Maryland’s CPAs are once again flexing their legislative muscles on behalf of their profession.
The latest examples are Karen Syrylo, a sole practitioner and active volunteer with the Maryland Association of CPAs’ State Tax Committee, and Allen DeLeon, founding partner of DeLeon & Stang CPAs and Advisors and a longtime MACPA legislative volunteer.
On Wednesday, Syrylo traveled to Annapolis to testify in support of two bills — Senate Bill 523, “Income Tax — Pass-Through Entities — Imposition of Tax,” and similar legislation in the form of House Bill 129, “Taxes — Election for Pass-Through Entities.”
SB 523 calls for “altering the tax imposed on certain pass-through entities; requiring each pass-through entity to pay the tax imposed with respect to certain shares of certain non-resident and non-resident entity members of the pass-through entity; authorizing a pass-through entity to pay the tax imposed with respect to certain shares of all members of the pass-through entity; providing for the calculation of the tax; (and) prohibiting the tax required to be paid for any taxable year from exceeding a certain amount.”
“Many of our members serve clients that are, or are employed by, businesses that are among the thousands of Maryland’s pass-through entities — i.e. S corporations, partnerships, and limited liability companies,” Syrylo testified.”SB 523 represents a unique opportunity for the Maryland legislature to provide federal tax relief to the owners of these businesses without any impact at all on the state’s and locals’ income tax revenues.”
Maryland’s current law requires the pass-through entity (PTE) tax to be paid with respect to only non-resident members. SB 523 would retain that requirement, and also allow PTEs to elect to pay tax with respect to all of their members, both resident and non-resident. The tax being imposed on and paid by the PTE thus allows the position that the entity tax is not subject to the new federal $10,000 limitation on deductions for state and local taxes, newly imposed by the U.S. Congress when it enacted the 2017 federal tax law known as the Tax Cuts and Jobs Act. That $10,000 limitation applies only to individuals and not to state taxes imposed on business entities. The bill, therefore, will also put PTE businesses on a level playing field with C corporations, which have no limitation on their state tax deductions for federal tax purposes.
The PTE tax rate in the bill is set at the highest “state” rate plus the lowest “local” rate for individual members (in order to avoid constitutional issues regarding taxation of non-residents) and the current corporate rate for members that are other entities. The PTE income will still be reported on the member’s personal tax return, and the member will reflect Maryland credits for the part of the PTE’s state plus local tax that relates to his share of the PTE’s income. For residents who live in localities with tax rates that are higher than the lowest rate, the rate that the PTE paid, the residents will be responsible for an additional amount so that their total tax is calculated at their actual rate. This approach will allow for proper reflection of the state and local tax amounts on the individual return, resulting in the same state revenue and local revenue as prior to this change.
“Several other states have implemented laws for the same treatment of PTE taxes — e.g. Connecticut’s law was enacted in 2018,” Syrylo testified. “We hope that Maryland will do the same.”
She also testified in support of HB 129, provided certain amendments are made that would bring it in line with the Senate version.
The MACPA and its members have a long history of advising lawmakers on key issues that could impact the profession.Time and again, legislators and politicians have reached out to us to advise them on dozens of tax-related proposals, particularly in the wake of the federal Tax Cuts and Jobs Act of 2017. Syrylo is just the latest MACPA member to step to the legislative plate, and MACPA CEO Tom Hood offered his “sincere thanks” for her efforts on behalf of our profession.
Support for Commission on Tax Policy
DeLeon, meanwhile, traveled to Annapolis on Jan. 29 to voice support for Senate Bill 223, which calls for the creation of a Commission on Tax Policy, Reform and Fairness. In addition, he supported the MACPA’s stance that the bill should be amended so that the Commission would include a member of the Maryland Association of CPAs.
CPAs with expertise in tax “will collaborate with Commission members to effectively analyze and evaluate proposals to improve existing tax rules and tax systems,” DeLeon testified. “CPA tax experts can provide the Commission with a uniquely qualified perspective and will contribute technical expertise and objective analysis based on widely accepted guiding principles of good tax policy.”
More MACPA testimony
The MACPA also submitted written-only testimony on two other legislative proposals:
House Bill 295, “Corporate Income Tax — Combined Reporting”
This bill would require affiliated corporations to compute Maryland taxable income using a certain combined reporting method; require the Comptroller to report by March 1 of each year an estimate of the total additional tax revenue from corporations to be collected in the next fiscal year as a result of the combined reporting method; and require the Comptroller to distribute certain revenue from corporations to The Blueprint for Maryland’s Future Fund.
The MACPA opposes the bill.
“It was evident from data gathered from corporations by the Comptroller’s office that combined reporting is a change which positively impacts some businesses while negatively impacting other businesses,” the MACPA testified in writing. “As CPAs, we represent businesses in both categories and, as such, do not take a position to support or oppose the adoption of combined reporting into Maryland law. Rather, our focus is to ensure that any legislation on this topic is both enforceable and comprehensible in order for our members to effectively compute this tax for clients. While we are neutral with regard to the enactment of combined reporting, we oppose this bill due to the complexity and problems that would result from unclear aspects of the language and also the effective date.”
Senate Bill 486, “Income Tax — Itemized Deductions”
This bill would allow an individual to itemize deductions to compute Maryland taxable income whether or not the individual itemizes deductions on the individual’s federal income tax return. It also would provide that, for an individual who does not itemize deductions on the individual’s federal income tax return, Maryland itemized deductions shall be determined as if an individual itemized deductions on the federal income tax return. It would apply the Act to taxable years after Dec. 31, 2019.
The MACPA supports the bill with certain amendments.
“We support a provision allowing Marylanders to itemize deductions on the Maryland return even if the standard deduction is taken on the federal tax return,” the MACPA testified in writing. “However, we would like clear language indicating that the itemized deductions are to be based on the currently enacted version of the Internal Revenue Code with limited modifications.”