The State Department of Assessments and Taxation was established in 1959 and was assigned the administrative functions formerly given to the State Tax Commission. The Department has broad responsibilities including (1) supervision of the real and personal property tax structure of the State, (2) creation and maintenance of State records that establish corporations and other business entities, (3) administration of property exemptions and State property tax credit programs, and (4) publication of statistics and reports.

OFFICE OF THE DIRECTOR

The Office of the Director performs functions necessary for the management of the entire agency including the Director's staff, Accounting, Equal Employment Opportunity, Personnel, and the Office of Attorney General. The Director's Special Assistant coordinates legislation, compiles statistics and reports, monitors assessment levels, and assists the Director in agency management.

The Human Resources Section is responsible for recruitment, position classification, salary administration, employer-employee relations, health benefits, retirement, substance abuse, workers' compensation, unemployment insurance, collective bargaining, teleworking, tuition reimbursement, training, and timekeeping.

The Equal Employment Opportunity Officer monitors personnel actions and investigates EEO complaints. The Office of Attorney General provides advice to program managers on legal matters and represents the Department in litigation.

REAL PROPERTY VALUATION DIVISION

The Real Property Valuation Division functions under the Tax-Property Article of the Maryland Annotated Code and is responsible for performing real property assessments of residential, commercial, industrial, and agricultural properties throughout the State. The valuation of property is professionally conducted by assessors working in the 23 counties and in Baltimore City. Real property assessing is based on a three-year cycle in which a third of all real property is reviewed every year.

Assessment notices were mailed in December 2005 to 711,000 property owners throughout Maryland which reflected the continued phenomenal growth in real estate values across the State for the past three years. These growth trends created an average 60.2 percent increase in assessment values for reassessed properties statewide; this is an annual increase of 20.1% for each of the next three years. This was the largest value increase in Maryland since the beginning of triennial reassessments in 1980.

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 2006, 33,741 Supervisor’s Level Hearings were conducted from the previous year’s reassessment. Approximately 4.7% 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 “PLEASE RATE OUR PERFORMANCE” 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.

Additionally the Department has received funding approval for combining our existing administrative and valuation systems into one relational database system. This new system will provide enhanced functionality to the valuation, analysis and administrative processes. Full implementation is projected for early 2008.

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: 

This unit of the Department performs a wide cadre of services to the business filing public and in the collection of related fees mandated by State law.  The Department is the central location where anyone wishing to legally form a business comes to create that entity.  These business types include corporations, limited liability companies, limited partnerships, limited liability partnerships, and business trusts.  The Charter Unit is the location where out-of-state entities doing business in the state must register.  Other business related functions include a reporting system for maintaining all resident agents for service of process, the service of process for certain special entities, a system of issuing a “certificate of good standing” for all entities in compliance with filing requirements, and the issuance of certified copies of all documents on record.  This section of the Department has a recently added duty of processing “ground rent” redemptions.

Two other major functions of the Charter Unit are to be the filing office for all Uniform Commercial Code financing statements and to be the collector of several statutorily prescribed fees.  These fees include organization and capitalization fees, recording fees, an annual report fee from all for-profit business entities, and fees for filing documents and obtaining certified copies.

Tables VIII and IX list the number and types of documents processed and the revenues collected by the Charter Unit.  In fiscal year 2006, the unit processed a total of 212,140 document transactions.  It deposited into the State General Fund $69.9 million in Annual Report fees received from 235,462 business entities and $11,958,921 in recording fees. 

The Charter portion of the Department’s website provides fill-in-the blank forms, commonly asked questions, and a schedule of fees in an easy to understand format.  In addition, the Department maintains a “Charter Help” e-mail service to assist individual filers with technical filing questions that are answered within 48 hours of their receipt.  The website provides 24 hours a day, 7 days a week on-line access to “certificates of status” with a unique verification number for all registered business entities in the State of Maryland.  These certificates are widely used in business commerce for settlements, refinancing, and business or professional license renewals.  In addition, the Department’s website provides free downloadable images of all business formation and UCC document filings within 48 hours of their processing by the agency.

Business Personal Property Valuation: 

In addition to being the central location for businesses to form their legal existence and report resident agents for the service of process, the Department has a long history of being the assessing authority for the valuation of all tangible personal property owned by the businesses operating in the State. 

The Department’s Personal Property Valuation Unit received 243,000 returns in fiscal year 2005, and there were 115,000 returns reporting taxable property.  There were 33,751 home-based businesses that were not subject to assessment because they are exempted under the law as sole proprietorships owning property with an initial acquisition cost of less than $10,000.  Using generally accepted accounting practices and depreciation schedules, the unit determined that the total amount of assessable base for the taxable returns equaled $11.06 billion. When the local property tax rates were applied to this amount of assessable base, it resulted in $332 million in revenue to county governments.  There are two graphs on  Page 27, following Table X showing the growth in the amount of personal property assessable base certified to local governments over a 10-year period.

Another function performed by this unit in order to assist local governments is to certify the amount of business inventory for each business so that the local jurisdictions and the Clerk of the Court can determine for certain businesses the amount due for a “trader’s license” fee. 

As is the case for real property, the General Assembly has enacted personal property tax exemptions for charitable, educational or religious organizations.  The applications for personal property tax exemptions are processed by this unit of the Department.  It also administers another major type of exemption granted to for-profit businesses, which is a “manufacturing exemption” for all of a company’s equipment used in a manufacturing process.  Table X lists the specific personal property exemptions allowed by local governments for commercial inventory, manufacturing inventory, and manufacturing/research and development equipment.

With a large volume of personal property return filers, the agency needs an easy to access system for requesting a filing deadline extension.  The Department relies on its website based extension system, which was used by 119,173 filers in fiscal year 2005.  This usage is up 71% from the 69,521 filers using the system in fiscal year 2004.  Only 167 paper extensions were filed. 

Franchise Taxes and Public Utility Valuation:

There are two sections within this unit of the Department which have the responsibility for administering certain statutorily created taxes.  The first tax involves franchise taxes payable by the different types of utility companies.  The other type of tax is the property tax imposed on the assessment valuation of the operating property of utility companies and railroads.

Gas, electric, and telephone companies are charged certain franchise taxes for the rights and privileges of doing business in the State.  If the company is a gas and electric utility, then it pays: (1) a 2% gross receipts tax on the operating revenues from business derived in Maryland; and (2) an energy unit tax equal to .062 cents per kilowatt-hour of electricity and .402 cents for each therm of natural gas delivered for final consumption in Maryland.  If the company is a telephone utility, it pays a single franchise tax equal to 2% of its gross receipts derived from business in Maryland.

The State General Fund receives all revenues generated from these two franchise taxes.  The total amount of franchise tax revenue collected in FY 2005 equals $133,242,463.  Breaking this revenue down by separate categories, there was $78,115,889 in franchise taxes paid by gas and electric companies, and $55,126,574 in franchise taxes paid by telephone companies.  The combined collection of $133.2 million in fiscal year 2005 represents a 2.7% decline from the total revenues collected in fiscal year 2004.  The overall decline in revenues was due to a $5.1 million drop in the franchise taxes collected from telephone companies.  The franchise taxes collected from gas and electric companies in fiscal year 2005 increased by $1.5 million above the prior fiscal year amount for $76,575,178.

Turning to fiscal year 2006, the total franchise tax revenue has continued to decline to the amount of $124,671,662.  The bulk of this decline is attributable to the $7.8 million reduction in the amount of franchise taxes collected from telephone companies due to the bankruptcies and changing revenues in this industry.

The other section of this unit of the Department is charged with the responsibility 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, telecommunication companies and water companies.  It also performs the assessment function of the personal property for cable companies and non-utility electric generating companies.  This work involves companies with a total assessed value in excess of $10 billion.

The unit method of valuation is the approach for valuing the operating property of utilities and railroads.  It primarily relies on the income approach with consideration given for a cost approach and market data when such information is available.  Many of the companies operate on an interstate basis, and the Maryland portion of the operating unit must be apportioned to the State and then further allocated according to the property location within the individual subdivisions and local municipalities. 

It is an understatement to say that utility companies have been experiencing significantly changing economic conditions.  Traditional electric and gas companies continue to deliver electricity and gas to all customers within their service territory.  Customers may shop for an alternative commodity supplier, however only a few marketers offer a residential retail option.  Large industrial and commercial users have had a wider range of choice in market suppliers.

Southern Maryland Electric Cooperative has begun open market shopping for power as the transition from capped to market rates continue to occur within the industry.  Non-utility generating companies, Mirant and NRG, have both emerged from bankruptcy reorganization in 2005.

There also have been significant changes affecting the telephone companies.  The acquisition of two national long-distance companies by two local companies has effectively ended two decades of separation between local and long distance companies that started in 1984 with the breakup of the “Bell monopoly”.  Verizon, which always has made a major presence in Maryland, has purchased MCI.  Similarly, SBC (formerly a “baby” Bell company) purchased AT&T and then retained the “AT&T” name as its combined company name.

Homeowners’ Tax Credit Program: 

The Homeowners’ Tax Credit Program has been the State of Maryland’s major property tax relief system since the program was expanded to homeowners of all ages back in 1978.  However, because some of the provisions of the program have not been updated for 17 years, the program has been experiencing a declining participation for several years now.  The 2006 session of the General Assembly enacted a major overhaul of the program, which takes effect with the July 1, 2006 tax bills and will be reflected in the 2007 fiscal year expenditures to be shown in next year’s Annual Report.

The Homeowner’s Tax Credit Program operates on the basis of a graduated formula written into the law comparing eligible property taxes to a “tax limit” for the individual homeowner’s amount of gross income.  If a homeowner is paying more in property taxes than the “tax limit” for his or her gross income level, then a credit is granted according to the parameters of the program.

Every homeowner who files a completed tax credit application by May 1 of each year is guaranteed by the Department that any credit due will be processed in time for a direct deduction from the person’s July property tax bill.  If an eligible homeowner files after the cutoff date for the July property tax bill, then the homeowner will receive a revised tax bill or a direct check in the amount of the credit if the tax bill has already been paid.

Table XI compares the number of homeowners receiving the tax credit in the 2005 and 2006 fiscal years.  The information reported here is based on the existing income tax limit formula and a $150,000 maximum assessment eligible for the credit.  The table shows that there has been a decrease in the number of recipients in the 2006 fiscal year from 48,548 recipients to 46,628 recipients.  The total expenditure for Homeowners Tax Credits stayed relatively at the same amount in fiscal year 2006 at $39,779,251 in comparison to $39,869,755 for the prior year.  The reason for this level expenditure is due to a change in the law made by the 2004 session of the General Assembly to discontinue deducting any homestead tax credit amount from the maximum assessment eligible for the credit, thereby not reducing the amount of Homeowners’ Tax Credit the affected applicants received.  The average Homeowners’ Tax Credit received in fiscal year 2006 increased from $821 to $853. 

Renters’ Tax Credit Program: 

The General Assembly created a Renters’ Tax Credit Program based on a finding that renters who qualify on income should also receive a tax credit for a percentage of the property taxes in the yearly rent they pay.  The law provides that the “assumed amount of property taxes” equals 15 percent of the yearly rent.  Like a homeowner, if an eligible renter is paying more in assumed property taxes than a “tax limit” the graduated formula sets for his or her gross income level, then the person can receive a tax credit up to a maximum of $600.  Persons age 60 or older, the disabled, or persons under age 60 with at least one dependent child can apply for this credit.

The Department administers the program for renters because of its expertise in income verification and processing procedures for the much larger Homeowners’ Tax Credit Program.  During the January to September application filing period, the Department processes the applications, verifies the information the applicant submitted, and authorizes the Comptroller’s Office to issue, on a monthly basis, direct check payments to eligible renters.

Table XII provides detailed information on Renters’ Tax Credits issued statewide in the 2005 application year.  There were 10,628 recipients who averaged a credit of $270.  The total expenditure for the credits issued equaled $2,872,045.  These numbers represent a slight decrease in the 11,111 recipients, a $271 average credit, and a total expenditure of $3,018,125 in the 2004 application year.

Exempt Property: 

The Department administers the laws granting real and personal property tax exemptions.  The General Assembly has established stricter statutory requirements for the granting of property tax exemptions because these properties still make significant demands for local services (e.g., ambulance service, police and fire protection) and because the cumulative amounts of the exemptions can constitute a “serious erosion” of the tax base of the local governments.  The legal standard for granting these exemptions is much greater than the mere showing of a 501(c)(3) non-profit status but instead requires that the property be “actually used exclusively” for the enumerated charitable, educational or religious purposes.

For all applicants seeking a charitable or educational exemption, the Department standardly reviews the charters and audited financial statements of the organization as well as performing a physical inspection of the actual use of the property.

Table XIII itemizes the amounts of assessable base for the different categories of exempt property.  City and County governments own the largest amount of exempt property with a total value of $20.74 billion for the 2005-2006 tax year.  The second largest category of exempt property is held by the federal government, which owns property with a total value of $10.24 billion.  The State of Maryland owns properties with a total value of $7.91 billion.

In terms of private ownership of exempt property, religious organizations have the highest total valued property at $6.26 billion for the 2005-2006 tax year.  Charitable organizations own property valued at $5.39 billion.  Educational organizations, which include religiously used property for this purpose, own property valued at $2.37 billion.  Finally, the category of “individually” owned exempt property, which includes disabled veterans, blind persons and foreign embassies, has a total value of $1.0 billion.

The total exempt assessable base equals $226 million.  Private charitable, educational, religious, or individually owned exempt property will receive annual property tax savings for the 2006-2007 tax year equal to $53,940,163,421.

Enterprise Zone Credits: 

The Enterprise Zone Property Tax Credit is a substantial economic development tool administered by the Department in cooperation with the Maryland Department of Business and Economic Development and with local county and municipal economic development officials.  It grants a direct property tax credit to new or expanding businesses in 29 different designated zones throughout the State.  The credit is equal to 80% of the property taxes on the increased assessments on new construction for the first five tax years and from 70% to 30% of the increased assessment over the next five years.

Table XIV indicates just how popular the credit is with expanding businesses in the State.  The number of businesses receiving the credit on their 2005-2006 tax bills has increased by 24% to 691 businesses, up from the 557 businesses receiving the credit in the prior 2006 fiscal year.  The total amount of capital investment these 691 businesses have made throughout the State now equals $1.65 billion.  Against this amount of capital investment, the State’s financial obligation equals $8.33 million for reimbursement to local governments for one-half of the loss in the increase of the property tax revenues to local governments due to the granting of these credits.

Throughout the tax year, the Department regularly advises numerous businesses of the specific tax savings that can be realized on any increase in assessment that follows the new capital investment being made.  The amount of the property tax credit has often been the deciding factor in a particular business deciding to locate here in Maryland.  Prior to tax billing, the Department certifies to the local government the amount of assessment eligible for the credit.  Finally, the Department makes the actual financial disbursements to local governments of the State grants equal to one-half of the lost local property tax revenues.  Because of the widely varying amounts of the credits granted to individual businesses, the budget process requires that the tax credits granted in one tax year be reimbursed in the State’s next fiscal year.

The Department also administers two newer business tax credits available to qualified businesses.  The first credit is the “Businesses That Create New Jobs” Tax Credit that requires a business to create a certain number of new jobs (outside an Enterprise Zone) in return for an income tax credit based upon a percentage of the property taxes paid by the qualified businesses.  The newest property tax credit administered by the Department in connection with local governments is the “Arts and Entertainment District” credit, which provides direct property tax savings to qualified “arts” endeavors undertaken by individuals and businesses to bring these type uses to rehabilitated commercial, industrial, and manufacturing buildings.

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 counties and Baltimore city assessment offices to the Baltimore Preston Street Office Complex Headquarters (HQ) and the State’s Annapolis Data Center. OIT also provides technical support for the following SDAT automated applications: Real Property Data System (ADS), Homeowners’ and Renters’ Tax Credits, Residential and Commercial Computer Assisted Mass Appraisal (CAMA), Maryland Business Entity System (MBES), client based Budgeting, Personnel, Web and Imaging as well as office automation.

2005 OIT Accomplishments

The following IT related accomplishments were realized during calendar year 2005:

• Migrated and converted all DAT communication circuits to NetworkMaryland;
• Completed the Attachmate IP printing project which converted all CICS SNA remote printing on real property applications to IP printing utilizing DAT WAN to local county HP printers;
• Completed conversion of the Agency’s timekeeping system from a batch entry system to an on-line DB2 database system. This new on-line system is more efficient, timely and easier to use and administer than the previous batch oriented system, and provides enhanced reporting capabilities.
• Started the rewrite of all Attachmate code for web applications to latest software version. This effort will increase the efficiency of applications, reduce the number of servers required for hosting services, reduce CICS web application inefficiencies, and eliminate software support issues associated with the old version.
• Started an implementation plan for a disaster recovery “cold site” for the Department’s web services and web applications at the Department’s Headquarters operations center.
• Installed office automation (Word, Excel, E-mail, and Internet) capability statewide to all Departmental PC users.
• Replaced all Windows 95 PC’s statewide with Windows XP PC’s.
• Replaced all stand alone deskjet printers with laser printers.

Internet Services:

On the Internet, the Department offers 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 web site 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. DAT also offers 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 Internet services continues to climb each year as evidenced by the statistics presented below. Customers are finding the services user friendly, efficient and expedient.

The Department currently averages over 290,000 “views” daily (over 8,650,000 monthly) on its web site, which is available 24 hours a day, seven days a week.

The Department is committed to moving services from "standing in line to being online". Of the 28 Internet capable services that the Department has inventoried, 26 or 93% 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 web site. This non-fee based service provides accessibility to both UCC and Corporate Charter filings retroactive to January 1, 2001. During 2005, approximately 400,000 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 the past year, approximately 26,000 or 50% of the 48,000 yearly requests were filed using this web service and generated over $1.1 million in revenue. This is an increase of over 4% 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 119,000 or 99% of the overall 120,000 extension requests were filed using this service. This is an increase of 70% 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. For 2005, the Department collected over 16,000 in gross advertising revenue.

Real Property Assessment Appeals:

Since January 2002, property owners have been able to file real property assessment appeal requests via the Internet. During 2005, property owners filed approximately 6,365 appeals. This represents an increase of 18% over the number filed in the previous fiscal year.

Document Output Services:

The Department continues to expand its current document output management services capability with additional laser designed forms and applications. During 2005, over 46,600 real property supplemental notices; 33,430 real property hearing notices and 45,100 real property final notices were prepared. In addition, 12,250 tax credit denial letters, 33,500 tax credit certificates and 35,900 tax credit requests for additional information were printed, processed and mailed under this service.

The daily average for Corporate Charter and Uniform Commercial Code documents processed from the Document Center is approximately 1,700 letters per day. In addition, the following batch jobs were printed and processed from the Document Center: Personal Property Estimated Assessment Notices 16,000; Foreign Corporation Courtesy Notices 9,000; Domestic Corporation Final Forfeiture Notices 35,000 and Foreign Corporation Final Forfeiture Notices 6,500.

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):

Implementation of new lock box system application that provides for 24 hour deposit turn- around of personal property return filing fees.

Conversion of printing reports to PDF to provide easier access and storage for users and local jurisdictions.

Development of audit programs which compare DAT business file activity against various Comptroller of the Treasury files in order to identify new entities qualified to do business in Maryland.

Implementation of new legislation that assesses a $5.00 postage fee for all Corporate Charter documents returned to their filer.