Maryland legislators show residents the exit with another tax proposal aimed at part time residents
Del. Charkoudian (D. Montgomery County, MD) has introduced a bill (cross filed by Sen. Rosapepe (D. Prince Geo. and Anne Arundel Counties, MD)) which would require that someone who resides in Maryland for greater that 3 months be deemed a resident for tax purposes. Read on.
The language of the bill changes the requirements for non-resident status for income (and estate) tax purposes. The proposed bill changes the definition of ’resident’ under the Maryland income tax law to provide that an individual who maintains a place of abode in the State for more than 3 months, rather than 6 months, of the taxable year is a resident for income tax purposes whether or not the individual is domiciled in the State; and applying the Act to taxable years beginning after December 31, 2024.
As a practical matter, this means Marylanders who have historically participated in the autumnal to spring equinox diaspora will need to change their plans and either leave earlier or stay longer. Is Maryland trying to drive high net worth part-time residents out of the state completely? Well maybe so.
It is no secret that Maryland has overspent its current receipts ($3.0 billion) and that the Governor and legislature would like to balance the budget. A balanced budget is in fact a constitutional obligation in Maryland. But what does that really mean? It means that the Governor shall submit, and the General Assembly must approve an operating budget that is balanced. In principle, this is a great idea, unless the appetite for spending outstrips the taxpayer’s ability to fund the state’s obligations, which is currently the situation here in the “Free” State.
What does Maryland gain and what do she lose through application of this proposed legislation? If the bill passes both the House and the Senate, and if it is signed by the Governor, it will raise income tax revenue until would be non-residents figure out the rules and simply stay out of Maryland for the additional time period required. And yes, there will be added receipts from estate taxes by the unsuspecting. But what will Maryland lose? She will certainly lose the sales of and sales tax on items not purchased during the additional 3 month hiatus, toll receipts, gas tax receipts, as well as the effects to the greater economy such as loss of rental receipts, loss of income to medical service provides, even fewer car care services, etc. There may be and probably are other costs to the economy.
And, consider the effect on families who will owe estate tax to Maryland. That tax is currently 16% on assets in excess of $1.0MM (although a tax exemption is granted for assets up to $5.0MM). $5.0MM certainly seems like a large estate, but in reality many small, and certainly medium, sized business owners have estates approaching, if not exceeding the $5.0MM figure. Will those who have estates exceeding that amount simply opt out and permanently move rather than pay $16,000 on every $100,000 dollars of net worth over the exemption threshold?
Several years ago, a representative of the Maryland Comptroller’s office stated, “anecdotal evidence that Marylanders are leaving the state because of the “millionaires’ tax” is not being realized as fact”. Balderdash, “millionaires” were leaving then and they will continue, in droves, if HB0183(SB0059) is passed into law.
Legislators of Maryland, this wonderful state needs more long-term visitors and residents, to continue to fill its coffers with sales and use taxes. Don’t give them an excuse to leave – permanently.