Summary of 2006 Tax Legislation for Businesses

The following is a brief summary of Maryland tax legislation affecting businesses that was passed during the 2006 session of the General Assembly and signed into law by Governor Robert L. Ehrlich, Jr. Senate Bill 1 was enacted as an emergency bill over the veto of Governor Ehrlich during the special session. All references are to the Tax-General Article (TG), Annotated Code of Maryland, unless otherwise noted. For more detailed information, see Summary of 2006 Tax Legislation

INCOME TAX

Annual Employer Withholding Statements - Senate Bill 94 (Chapter 37, Acts of 2006) Senate Bill 94 requires certain employers or payors to submit required annual withholding statements to the Comptroller of Maryland on magnetic media or in other machine-readable or electronic format that the Comptroller requires by regulation. Effective July 1, 2006.

Maryland Clean Energy Incentive Act of 2006 - Senate Bill 314 (Chapter 129, Acts of 2006) Senate Bill 314 extends and expands the state income tax credit affecting clean energy by extending the dates that the facility is required to initially begin producing electricity from a qualified energy resource to the period after January 1, 2006 but before January 1, 2011. The definition of "qualified energy resources" is expanded to include methane gas or other combustible gases resulting from the decomposition of organic materials from an agricultural operation, or from a landfill or wastewater treatment plant using anaerobic decomposition, thermal decomposition, or a combination of anaerobic and thermal decomposition. Effective July 1, 2006.

Business Trusts - Senate Bill 319 (Chapter 45, Acts of 2006) Senate Bill 319 expands the definitions of "member" and "pass-through entity" to clarify that a business trust that is not taxed as a corporation is required to pay the Maryland income tax imposed under TG §10-102.1(a) on behalf of any nonresident beneficiary if the business trust has any nonresident taxable income for the taxable year. Effective July 1, 2006, and will be applicable to tax years beginning after December 31, 2005.

Tax Credit for Maryland-Mined Coal - Senate Bill 335 (Chapter 247, Acts of 2006) and House Bill 487 (Chapter 248, Acts of 2006) This legislation amends TG §10-704.1 by making the credit provided under TG §10-704.1 subject to the limitations in TG §8-406(e)(2). This Act takes effect July 1, 2006, and will be applicable to all taxable years beginning after December 31, 2006.

Extensions for Filing Corporate Income Tax Returns - Senate Bill 484 (Chapter 134, Acts of 2006) Senate Bill 484 provides that the Comptroller may extend the time to file an income tax return up to seven months for a corporation. Effective July 1, 2006, and will be applicable to all tax years beginning after December 31, 2005.

Community Investment Tax Credit - Senate Bill 1076 (Chapter 447, Acts of 2006) Senate Bill 1076 expands the Community Investment Tax Credit to include contributions of real property to an approved project, and increases the maximum credit for any taxable year to the lesser of $250,000 or the total amount of tax otherwise payable by the business entity for the taxable year. Effective October 1, 2006, and will be applicable to all tax years beginning after December 31, 2006.

Offset of Refunds and Payments for Federal Nontax Liabilities - House Bill 448 (Chapter 577, Acts of 2006) House Bill 448 provides that the Comptroller may withhold any refund and vendor payment scheduled to be issued to an individual or vendor if the person or vendor has a nontax liability with the federal government. Effective July 1, 2006.

Tax Credit for Businesses That Create New Jobs in Washington County - House Bill 731 (Chapter 191, Acts of 2006) House Bill 731 expands the definition of "new permanent full-time position" to include, in Washington County, a contract position of definite duration lasting at least 12 months with an unlimited renewal option, to qualify for property and state tax credits. Effective July 1, 2006, and applicable to all tax years beginning after December 31, 2006.

Interest Rate for Refunds - House Bill 859 (Chapter 587, Acts of 2006) House Bill 859 provides that the Comptroller shall set the annual interest rate on refunds at 13 percent or three percentage points above the average prime rate, whichever is greater. Effective July 1, 2006.

Filing Requirements for Employer Withholding Tax Returns - House Bill 1248 (Chapter 613, Acts of 2006) House Bill 1248 offers provisions allowing an employer who had $15,000 in income tax withholding during the preceding year to request the Comptroller to waive the requirement of filing a withholding return within three business days following each payroll that results in $700 or more in withholding. Effective July 1, 2006, and applicable to all calendar years beginning after December 31, 2006.

Tax Credits for Individuals Facing Employment Barriers - House Bill 1391 (Chapter 394, Acts of 2006) House Bill 1391 reestablishes an income tax credit for a business entity for wages paid to a qualified ex-felon employee as provided under §11-704 of the Labor and Employment Article. This credit is very similar to the credit provided under the former TG §10-704.10 that was abrogated on December 31, 2004. Effective July 1, 2006, and applicable to all tax years beginning after December 31, 2006.

Electric Industry Restructuring - Senate Bill 1 (Chapter 5, Acts of 2006)
Enacted as an emergency bill over the veto of Governor Ehrlich during the Special Session, Senate Bill 1 repeals TG § 10-712, which had provided that a public utility could claim a credit against the state income tax in an amount equal to 60 percent of the total property taxes paid by the public utility on its operating property in the state that was used to generate electricity or steam for sale. Effective June 23, 2006 and applicable to all taxable years beginning after December 31, 2005.

SALES AND USE TAX

Veterans Organizations - Senate Bill 227 (Chapter 217, Acts of 2006) and House Bill 308 (Chapter 218, Acts of 2006) This legislation provides the sales and use tax does not apply to a sale to a bona fide nationally organized and recognized organization of U.S. armed forces veterans, if the organization is qualified as tax exempt by IRS. Effective July 1, 2006 and will expire on June 30, 2009.

Bulk Vending Machines - House Bill 951 (Chapter 197, Acts of 2006) House Bill 951 provides that the sales and use tax does not apply to a sale of tangible personal property through a bulk vending machine for a taxable price of 75 cents or less. Effective July 1, 2006.

Taxable Laundering Services - House Bill 1223 (Chapter 385, Acts of 2006) House Bill 1223 expands the definition of "production activity" to include laundering, maintaining, or preparing textile products, and maintaining tangible personal property, in providing the taxable service of commercial cleaning or laundering of textiles for a buyer who is engaged in a business that requires the recurring service of commercial cleaning or laundering of the textiles. Effective July 1, 2006.

Religious and Nonprofit Organizations - House Bill 1624 (Chapter 210, Acts of 2006) House Bill 1624 provides that the sales and use tax does not apply to part of the sale price in a sale by a bona fide church, religious organization, or other nonprofit organization exempt from taxation under IRS guidelines if the sale is made at an auction sale, and the proceeds of the sale are used to carry on the exempt purposes of the church or organization. Effective July 1, 2006.

ADMISSIONS AND AMUSEMENT TAX

Exemption for Agricultural Tourism Activities in Baltimore County - House Bill 1514 (Chapter 402, Acts of 2006) House Bill 1514 expands the limitations on Baltimore County's authorization to tax by providing that the admissions and amusement tax cannot be imposed by Baltimore County on gross receipts derived from any admissions and amusement charge for any activities related to agricultural tourism. Effective July 1, 2006.

ALCOHOL AND TOBACCO TAX

Removal of Partially Consumed Bottle of Wine from Licensed Premises - Senate Bill 280 (Chapter 127, Acts of 2006) Senate Bill 280 allows a person to leave a restaurant with a partially consumed bottle of wine that was purchased with a meal. The partially consumed bottle of wine must have the cork or cap replaced by the license holder or their employee, and will be considered an "open container" for purposes of transporting it in a vehicle. Effective July 1, 2 006.

U.S. Military Identification Card as Proof of Age - House Bill 752 (Chapter 471, Acts of 2006) - House Bill 752 adds a U.S. military identification card to the forms of identification that an alcoholic beverages licensee or their employee can accept as proof of a person's age for the purpose of purchasing alcoholic beverages. Effective October 1, 2006.

Technical Changes to Escrow Act - Senate Bill 797 (Chapter 538, Acts of 2006) Senate Bill 797 clarifies certain definitions in the previously enacted Escrow Act which is the model statute provided by the Master Settlement Agreement between the state of Maryland and certain tobacco manufacturers in the United States. Effective June 1, 2006.

Limited Wine Wholesaler's License and Nonresident Winery Permit - Senate Bill 812 (Chapter 111, Acts of 2006) Senate Bill 812 creates a Limited Wine Wholesaler's License, available to small in-state wineries, and a Nonresident Winery Permit, available to small out-of-state wineries, to allow for the sale of their own wine directly to Maryland retailers. The license and the permit cost $50 each, and are available only to wineries that manufacture no more than 27,500 gallons of their own wine annually. Effective April 25, 2006.

For information about other alcohol-related legislation affecting local governments, visit the Maryland General Assembly's Web site at http://mlis.state.md.us/