Ways and Means Committee adopts revenue summary, advances multiple tax changes and funding transfers

The Ways and Means Committee adopted a revenue summary sheet and voted on a series of tax and revenue items affecting the state’s general fund, transportation trust fund and several targeted credit programs, concluding with a favorable report on House Bill 352 as amended.

The summary presented by a Department of Legislative Services analyst outlined a package of revenue changes that would, among other provisions, accelerate the reduction of the film production activity tax credit cap to $12,000,000 beginning in fiscal 2026 and permit local jurisdictions to raise the maximum local income tax rate from 3.2% to 3.3% if they choose. It also directs new and modified transportation-related charges into the Transportation Trust Fund, including higher vehicle excise and registration fees.

Why it matters: The actions alter revenue flows to major state funds and shift some costs and program caps that can affect counties, vehicle owners and higher-income taxpayers differently. Several adopted items redirect or cap funds that previously were dedicated to specific programs.

Key provisions and fiscal details

- Film production credit: The committee accelerated a decline in the production activity tax credit cap so it is capped at $12,000,000 beginning in fiscal 2026 rather than 2027. The analytic summary noted the cap had been scheduled to decline already; the change moves that date up by one year.

- Transportation funding and vehicle levies: The package would raise the vehicle excise tax from 6% to 6.8%, with an estimated generation of about $158,000,000; increase registration testing fees under the Vehicle Emissions Inspection Program (VEEP) to a maximum of $30; make short-term vehicle rentals subject to a 3.5% excise tax (estimated $47,000,000); and double certificate-of-title fees from $100 to $200 for most vehicles (estimated $80,000,000). The Transportation Trust Fund was identified as a recipient of several of these amounts.

- Historic vehicle tag: The proposal would tighten eligibility for historic vehicle tags so only pre-1999 models qualify; vehicles currently tagged between the prior threshold and that date would no longer qualify for the historic designation unless otherwise grandfathered (the committee record shows no grandfathering provision was adopted).

- Income-tax structure and local option: The proposal restructures income tax brackets and increases the maximum allowable local “piggyback” income tax cap from 3.2% to 3.3%, an option that local jurisdictions may or may not adopt. Committee discussion noted that any locality that adopts the higher local rate could offset some state-level reductions for residents in that jurisdiction.

- Senior tax credit trigger: Under current statute a reduction trigger for a senior tax credit is set at a 7.5% revenue decline; the summary discussed changing that trigger to 3.75% of general fund revenues and observed that a 3.75% decline in general fund revenues would have been reached only twice in the past 25 years, both during the Great Recession. "The 3.75% would only have been hit twice in the last 25 years, both times during the Great Recession," the DLS analyst said.

- Taxation of data and IT services and digital products: A representative of the Comptroller’s Office (Mr. Butler) said the proposal would apply tax to information and data technology services described under specified NAICS sectors and to system/application software publishing and licensing of media or software rights. Deborah Gorman of the Comptroller’s Office legal division said, "Digital products are going to continue to be taxed at 6 percent," and explained the new services provisions would be taxed at a different rate (as described in committee documents).

Committee actions and votes (at a glance)

The committee considered a long list of numbered items. Below are each item and the committee’s recorded action or change as reflected in the hearing record.

- Revenue summary sheet — Motion to adopt the revenue summary sheet: adopted; several delegates recorded as opposed (Delegates Buckle, Hornberger, Long, Hartman and Griffith).

- Item 52 (casino table-game tax increase from 20% to 25%): Motion to reject item 52 — adopted (item 52 rejected).

- Item 53 (mobile sports wagering rate increase): Modified from 30% to 20% as shown in the tax summary — modification adopted; several delegates recorded as opposed.

- Item 60 (cap on revenues allocated to the Maryland Innovation Initiative Fund from certain gaming receipts): Adopted (cap established at $8,500,000 with remainder to the General Fund).

- Item 67 (disallow trade-in allowance for vehicle excise tax when purchase price exceeds $15,000): Motion to reject item 67 — adopted (item 67 rejected).

- Item 71 (retail delivery fee 75¢): Motion to reject item 71 — adopted (item 71 rejected).

- Item 72 (authorize MVA to increase VEEP testing fee to $30 beginning FY26): Motion to adopt transportation revenues on the tax summary — adopted; recorded opposition by several delegates.

- Item 73 (reduce estate tax exemption from $5,000,000 to $2,000,000 and repeal inheritance tax): Motion to reject item 73 and keep current law — adopted (item 73 rejected).

- Item 74 (reduce cap on student loan debt relief tax credits for 2025 from $18,000,000 to $9,000,000 and require MHEC report): Adopted.

- Item 75 (reversion of certain excess funds to the General Fund and $4,300,000 transfer): Adopted (administration alternative adopted with timing changes maintained).

- Item 76 (increase local cost-share for SDAT property valuation and IT costs from 50% to 90%): Adopted (committee discussion identified this as a cost shift to counties; members asked for a county-by-county breakdown).

- Item 77 (phase out enterprise zone property tax credit): Motion to reject item 77 and the administration alternative and keep current law — adopted (item 77 rejected).

- Item 78 (income tax rate consolidation and related changes): Modified to conform to the tax summary — modification adopted.

- Item 79 (capital gains surcharge for certain AGI thresholds): Modified as shown on the tax summary — modification adopted.

- Item 80 (combined reporting for corporate income tax; delay and no rate reduction): Modified to adopt combined reporting but make no rate changes — adopted; discussion clarified this was a water's-edge combined reporting approach starting later.

- Item 81 (increase cannabis sales tax rate): Modified on the tax summary (committee moved to a 12% rate rather than a proposed 15%) — modification adopted.

- Item 91 (transfer from Maryland Innovation Investment Tax Credit to the General Fund): Adopted.

- Item 107 (reduce percentage of video lottery terminal proceeds dedicated to a first account from 6% to 5%): Motion to reject item 107 — adopted (item 107 rejected).

- Item 110 (film production tax credit cap accelerated to $12,000,000 beginning FY26): Adopted (as reflected in the tax summary adopted earlier).

- Item 112 (repeal back-to-school sales tax holiday): Motion to reject item 112 — adopted (item 112 rejected).

- Item 113 (repeal sales tax exemption for precious metals sales over $1,000 with exception): Modified to except events at the Baltimore City Convention Center — modification adopted.

- Item 114 (repeal $1,000 income tax exemption for individuals 65 or older): Motion to reject item 114 — adopted (item 114 rejected).

- Item 117 (increase sales tax rate for high-value properties): Motion to reject item 117 — adopted (item 117 rejected).

- Item 121 (transfer of certain transfer tax revenues and changes to Project Open Space/state land acquisition funding): Modified by Appropriations to remove Maryland Park Service provision and transfer $25,000,000 annually FY26–FY29 proportionally from state land preservation accounts — modification adopted after discussion. Recorded opposition by several delegates.

- Final action: The committee moved to adopt the Appropriations Committee actions related to the items and then voted to issue a favorable report on House Bill 352 as amended. The committee adopted the favorable report on HB 352 as amended; the same set of delegates (Buckle, Hornberger, Long, Hartman and Griffith) were recorded as opposed to the final bill vote.

Discussion highlights and points of committee concern

- County cost shifts: Several delegates pressed for locality-level fiscal detail, specifically asking for a county-by-county breakdown of the estimated $21,021,000 statewide shift tied to SDAT cost-sharing changes. Committee staff said the statewide total is $21,000,000 and that a county-level breakdown exists and can be provided.

- Wrongful-conviction settlement cost sharing: Appropriations had adopted a provision the committee discussed that would require local governments to pay 50% of new settlements entered after a certain date. Several delegates asked why counties would bear costs when prosecutors and judges, who are independent actors, are involved; staff explained the rationale adopted by Appropriations was that state’s attorneys are local government employees and the county should share some of the fiscal burden.

- Definition and overlap questions for IT/digital taxes: Delegates asked how the proposed tax on data and IT services would interact with the existing digital products tax and where line-drawing occurs. Comptroller staff identified specific NAICS sectors covered by the services proposal and said some of those services would be proposed at a different tax rate than current digital-product taxation.

Quotations

"The 3.75% would only have been hit twice in the last 25 years, both times during the Great Recession," said the Department of Legislative Services analyst summarizing how rare such a decline in general fund revenues would be.

"Digital products are going to continue to be taxed at 6 percent," said Deborah Gorman of the Comptroller’s Office legal division when describing interaction between digital-product taxation and the new services provisions.

Ending

Committee members and agency staff said they would circulate additional county-level costing data and clarifications of draft language; the committee’s favorable report on House Bill 352 as amended was forwarded for further action. The record shows recurring opposition from a consistent group of delegates on multiple items; final vote tallies for many items were recorded as voice votes with named oppositions noted in the transcript.