Assessments are based upon estimates of the market value of real property, including vacant and improved land.  In addition to monitoring and analyzing all real estate sales in Maryland, assessors use the Maryland Assessment Manual to estimate the replacement cost values of various types of real property improvements.  Commercial and Industrial Assessors also utilize the capitalization of net income in the valuation of income producing properties.  The Real Property Assessment Procedures Manual, the Code of Maryland Regulations, and commercially produced references are also used in the property valuation process.  The Department’s Computer Assisted Mass Appraisal System (CAMA) is used to improve data research, retrieval, and valuation computations.  Assessment values are furnished to each county and municipality for tax billing purposes.

Maryland law provides for a three-level administrative appeal process:  the Supervisor’s Level Hearing, the Property Tax Assessment Appeals Board, and the Maryland Tax Court.  During FY 2004, 26,277 Supervisor’s Level Hearings were conducted from the previous year’s reassessment.  Approximately 4.0% of the property owners subject to reassessment appealed their assessments.

The foundation of fair property taxation is uniform and accurate assessments.  The Department has adopted national standards for measuring property assessment quality as outlined by the International Association of Assessing Officers.  Maryland has excellent assessment uniformity.  To ensure the accuracy of assessments, the Department makes an annual assessment ratio survey by comparing actual sales with assessment levels in the various subdivisions.  This survey also determines how well our local assessment offices are keeping pace with current property values.

The Department is committed to providing the citizens of Maryland with outstanding service.  In order to obtain input from the public, an ongoing survey titled “How Are We Doing?” is used.  The survey brochures are prominently displayed in each office and are personally provided to first-level appellants. The survey results indicate a high degree of satisfaction for courtesy and professionalism.

This year the Department changed the format of the reassessment notice.  The “Taxable Assessment” values for properties qualified for a Homestead Credit were moved to a more prominent area.  This enhancement will allow property owners to more easily determine the assessment amount that will be the basis of their property tax bill.  Additionally, property owners who receive a reassessment notice, can now be mailed their property worksheet and sales analysis via an internet request without appealing.

It is important to the Department that property owners are informed on all assessment programs, credits and processes.  To insure accomplishing this objective, informational brochures are continuously maintained.  The brochures are available on the internet website or from any local assessment office.

TAXPAYER SERVICES DIVISION

Charter Services:

Whenever anyone creates a new business entity (a corporation, a limited liability company, a limited partnership, a limited liability partnership, or a business trust) that person files the formation documents with the central office of the Department of Assessments and Taxation.  This Charter Unit of the Department is also the central filing location for:  (1) the registration of a foreign or out-of-state entity doing business in Maryland; (2) the reporting of all resident agents for service of process, (3) the service of process for certain special entities; (4) obtaining a business trade name; (5) the submission of uniform commercial code (UCC) financing statements; (6) the issuance of a certificate of good standing for all entities in compliance with annual filing requirements; and (7) the issuance of certified copies of all documents of record.

This unit of the Department also collects several statutorily prescribed fees, including recording fees, organization and capitalization fees, an annual report fee by all for-profit entities, obtaining certified copies of documents, and fees for filing documents.  Last year, the Department collected and deposited into the State General Fund $8,722,000 in document fees for 190,246 transactions.  It also deposited $58.6 million in the $300 Annual Report fee collected from 198,000 for-profit entities doing business in the State.  Tables VIII and IX summarize the number of documents and revenues collected by the Charter Unit. 

To better serve the business filing community, the Department has refined three of its public information services.  First, the agency maintains a Charter Help e-mail service where filers can obtain answers to technical filing questions.  This past year, the Charter Unit answered 34,000 of these e-mail inquiries.  Second, the agency places on its website free downloadable images of all filed Charter or UCC documents within 48 hours of their processing.  Third, there is a 24-hour a day website address where the public can obtain for a fee a “certificate of good standing” widely used in settlements, refinancing, and in business or professional license renewals.

Business Personal Property Valuation:

The Personal Property Unit of the Department performs a significant function for local governments by valuing all tangible personal property owned by businesses operating in the State.  The Unit then certifies that assessment information to individual jurisdictions for their issuance of property tax bills.  In FY 2004, the total amount of assessable base certified to local governments equaled $11,347,096,450, and it produced $340.4 million in revenue to county governments.

The Personal Property assessors reviewed 242,000 returns in FY 2004.  Taxable assessments were made on 113,140 of the returns.  The assessors use the generally accepted accounting practices and depreciation schedules in order to certify assessments for each business location.  From these returns, the Personal Property Unit also certifies the amount of business inventory reported for each company so that the local jurisdictions and the Clerk of Court can determine the amount of the “trader’s license” fees for certain businesses.  There were 28,624 home-based businesses that were not subject to a taxable assessment because they are sole proprietorships which own property within an initial acquisition value of less than $10,000. 

The Personal Property Unit also reviews applications for exemption from the personal property tax by various charitable, educational, or religious organizations.  The State of Maryland has a stricter standard for granting property tax exemptions than what is required for receiving a federal 501(c)(3) non-profit determination.  Finally, the Unit processes applications from certain for-profit businesses seeking a “manufacturing exemption” allowed in the law for equipment used in a manufacturing process.

The Department has improved again this year the ease of using its website for businesses or professional tax return filers to obtain extensions to file personal property returns after the April 15 deadline.  The number of filers who used the internet extension system increased by 65% from the prior year’s total of 42,110 filers to 69,561 filers.

Table X lists the personal property exemptions allowed by the respective local governments for commercial inventory, manufacturing, and research and development property.  There are also two graphs following Table X which show the 10-year history of the growth in the personal property assessable base certified to local governments.

Franchise Taxes and Public Utility Valuation:

There are two operating units within this area of the Department which process two separate and distinct types of taxes.  One section administers the collection of franchise taxes on certain major utility companies, and the other section performs the assessment valuation of the operating property of utility companies and railroads.

Public service company franchise taxes are imposed on public utility corporations such as gas, electric and telephone companies for the privilege of doing business in the State.  Gas and electric utilities 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 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 a franchise tax of 2% on the gross receipts derived from business in Maryland.  All franchise tax revenues are deposited into the State General Fund.

For FY 2004, a total of $136,880,003.00 in public service company franchise tax revenues was collected and deposited into the State General Fund.  Total receipts increased 5.39% or $6,992,691.00, compared to FY 2003.  Receipts from gas and electric utilities increased by $1,874,637.00; while receipts from telephone companies increased by $5,118,054.00. 

Gas and electric revenues slightly improved in FY 2004; however, the increase in receipts was mainly attributable to the collection of deficiency assessments successfully imposed on a number of gas and electric utilities covering two or three calendar year filings.  Maryland mined coal tax credits claimed by electric utilities continued to increase.

The net increase in receipts from telephone companies for FY 2004 compared to 2003 was simply a result of the exhaustion of available carryover tax overpayments from the previous tax period for one of the large telephone taxpayers.  Full remittances of quarterly estimated payments resumed in FY 2004.

Substantial collection of interest arising from deficiency assessments imposed on the public service company franchise taxpayers for FY 2004 amounted to $512,917.

The Franchise Tax Unit also continues to audit and process refunds claimed on the amended financial institution franchise tax filings which are no longer subject to the tax but may file amended prior year returns.  FY 2004 ended with positive net tax receipts (after refunds) of $453,362.00, and the total amount of interest collected was $307,859.00.

The Utility Valuation Section is responsible for the property tax assessment of the operating real and personal property of electric companies, local gas distribution companies, interstate natural gas and oil pipelines, railroads, telecommunications companies, and water companies.  All operating property is assessed centrally as required by law in Sections 8-108 and 8-109 of the Maryland Tax Property Article.  The Utility Valuation Section is also responsible for the assessment of personal property for cable companies and non-utility electric generating companies.  The total assessed value of these properties statewide is over $10 billion.

The operating unit of the utility or railroad is valued as a whole by considering the earning capacity of the unit using the income method of appraisal.  The income approach is the primary method, however, other information is considered including the cost approach and market data when available.  The operating unit may include property functioning on an interstate basis such as an interstate pipeline, railroad, or telecommunications companies.  Therefore, the Maryland portion of the operating unit value is apportioned to the State.  The Maryland assessment is apportioned to 23 counties and Baltimore City and to all incorporated municipalities based on the location of the property.

Utility companies reflect the changing economic environment.  The Cove Point LNG Marine Import Facility was recently reactivated to receive deliveries of liquid natural gas.  The current demand for natural gas has improved the economic viability of this facility.  The plant is one of four currently active import terminals in the United States.  Telecommunication companies continue to restructure and consolidate.  Subsequent to the June 2004 Supreme Court decision not to require the local incumbent telecommunication carriers to share their networks with competitors at discounted prices, the three major long distance carriers announced write-downs of the book value of their property.  Two major long distance companies are being purchased by incumbent local exchange carriers.  Electric companies continue to adjust to the restructured environment as customers transition from capped rates to market based rates for commodity electricity.  Utilities continue to provide delivery service to all customers in their territory.

Homeowners’ Tax Credit Program:

The Homeowners’ Tax Credit Program has always been considered the State’s major property tax relief program because it granted a property tax credit to homeowners of all ages whose property tax bills are disproportionate to the amount of their gross household income. 

In 2004, there were two major studies by the General Assembly’s Department of Legislative Services and this Department showing that there has been a significant decrease in the number of program recipients over the past five years because State funding has not been available to adjust the parameters of the program based upon current realities.  Neither the credit formula or the amount of assessment eligible for the credit has been increased to reflect changing income and assessment

levels.  The implied guarantee of this program that no homeowner would have to sell his or her home because of inability to pay the property tax bill can no longer be stated.

The Department continues its outreach efforts to attract new applicants to the program each year, and for the past five years, there has been an average of 18% of the total number of applicants who are new first time applicants.  However, these new applicants are not qualifying for the credit at the same rate at which others have qualified in the past.

Table XI shows that there were 1,292 fewer credit recipients in FY 05 in comparison to the prior year.  The total expenditure for credits between the two fiscal years has declined from $40,471,945 to $39,869,755.

Renters’ Tax Credit Program:

The Department administers the State of Maryland Renters’ Tax Credit Program.  The program operates on the premise that renters should receive a tax credit as homeowners do if they qualify on the basis of a comparison gross household income to the amount of property taxes paid.  The Renters’ Program assumes that 15% of the yearly rent goes toward the payment of property taxes.  The program is available to renters aged 60 or older, to the 100% disabled, and to renters under age 60 with at least one dependent child.  An eligible renter can get a tax credit of up to $600 a year in the form of a check payment from the State.  The Department processes the application forms on a monthly basis by verifying the income reported and the amount of rent paid in order to authorize the issuance of the check payment.

Table XII provides an itemization by subdivision of the number of recipients and the amount of Renters’ Tax Credit granted for the 2004 application year.  The State issued tax credit payments totaling $3,018,125.18 to 11,111 eligible applicants.  The statewide average credit received was $271.63.  Eighty percent of these recipients were 60 years of age or older.

Exempt Property:

The Maryland General Assembly has enacted a series of laws dating back to 1972 that create a method of granting property tax exemptions to organizations which serve certain public and other communal purposes.  Generally, exemptions are granted to charitable, educational or religious organizations whose property is “actually used exclusively” for the enumerated exempt purpose.

The Department conducts a thorough review of all applications for a property tax exemption.  The review includes an examination of the corporate and financial records of the organization and a physical inspection of the specific use of the subject property.

Table XIII shows the amounts of real property assessable base exempted from State, County, and municipal property taxes in the 2004-2005 tax year (FY 2005).  Obviously, the largest category of exempt property is government property owned by the State, the counties, the municipalities, and the federal government.  The respective amounts of assessable base are:  $20.7 billion in county and municipal property; $10.2 billion in federal property; and $7.9 billion in State owned property.

The largest amount of exempt assessable base for privately held property is that owned by religious organizations.  For the 2004-2005 tax year, religious organizations were exempted from paying property taxes on properties with an assessable base in excess of $6.2 billion.  It is interesting to note that in any given tax year, the Department receives four exemption applications from religious organizations for every one exemption application it receives from a charitable or educational organization.

The table further shows that charitable, benevolent and fraternal organizations received exemptions on real properties with a total assessable base in excess of $5.3 billion.  Educational organizations received exemptions on properties with an assessable base in excess of $2.3 billion.  Disabled veterans, blind persons, and foreign embassies received individual exemptions on properties with an assessable base of $1 billion.

Collectively, the privately held or non-governmentally owned exempt properties received approximately $225 million in annual property tax savings.

Enterprise Zone Credits:

The Enterprise Zone Tax Credit Program has established itself as one of the favored economic development tools by businesses that are expanding or locating in the State of Maryland.  This Department administers the property tax credit component, which business owners indicate is the most desirable of these credits.  The property tax credit allows eligible businesses in the designated zones savings of 80% of the taxes on the increased assessment on new construction for the first five tax years, and there are savings of 70% to 30% over the next five tax years.

The Department has significant communications with business owners explaining the tax savings in individual instances.  The agency also calculates the amount of assessment eligible for each year’s credit and certifies that amount to the local governments for the deduction of the credit from the July property tax bills of the eligible businesses.  Finally, the Department authorizes payments to the local governments for the State’s one-half share reimbursement for the credits granted in the previous tax year.

Table XIV shows that there are 557 businesses receiving Enterprise Zone Property Tax Credits for the 2006 fiscal year.  These businesses located throughout the State have made new capital investments totaling $1,156,658,351.  This amount of capital investment can be measured against the State’s one-half share reimbursement of $5,874,853.

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.    

2004 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 use of the Internet services continues to climb each year as evidenced by the statistics below and customers are finding the services user friendly, efficient and expedient.

The Department currently averages over 700,000 “hits” daily (over 21,000,000 monthly) on our website, which is available 24 hours a day, seven days a week.   This is an increase of 40% from the prior year.

The Department is committed to moving services from "standing in line to being online".  Of the 29 Internet capable services that the Department has inventoried, 26 or 89.7% have been web enabled.

            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 2004, approximately 375,000 document images were requested via this service.  This is an 88% increase over the previous year.

            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 the past year, approximately 25,000 or 50% of the 48,000 yearly requests were filed using this web service and generated approximately $500,000 in revenue.   This is an increase of over 55% from the previous year.

            Personal Property Returns – Extension Requests:

The Department offers customers the ability to file for personal property tax return extensions over the web.  During this past year, approximately 70,000 or 65% of the overall 107,000 extension request were filed using this service.  This is an increase of 20% from the previous year.

            Internet Advertising Initiative: 

During the past year, 28 different advertisers used this service generating revenue that was used to reduce the Department’s web site hosting costs. 

            Real Property Assessment Appeals: 

Since January 2002, property owners have been able to file real property assessment appeal requests via the Internet. During 2004, property owners filed approximately 5,380 appeals.  This represents three 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 2004, over 21,000 real property supplemental notices, 15,000 hearing notices, and 30,000 final notices were prepared.  In addition, 13,000 tax credit denial letters, 13,000 tax credit certificates and 27,000 tax credit requests for additional information were printed, processed, and mailed to homeowners under this service.

The daily average for Corporate Charter and Uniform Commercial Code documents processed from the Document Center is approximately 1,500 letters per day.  In addition, the following batch jobs were printed and processed from the center:  Personal Property estimated assessment notices 25,000; Foreign Corporation Courtesy Notices 11,000; Domestic Corporation Final Forfeiture Notices 31,000 and Foreign Corporation Final Forfeiture Notices 10,000.

            Real Property System/Other:

The Department has significantly extended and streamlined its File Transfer Protocol (FTP) services to county and local governments and tax billing authorities.  The Department now provides data and billing information on-line to the majority of county finance offices and municipalities.  This effort has eliminated the use of outdated off-line tape technology, reduced mailing costs, and expedited the exchange of data between the Agency and county and local government organizations.

Migrated and converted all DAT communication circuits to Network.Maryland, a year ahead of schedule.

The Disaster Recovery Plan and Security Plan were completed and submitted to the Department of Budget and Management to comply with State requirement; part of this effort involved the successful completion of desktop testing for the Disaster Recovery Plan.

Implemented ‘pilot’ project to convert a number of Group Wise users to web access email client which resulted in a reduction of software maintenance costs while providing comparable email functionality.

            Maryland Business Entity System (MBES):

The implementation of the new $300 filing fee requirement entities as result of the new $300 filing fee requirement for business entities as a result of new legislation.

Implemented a new ground rent document and inquiry application (in-house and on Web)

Implementation of new domestic forfeiture reason inquiry access via WEB. Replaced the manual mailing of notices, saved on postage and more user friendly.

Automated Service of Process task which was previously done manually.

Automated the receipt process by county and local governments for personal property reports.  These reports are now done through FTP or emailed eliminating the printing and mailing of reports except for a few locations.  This improved efficiency and saved on postage costs.

Implemented non-refundable fee collection which has resulted in the ability to absorb monies for rejected documents over 180 days.  Previously this capability was not available.

The use of  CPU CICS transaction time was reduced by streamlining search keys and indexes resulting in Annapolis Data Center cost savings.