Summary of 2007 Tax Legislation for Businesses

The following is a brief summary of Maryland tax legislation affecting businesses 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. All references are to the Tax-General Article (TG), Annotated Code of Maryland, unless otherwise noted. For more detailed information, see Summary of 2007 Tax Legislation

INCOME TAX

Expensing of Section 179 Property - House Bill 35 (Chapter 587, Acts of 2007) House Bill 35 clarifies that Maryland is decoupled from the preferential treatment for the expensing of Section 179 property, which was extended by the federal Tax Increase Prevention and Reconciliation Act of 2005. The legislation became effective July 1, 2007 for tax years beginning after January 31, 2006.

Solar Energy Devices - House Bill 590 (Chapter 615, Acts of 2007) House Bill 590 creates a new subtraction modification for the amount of any grant received from the state under the Solar Energy Grant Program. The subtraction is limited to the amount included in the taxpayer's federal adjusted gross income. The legislation became effective July 1, 2007 for tax years beginning after January 31, 2006.

Heritage Structure Rehabilitation Tax Credit - House Bill 598 (Chapter 567, Acts of 2007) and Senate Bill 613 (Chapter 566, Acts of 2007) House Bill 598 and Senate Bill 613 extend the termination date for the tax credit by two years to July 1, 2010. The legislation also requires the governor to include an appropriation to the Reserve Fund for fiscal years 2009 and 2010; permits the Maryland Historical Trust to charge a fee for administrative costs for non-commercial rehabilitations; and makes other changes that expand the scope of the tax credit. The legislation became effective July 1, 2007 for initial credit certificates issued on or after July 1, 2007.

Distributions from Deferred Compensation Plans, Retirement Plans, and Annuities - House Bill 776 (Chapter 433, Acts of 2007) House Bill 776 authorizes a payor of an annuity, sick pay or retirement distribution (other than an eligible rollover) to withhold the state income tax, but only if requested by the payee and in the amount specified by the payee. The legislation became effective July 1, 2007.

Repeal of Income Tax Withholding for Nonresident Contractors - House Bill 1143 (Chapter 640, Acts of 2007) House Bill 1143 repeals a requirement to withhold 3 percent of the contract price for contracts with certain nonresident contractors. The legislation became effective July 1, 2007 for contracts entered into, on or after July 1, 2007. Maryland Research and Development Tax Credit - House Bill 1197 (Chapter 90, Acts of 2007) House Bill 1197 clarifies that the Maryland research and development tax credit would continue even if the federal credit expires or is repealed. Maryland's credit is tied to the federal definition of "qualified research and development expenses." The absence of the federal credit does not remove or change the federal definition of qualified expenditures. The legislation became effective 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) House Bill 1257 and Senate Bill 945 define a "captive real estate investment trust" and require a new addition modification in the calculation of the Maryland modified income of a captive REIT for the dividends paid deduction claimed on the corporation's federal income tax return. The legislation became effective July 1, 2007 for tax years beginning after December 31, 2006.

ALCOHOL AND TOBACCO TAX

Alcohol Without Liquid Machines - House Bill 670 (Chapter 249, Acts of 2007) House Bill 670 prohibits the use of machines to inhale alcohol vapor or otherwise introduce alcohol in any form into the human body and prohibits their possession, purchase, transfer and offering for sale or use. This legislation will become effective October 1, 2007.

Montgomery County - Changes to Requirements for Wholesaler's Licenses and Nonresident Winery Permits - House Bill 614 (Chapter 80, Acts of 2007) House Bill 614 authorizes, in Montgomery County only, a holder of a Class 6 limited wine wholesaler's license or a nonresident winery permit to sell or deliver wine directly to a restaurant, county dispensary or other retail dealer and allows these entities to purchase wine directly from the license or permit holder. This legislation became effective April 10, 2007.

For information about other alcohol-related legislation affecting local governments, visit the Maryland General Assembly's Web site

For information about 2006 business tax legislation, see Summary of 2006 Tax Legislation for Businesses