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State to Review Biz Tax Credits Under New Bill

Newly passed legislation allows the state to review tax credits for individuals and businesses and to evaluate whether the credits are benefiting the state. 

The legislation eliminated a provision to "sunset", or automatically terminate, tax credits after businesses initially opposed the bill.

Tax credits have become a powerful tool in attracting businesses in film, biotech and other industries. Though the tax revenue lost from the credits are small, the number of business tax credits have increased, according to a legislative report on Senate Bill 739/House Bill 764. There are now a total of 30 different tax credits in Maryland, the report states.

The 2012 General Assembly passed the Maryland Program Evaluation Act. Gov. Martin O'Malley has not yet signed the legislation but is expected to do so. The business community opposed one of its provisions, to automatically end tax credits for about 20 to 30 entities on a rolling, five-year basis. The provision was deleted from the final bill.

"Not only would the provision have killed the tax credit, but in order to get the tax credit restored, the General Assembly would have had to act legislatively," says Brian Levine, vice president government relations, Technology Council of Maryland Inc. "The portion [of the bill] that impacted business negatively was removed."

About 70 entities and business-related activities are subject to periodic evaluation for tax credits. Originally opposed by the business community, the Maryland Program Evaluation Act went through several changes before getting the business community’s approval.  

The provision for automatic termination was removed from the bill, which, instead, sets up a process and an evaluation committee of members appointed by leaders of the Senate and House of Delegates that works in consultation with state agencies.
The committee must submit reports to the General Assembly if the tax credit should be continued, with or without changes, or terminated. Public hearings are also required. The onus is on the committee to show why the tax credit should be removed, says Levine, rather than having it happen automatically.

Levine says that legislators “worked with the business community to craft a compromise. We are pleased with the outcome. In the end, we did not oppose the bill.”
Levine says the Tech Council and the business community opposed the automatic termination provision.

For example, he says, the state has an $8 million biotechnology tax credit to help early-stage companies. In the original statue, the biotech tax credit does not have a termination date. Had the provision remained in the bill, it would have meant that "every five years, this tax credit would be terminated automatically and could only be revived through legislative action,” says Levine. “We felt that was untenable.”
Ronald Wineholt, vice president government relations for the Maryland Chamber of Commerce, calls the tax credits “one of the most important economic development” tools.

But, he says of the original bill, “We were concerned that automatic termination of tax credits could limit the usefulness of businesses that were considering coming to Maryland.”
Sources: Brian Levine, Tech Council of Maryland; Ronald Wineholt, Maryland Chamber of Commerce
Writer: Barbara Pash
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