All Things Must Pass

Thanks again to Evelyn Pasquier who has provided the following quick analysis of two tax bills, HB 753 and HB 935, which passed the Maryland General Assembly in its waning hours. Stay tuned, however, because the Governor is threatening to veto one or perhaps both of these bills.

HB 753:

A 2% insurance premium tax on HMOs and managed care organizations.

A surcharge on Maryland taxable income of a corporation equal to 10% of the normal 7% tax (i.e., a tax rate of 7.7% on corporate taxable income), effective for tax years beginning after December 31, 2002, but before January 1, 2006 (i.e., this provision will sunset in three years).

Authority to allocate income, deductions, etc., among related entities (Section 482 authority) (enacted without the exception for financial institutions that had been included in the House version). Note that the retroactivity provision in the original version were not included in the version as finally enacted. These provisions, therefore, will go into effect July 1, 2003, and the Comptroller will not be able to exercise this authority with respect to previous years, regardless of whether they are still open for other purposes.

The anti-Delaware Holding Company ("addback") provisions as enacted by the House, but with an exemption for intangible expenses incurred in the biotechnology industry to purchase, license, develop, or protect patents, trade secrets, copyrights, or trademarks.

Allocation to Maryland of non-operational income of a corporation whose principal place of directing or managing its trade or business is in this state.

The "throwback" rule bringing a corporation's sales of tangible personal property to an out-of-state purchaser into the numerator of the apportionment fraction if the corporation is not taxable in the state of the purchaser, and clarifying that a corporation is considered taxable in a state that has jurisdiction to subject it to a net income tax regardless of whether the tax is actually imposed. (Note that where a corporation does no more in a state than solicit sales of tangible personal property, that state does not have jurisdiction to impose an income tax on it.)

HB 935

HB 935, which originally was a straight budget reconciliation bill, now includes a number of items that were in the original corporate tax and "compliance" bills, to wit:

The provisions requiring tax clearance certificates from the Comptroller to renew licenses issued under the following articles: Business Occupations and Professions, Business Regulations, Environment, Health Occupations, Natural Resources, Tax-General, and Transportation (excluding in the last, motor vehicle registration and drivers' licenses).

Entity filing fees for Corporations, LLCs, LPs, LLPs: The annual report fees will be $300, and all other filings have also been increased.

Provisions moving up dates for payment of withholding taxes under certain circumstances.

Lowering from $20,000 to $10,000 the amount for which the Comptroller may require electronic payment of taxes.

Electronic versions of the bills have not yet been posted. I will provide an update when they are and when the Governor either signs or vetoes the bills.