TAXPAYER SERVICES
DIVISION
Charter
Services
The Charter Unit
of the Department is the central location in the State for filing the
necessary documents to create any type of business entity (a corporation,
a limited liability company, a limited partnership, or a business
trust). This unit is also the legal filing office for financing
statements under the Uniform Commercial Code (UCC). It has the
responsibility for the registration of foreign entities doing business in
the State, the reporting of all resident agents for service of process,
the collection of the annual filing fee charged certain business entities,
and the maintenance of a system for providing "certificates of status"
needed in business and commerce. The unit collects numerous
statutorily prescribed fees such as recording fees, organization and
capitalization fees, certain recordation taxes, fees for reservation of
trade names, fees for certified copies of public record documents, and
fees for the expedited and regular processing of documents.
Tables VIII and IX
provide a summary of the total number of the different documents processed
by the Department and the fees collected in FY 2003.
Last year the
Charter Unit received 208,000 telephone calls and 25,000 e-mail
inquiries. To address the significant demand for information by the
business filing public, the Department has placed two services on our
website. First, the filing public can obtain via the internet 24
hours a day a "certificate status" on any business entity existing in the
Department’s records. These certificates of status are widely used
in settlements, refinancings, and in State and local government licensing
procedures. The second major new service is "free" internet images
of all business entity documents filed with the Department since January
1, 2001. Within forty-eight hours after the Charter Unit has
processed an entity formation document or a UCC filing, an image of the
recorded document is available for viewing by members of the public on
their own personal computers.
Business Personal Property Valuation
The Personal
Property Unit of the Department values all tangible personal property
owned by businesses operating in the State and then certifies that
information to local county and municipal governments which issue property
tax bills. The Personal Property assessors use the generally
accepted accounting practices and depreciation schedules to value all
taxable property by business location. In FY 2003, this unit
reviewed and processed 238,105 returns. There were 111,073 returns
with taxable assessments, and the total amount of assessable base
certified to local governments equaled $11,715,908,190. The $11.7
billion in assessable base produced $351.5 million in tax revenue to the
county and municipal governments.
Another service
the Personal Property Unit provides local governments is to certify to
them the amounts of business inventory reported in the annual return of
each company in order that the local jurisdictions, through the Clerk of
the Court, can determine the appropriate fee for a "trader's license"
required of certain businesses.
This unit also
processes applications for exemptions from the personal property tax by
charitable, educational, or religious organizations. There is a
separate "manufacturing" exemption which must be applied for by for-profit
businesses owning equipment that qualifies for that exemption.
Home-based businesses that are sole proprietorships and that own property
with an initial acquisition value of less than $10,000 are not subject to
a taxable assessment. There were 31,611 such accounts in FY
2003.
Table X provides a
listing by county and municipality of the personal property exemptions for
commercial inventory, manufacturing, and research and development allowed
by local governments. In addition to Table X, there are two graphs showing
the change in the assessable base for personal property for a ten-year
period.
The Department has
continued to improve its website services in the Personal Property area as
well by enhancing its website-based filing extension request system.
Personal Property return filers can request an automatic extension to file
the return after the April 15 deadline to June 15 of the year. This
past year, the number of filers who used the internet extension system
increased by 66% from 17,343 filers to 42,103 filers. There were
58,000 paper requests for the filing extension.
Franchise Taxes and Public Utility
Valuation
This unit of the
Department contains two sections which perform the assessment function for
two different types of taxes. The one section has the
responsibility for administering and collecting the franchise taxes levied
on certain major utility companies. The other section in this
administrative unit places the valuation on the operating property of all
public utility companies and railroads for the payment of property taxes
to the local governments and the State.
The Franchise Tax
Section administers the laws imposing a franchise tax on public utility
corporations such as gas, electric, and telephone companies for the
privilege of doing business in the State. Gas and electric companies
pay a two-part franchise tax consisting of 2% of the gross receipts
derived from business in Maryland and a tax based on energy units
delivered for final consumption in the State. The rates applied to
the energy units are .062 cents for each kilowatt hour of electricity and
.402 cents for each therm of natural gas delivered for final consumption
in the State. Telephone companies pay only the 2% franchise tax
imposed on their gross receipts derived from business in
Maryland.
All franchise tax
revenues are deposited to the State General Fund. In FY 2003, the
total tax revenues deposited to the State equaled $129,887,313. This
amount represents a decline from the previous fiscal year.
The reason for the
decline in revenues is because of the receipt of amended franchise tax
filings for prior years by financial institutions which have been phased
out of paying the franchise tax. The Franchise Tax Unit continues to
audit and process these amended filings which have resulted in refund
claims and negative adjustments to the 2003 fiscal year franchise tax
receipts. The Department projects that these negative retroactive
adjustments and a decline in overall franchise tax revenue will continue
in the 2004 fiscal year.
The Utility
Valuation Section is responsible for the central assessment of public
utility companies and railroads. Utility properties assessed include
electric companies, gas distribution companies, interstate natural gas
pipelines, an interstate oil pipeline, telecommunications companies, and
water companies. The Utility Valuation Section also assesses the
personal property of cable companies and non-utility electric-generating
companies. These properties represent over $10 billion in assessable
base statewide.
Utility and
railroad property is valued using the unit method of appraisal as provided
in Sections 8-108 and 8-109 of the Maryland Tax-Property Article.
Utility property often includes many companies which function on an
interconnected basis across several states. The operating unit of
the utility or railroad is valued as a whole by considering the earning
capacity of the operating unit based on the income approach. Other
factors relevant to the determination of values are considered, including
the cost approach and market data when available. The Maryland
portion of the operating unit is apportioned to the State. Final
assessed values are certified to 23 counties and Baltimore City and to all
incorporated municipalities based on the location of the
property.
Utility companies
are affected by uncertain overall economic climates. The companies
continue to adjust to the restructured environment. New spending for
capital improvements is modest. Revenues and income reflect
increasing competition for retail service. Consolidation and
reorganization continue in the telecommunications industry. Overall
revenues for telecommu-nications companies are decreasing for local and
long distance carriers. Electric companies face more challenges as
customers shop for competitive energy suppliers. Utilities continue
to maintain their connection as providers of distribution service to
customers.
Homeowners' Tax Credit Program
The Homeowners'
Tax Credit Program, first expanded to homeowners of all ages in 1978,
remains the State's major property tax relief program. Using a
graduated formula written into the law, the program grants a tax credit
for eligible taxes paid above a "tax limit" calculated on the applicant's
gross household income. There is also a program parameter limiting
eligible taxes to the amount calculated on a maximum of a $150,000
assessment. The graduated formula currently used in the program was
enacted by the General Assembly in 1998. The $150,000 maximum
eligible assessment was last changed in 1989.
Table XI compares
the number of applicants, number of recipients, the amounts of credits
granted, and the average credit received in the 2003 and 2004 Fiscal
Years. Between the two years, the number of recipients has declined
from 52,262 to 49,840, but the average credit and the total amount of
credits paid have increased in the 2004 Fiscal Year. The average
credit has increased from $755.84 to $812.04, and the total credit
expenditure has increased from $39,501,735.30 to $40,471,945.33. The
primary reason for the increase in the average credit and the total
expenditure with fewer recipients is the increase in the State's tax rate
from 8.4¢ to 13.2¢ beginning with the July 1, 2003, tax bills.
Another provision
in the tax credit law which has affected the number of credit recipients
is the requirement that any "Homestead Credit" based on the amount of an
assessment increase must first be deducted from the $150,000 maximum
assessment eligible for the Homeowners' Tax Credit. Between Fiscal
Years 2002 and 2004 the number of homes with a $150,000 or less assessment
and also receiving a Homestead Credit has increased by 234% from 139,894
properties in 2002 to 323,775 properties in FY 2004.
For the past 5
years, an average of 18% of the Homeowners' Tax Credit applicants each
year are new first-time applicants. The Department uses a variety of
publicity and outreach efforts to attract new applicants. This past
year, the Department utilized special television commercials, insert
notices in the BGE and PEPCO electric bills, a one-page description in the
Maryland Income Tax booklet, information on assessment notices and local
property tax bills, and news stories to advertise this program.
Renters' Tax Credit Program
The Department
also administers a Renters' Tax Credit Program for renters age 60 or older
and renters under age 60 with at least one dependent child. This
particular tax credit law assumes that 15% of the yearly rent paid by the
tenant goes toward property taxes. The Renters' Program uses the
same graduated formula established for the Homeowners' Program to set "tax
limits" for each applicant tenant's gross household income. If 15%
of the applicant's eligible yearly rent for the prior calendar year is
more than the tax limit established for his or her gross income level,
then the applicant receives the difference as a credit up to a maximum of
a $600 credit.
Table XII shows
the number of Renters' Tax Credit applicants, number of recipients and the
credits paid by each subdivision in the State for the 2003 applicant
year. There were 11,358 recipients with a total expenditure of
$3,101,152.27. The number of Renters' Tax Credit recipients has
declined by 4.7% over the prior application year. The reason for the
decline is the general increase in applicants' incomes.
When the
Department receives a Renters' Tax Credit application, all income entries
are verified prior to credit issuance. Credits are then authorized
on a monthly basis to the Comptroller's Office, which actually issues a
direct check to the eligible applicant.
Exempt Property
As part of the
Department's responsibility to uniformly and fairly assess all real and
personal property in the State, there is also a duty to make uniform
determinations statewide on all requests for property tax
exemptions. Generally, the relevant exemption laws all require that
exemptions be granted only for property "actually used exclusively for"
charitable, educational, or religious purposes. This legal standard
is much stricter than what is required to receive a 501(c)(3)
determination from the Internal Revenue Service. Generally the
Department looks to the stated purposes of the organization, the work
actually performed by the organization, and the degree to which the work
performed benefits the general public or serves the purposes of the
specific exemption statute. When evaluating an individual
organization's request for an exemption, the Department standardly
inspects the corporate records, financial records, and actual use of the
property to make a proper determination.
Table XIII
provides the amounts of assessable real property base exempted from paying
property taxes in the State in FY 2004 (2003-2004 tax year). The
amounts of base are exempted from paying all county, municipal, and State
property taxes. The obvious categories of government-owned property
(federal, State, county, and municipal) are shown first on the
table. The other primary beneficiaries of exemptions (private,
charitable, educational, and religious organizations) are shown by
separate categories and by each subdivision. A much smaller category
of exemption is shown for blind persons, disabled veterans, and their
surviving spouses. The amounts of exempt base for privately owned
organizations are $5.59 billion for religious organizations, $4.08 billion
for charitable organizations, and $2.06 billion for educational
organizations. Collectively, these three largest groups of privately
owned exempt property were exempted from approximately $176 million in
property taxes in FY 2004.
Enterprise Zone Tax Credits
The Department has
several functions in administering the property tax credit component of
the State's Enterprise Zone Incentives. First, because business
owners indicate that the property tax credit is the most desirable of the
incentives, the Department communicates extensively with representatives
of individual businesses and local economic development officials to
explain the credit's tax savings in particular cases. The Department
also explains the triennial assessment system and how Maryland offers a
positive property tax environment for businesses wishing to locate in the
State. Second, the Department also calculates each year the specific
amount of assessment eligible for the credit for the specific property and
provides the information to the Finance Offices of the local governments
for property tax billing purposes. Third, the Department verifies
and authorizes each year the reimbursement due to local governments for
the State's one-half share of the lost property taxes on the granting of
the tax credit.
The amount of the
Enterprise Zone property tax credit equals the local taxes on 80% of the
increased assessment for the first five years and a declining percentage
from 70% to 30% over the next 5 years. In order to be eligible for
the credit, the business must have a certain number of new employees or
make a certain amount of capital investment at a property located within
the boundaries of the particular Enterprise Zone.
Table XIV provides
the number of businesses, the amount of capital investment made by the
businesses, and the State's one-half share reimbursement for the upcoming
2005 fiscal year. It is significant to compare how the State's $5.2
million reimbursement has been leveraged to produce over $1 billion in
capital investment by the 557 eligible businesses.
OFFICE OF INFORMATION TECHNOLOGY
The Office of
Information Technology (OIT) provides the data, information and technology
support services for the Department, and assists county/local government
IT departments and finance offices. OIT supports the Department’s
Wide Area Network that connects over 800 personal computers, 70 network
servers linking all of the 23 county and Baltimore city assessment offices
to the Baltimore Preston Street Office Complex Headquarters (HQ) and the
State’s Annapolis Data Center (ADC). OIT also provides technical
support for the following SDAT automated applications: Real Property
Automated Data System (ADS), Homeowners’ and Renters’ Tax Credits,
Residential and Commercial Computer Assisted Mass Appraisal (CAMA),
Maryland Business Entity System (MBES), client server based Budgeting,
Personnel, Web and Imaging as well as office
automation.
2003 OIT Accomplishments
Internet
Services: The Department offers Internet real-time services that
include a searchable database for real and personal property assessments,
tax maps, sales data, corporate charter and Uniform Commercial Code (UCC)
information. Current services offered on the Department’s website
include: requests for business entity Good Standing Certificates,
filing of Personal Property return extension requests, UCC and corporate
charter imaged document filings, and real property assessment appeal
requests. We also offer a variety of on-line input capable forms,
publications, and other information. The services and information
available are of great value to homeowners, lenders, appraisers, real
estate agents, businesses, and attorneys. The Department currently
averages over 500,000 “views” daily (over 15,000,000 monthly) on our
website, which is available 24 hours a day, seven days a week.
This is an increase of 20% from the prior year.
The Department has
made a strong commitment to moving services from "standing in line to
being online". SDAT has exceeded the Governor’s 80% year 2004
electronic government initiative goal. Of the 28 Internet capable
services that the Department has inventoried, 25 or 89% have been web
enabled to date.
In addition,
during FY 2003 the Department completed a major rewrite and enhancement of
its web pages. It now provides for translation to Spanish of its web
pages and services. This effort has improved web page accessibility,
user functionality, and the overall appearance and graphical design of the
site making it much more user friendly and intuitive.
UCC/Corporate
Charter Imaging/Internet Service: As identified in last year’s
annual report, the Department’s document imaging initiative was expanded
to include the UCC and Corporate Charter document filings. Since
April 2002, these imaged documents have been available by accessing the
Department’s website. This non-fee based service provides
accessibility to both UCC and Corporate Charter filings retroactive to
January 1, 2001. During FY 2003, approximately 200,000 document
images were requested via this service.
Certificates of
Good Standing Service: The Department continues to provide
the ability for customers to acquire Certificates of Good Standing for
business entities over the web. During FY 2003, over 16,000 or 32%
of the 50,000 yearly requests were filed using this web service.
This is an increase of over 37% from the prior year.
Personal
Property Returns – Extension Requests: Another web service
offered provides the ability for customers to file for personal property
tax return extensions. During the first year (2001) of this service
being available, the Department received over 17,000 extension requests
via the Internet. During this past year, over 42,000 or 47% of the
overall 90,000 extension requests were filed using this service.
This is an increase of over 25% from the prior year.
Internet
Advertising Initiative: Starting in FY 2002, the Department
entered into a unique, groundbreaking partnership with RESI of Towson
University to allow for advertising on the SDAT website. This
Department is the first Maryland State Agency to offer advertising on its
web pages. The Department offers a variety of options and affordable
ad plans which offer advertisers the ability to get access to a group of
Internet users who have targeted interests in real estate and related
businesses. While providing this valuable service to advertisers,
the agreement with RESI also provides for part of the proceeds generated
from the sale of advertising space to be used to maintain and support the
SDAT website. During the past year, 28 different advertisers used
this service generating advertising fees that were used to maintain the
SDAT website.
Real Property
Assessment Appeals: Since January 2002, property owners have
been able to file real property assessment appeal requests via the
Internet. Prior to this service becoming available, property owners
could only file an appeal of their property assessment by mailing in a
form to the respective local assessment office. Using the new web
service, property owners have the option to request either a personal or
telephone hearing. In FY 2003 approximately 1,340 appeals were
filed using this method (over 3 times the number filed in the previous
year or an increase of 300%).
Document Output
Services: The Department continues to expand its current
document output management services capability with additional laser
designed forms and online applications. During 2003, over 20,000 real
property supplemental notices, 2,000 hearing notices, 5,000 final notices,
and 15,000 tax credit denial letters were printed, processed, and mailed
to homeowners under this service.
Computer
Assisted Mass Appraisal – CAMA 2000: During FY 2003, the
Department completed the statewide implementation of Commercial Computer
Assisted Mass Appraisal (CAMA). This completes the automation of
both the residential and commercial assessment appraisal process in all of
its 24 jurisdictions.