 percent of the net proceeds subject to tax.


The Act adds new §4-105(a-1)(2) to the Tax-General Article, which provides that if net proceeds subject to the state admissions and amusement tax are also subject to a county or municipal corporation admissions and amusement tax, the total tax cannot exceed a rate of 35 percent when added together. The new §4-105(a-1)(2) also provides that the county or municipal corporation admissions and amusement tax that is applicable to net proceeds may not exceed the rate of the admission and amusement tax imposed by the county or municipal corporation as of January 1, 2009.


This Act also extends the termination date for the authority for the operating of certain instant bingo games using electronic machines from July 1, 2009 to July 1, 2012 provided that the machines have been in operation for a one-year period ending December 31, 2007 or that the machines were in operation under a commercial bingo license as of December 31, 2007. The Act also mandates that on or before July 1, 2012, a county or municipal corporation may not impose a fee or tax on electronic bingo in addition to any tax or fee imposed by the county as of January 1, 2009.


This Act takes effect June 1, 2009.


ESTATE TAX


SB156: Filing of Maryland Estate Tax Return

Senate Bill 156 (Chapter 202, Acts of 2009)

This Act amends three sections of Title 7 of the Tax-General Article relating to the filing of the Maryland estate tax return.


The amendments to §7-305(a) and (b) change the requirement that the Maryland estate tax return be filed with the local register of wills, to allow the Maryland estate tax return to be filed directly with the Comptroller. Amendments to §7-305(c) and §7-306(c) require that all amended Maryland estate tax returns be filed directly with the Comptroller. Finally, the amendment to §7-232 creates an option concerning the mode of certification of inheritance taxes paid on behalf of each decedent.


Since this Act requires that Maryland estate tax returns be filed with the Register of Wills or with the Comptroller, and that all amended Maryland estate tax returns be filed with the Comptroller, the amendment to §7-232 provides that each register of wills shall certify to the Comptroller the amount of inheritance tax paid on behalf of each decedent for whom a Maryland estate tax return is filed with the register or for whom the register receives a request for the certification from:

  • the Comptroller;
  • the personal representative of the decedent's estate; or
  • any person required to file a Maryland estate tax return with regard to property passing from the decedent.

This Act takes effect July 1, 2009 and will be applicable to all decedents dying after December 31, 2008.


BUSINESS LICENSING


SB174-HB171: Business Regulation - Bulk Vending Machine Exemption

Senate Bill 174 - House Bill 171 (Chapter 209, Acts of 2009)

These Acts are cross-filed and are identical. These Acts amend §17-1902 of the Business Regulation Article to exempt bulk vending machines, as defined in §11-201.1 of the Tax-General Article, from State licensing requirements for vending machines.


These Acts takes effect October 1, 2009.


MOTOR FUEL, ALCOHOL AND TOBACCO TAXES


See 2009 Motor Fuel, Alcohol and Tobacco Tax Legislation.