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.