Agenda Item 4A
December 6, 2016
Introduction
MEMORANDUM
December 2, 2016
TO:
FROM:
County Council
n
Robert H. Drummer, Senior Legislative
Attorne~J
SUBJECT:
Introduction:
Bill 48-16, Taxation - Credit to Offset Certain Income Tax Revenues ­
Amendments
Bill 48-16, Taxation - Credit to Offset Certain Income Tax Revenues - Amendments, sponsored
by Lead Sponsor Government Operations and Fiscal Policy Committee, is scheduled to be introduced on
December 6,2016. A public hearing is tentatively scheduled for January 17,2017 at 1:30 p.m.
Bill 48-16 would clarify the eligibility for the property tax credit to offset certain income
tax
. revenues.
Background
Maryland law permits counties to provide a property
tax
credit to offset a portion of the income
tax
levied. Under Md. Code, Tax-Property §9-221 (Property Tax Credit for Income Tax Offset or ITOC),
the credit is only available to the owner-occupied property of a homeowner, as described in Md. Code,
Tax-Property §9-105 (Homestead Tax Credit),
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which in turn defines a homeowner as an individual having
a legal interest in a dwelling. A dwelling is then defined as a house or unit that is used as a principal
residence and is actually occupied as such (or expected to be occupied as such) for at least 6 months out
of the relevant 12 month period.
Montgomery County implemented the property tax credit for income tax offset
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law in County
Code §52-86, which states that an "eligible taxpayer is any homeowner who
qualifies
for a homestead
property
tax
credit under Maryland Code, Tax-Property Article, Section 9-105, or any successor
provision." The Montgomery County law further states that a taxpayer need not file an application to
receive the income tax offset credit.
The State Homestead Tax Credit is a "circuit-breaker" that limits the amount of any annual property tax increase for
homeowners who use the home as a principal residence and occupy it as such for at least 6 months out ofthe relevant 12 month
period. The impact of this "circuit-breaker" protection is felt during periods of rapidly rising assessments. The effect of the
credit is to spread the increase out over multiple years.
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The amount of the County's property tax credit for income tax offset is set annually by resolution. For FYI7, the credit is
$692 per eligible homeowner. Approximately 244,000 taxpayers will receive the credit in FYI7.
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Several years later, the State of Maryland amended Tax-Property
§9-105
(Homestead Tax Credit).
The amendment added a new requirement to the Homestead Tax Credit law: to qualify for the credit under
this section, a homeowner must submit an application for the credit to the State.
This change to the Homestead Tax Credit law has resulted in some confusion about the County's
property tax credit for income tax offset.
Discussion
1.
Is there a link under Maryland law between the State Homestead Tax Credit and the State law
enabling counties to implement a property tax credit/or income tax offset?
No.
As noted above, Tax-Property
§9-221
(Property Tax Credit for Income Tax Offset)
does
incorporate by reference the definition of "homeowner" in Tax-Property
§9-105
(Homestead Tax Credit).
There is no other link under State law between these two sections of the Tax-Property Article.
There is
no indication that the legislature intended, by adding the Homestead Tax Credit application
requirement, to affect eligibility for any local income tax offset credits.
At the time the Homestead
application requirement was enacted, SDAT advised the County Department of Finance that the
Homestead application requirement was not intended to affect anything other than the Homestead Tax
Credit, and SDAT implemented the application requirement in a way that ensured that it did "not affect
other credits.
2. Is there a link under Montgomery County law between the County's property tax credit for
income tax offset and the State's Homestead Tax Credit law?
Yes.
Montgomery County Code
§52-86
entitles eligible taxpayers to receive a property tax credit
to offset certain income tax revenues.
An
eligible taxpayer is any homeowner who
qualifies
for a
homestead property tax credit under Maryland Code, Tax-Property Article, Section
§9-105,
or any
successor provision. This reference allows Montgomery County to refer to an existing definition
in
the
State code, thereby limiting the number of statutory definitions. Unfortunately, it also adds ambiguity to
the County law by appearing to allow Montgomery County to piggyback on the State's determination of
eligibility for the Homestead Tax Credit.
The County Attorney and the Department of Finance have consistently interpreted the County
income tax offset credit law to not require a taxpayer to file the State application for the Homestead Credit.
3. Has the Council ever decided as a matterofpolicy that Montgomery County taxpayers must
satisfy the application requirement of the State's Homestead Tax Credit law in order to
receive the County's property tax credit for income tax offset?
No.
There is no evidence to suggest that the County Council ever made a policy decision that
Montgomery County taxpayers, in order to be eligible to receive the property tax credit for income tax
offset, must satisfy the application requirement of the State's Homestead Tax Credit. The County's
property tax credit for income tax offset was created
in
1998,
and the changes to the State Homestead Tax
Credit law occurred in
2005.
Furthermore,
the County's law expressly states that a taxpayer need not
file an application to receive the County's credit.
Therefore, the County law states a policy that
eligibility would not depend on whether or not a taxpayer had completed an application or certification
form.
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4. Has Montgomery County ever informed taxpayers that they would lose their property tax
credit for income tax offset if they do not submit an application to the State for the
Homestead Tax Credit?
No.
Consistent with Montgomery County's interpretation that there is no connection between the
property
tax
credit for income
tax
offset and the State application for the Homestead Tax Credit, and the
unambiguous position from SDAT at the time they initiated the homestead credit application process, the
Department of Finance has indicated that there
has
never been any public information campaign to warn
County taxpayers that they would lose their property tax credit for income tax offset if they do not apply
for the State's Homestead Tax Credit.
Government Operations and Fiscal Policy (GO) Committee Worksession.
On June 30, 2016, the GO Committee discussed these issues in a worksession on the income tax
offset credit law. The Committee requested staff to work with Finance to draft legislation that would
clarify that a property owner did not need to qualify for the State Homestead Tax Credit in order to be
eligible for the County ITOC. Bill 48-16 would clarify the County's interpretation of the current law and
remove any ambiguity that has arisen since the State began requiring a property owner to apply for the
State Homestead Tax Credit.
This packet contains:
Bill 48-16
Legislative Request Report
F:\LAW\BILLS\1648
IToe -
Amendments\Intro Memo.Docx
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Bill No.
48-16
Concerning: Taxation - Credit to Offset
Certain Income Tax Revenues ­
Amendments
Revised: October 24. 2016 Draft No.
!..­
Introduced:
December 6.2016
Expires:
June 6. 2018
Enacted: _ _ _ _ _ _ _ _ __
Executive: _ _ _ _ _ _ _ __
Effective: _ _ _ _ _ _ _ _ __
Sunset Date:
---!...!.No~n.!!:e:....._
_ _ _ _ __
Ch. _ _ Laws of Mont. Co. _ __
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COUNTY COUNCIL
FOR MONTGOMERY COUNTY, MARYLAND
Lead Sponsor: Government Operations and Fiscal Policy Committee
AN
ACT
to:
(1)
(2)
clarify the eligibility for the credit to offset income
tax
revenues; and
generally amend the law governing the credit to offset income
tax
revenues.
By amending
Montgomery County Code
Chapter 52, Taxation
Section 52-86
Boldface
Underlining
[Single boldface brackets]
Double underlining
[[Double boldface brackets]]
'" '" '"
Heading or defined term.
Added to existing law by original bill.
Deletedfrom existing law by original bill.
Added by amendment.
Deletedfrom existing law or the bill by amendment.
Existing law unaffected by bill.
The County Council for Montgomery County, Maryland approves the following Act.'
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BILL
No. 48-16
1
2
Sec.
1.
Section 52-86 is amended as follows:
52-86. Credit to offset certain income tax revenues.
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W
The Director of Finance must allow [each eligible taxpayer] a credit
against County real property taxes due in each tax year [in which the
taxpayer is eligible for the credit] for each property that is an owner­
occupied dwelling of a homeowner as defmed in Md. Tax-Property Code
§9-105(a), as amended.
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(b)
The Director must not grant the credit if the Director finds that the
property is not an owner-occupied property ofa homeoWner. [An eligible
taxpayer is any homeowner who qualifies for a homestead property tax
credit under Maryland Code, Tax-Property Article, Section 9-105, or any
successor provision.]
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*
Approved:
*
*
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15
Nancy Floreen, President, County Council
Date
16
17
Approved:
Isiah Leggett, County Executive
Date
18
19
This is a correct copy ofCouncil action.
Linda M. Lauer, Clerk ofthe Council
Date
f:\law\bills\1648 itoe - amendmenis\bill 4.docx
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LEGISLATIVE REQUEST REPORT
Bill 48-16
Taxation
-
Credit to Offset Certain Income Tax Revenues
-
Amendments
DESCRIPTION:
Bill 48-16 would clarify that a property owner did not need to qualify
for the State Homestead Tax Credit in order to be eligible for the
County property tax credit to offset income tax.
Legislative changes to the State Homestead Tax Credit law requiring a
homeowner to apply for the State credit has resulted in some confusion
about the County's property tax credit to offset income tax.
Clarify the eligibility for the County property tax credit to offset
income tax.
PROBLEM:
GOALS AND
OBJECTIVES:
COORDINATION:
FISCAL IMPACT:
ECONOMIC
IMPACT:
EVALUATION:
EXPERIENCE
ELSEWHERE:
SOURCE OF
INFORMATION:
APPLICATION
WITIDN
MUNICIPALITIES:
PENALTIES:
Department of Finance, County Attorney
To be requested.
To be requested.
To be requested.
Not applicable.
Robert H. Drummer, Senior Legislative Attorney
Yes.
None
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