Desert Storm is in but capital gains are fading when it comes to getting breaks on this year's Maryland tax returns.
The state's tax code has undergone only minor tinkering this year, said George H. Spriggs Jr., director of the income tax division in the state comptroller's office, which is in charge of collecting Maryland income taxes.
"We try to keep the tax law the same so people don't have a lot of difficulty complying," Mr. Spriggs said.
Among the most visible changes this year are an exemption for income earned by members of the military who served in last year's Persian Gulf war and a phasing-out of the state's practice of giving capital gains a more favorable treatment than do federal tax laws.
"The big difference is in capital gains," Mr. Spriggs said.
Maryland taxpayers are permitted to subtract 30 percent of their net capital gain income from their overall income on this year's tax return, down from the 40 percent subtraction allowed last year. The exemption is limited to $15,000 for a couple filing jointly and to $7,500 for an individual return.
The exemption is even more sharply limited for upper-income taxpayers, individuals who earn more than $50,000 and couples who earn more than $100,000. The amount eligible for exemption must be reduced by half the amount the taxpayers' ordinary federal income exceeds those levels.
But even that reduced break will be eliminated next year.
"The basic decision the Legislature came to was that Maryland was giving a tax break Uncle Sam didn't," said Marvin A. Bond, spokesman for Comptroller Louis L. Goldstein. He said Congress eliminated a similar exclusion from the federal tax code in 1986 and that Maryland tries to keep its tax exemptions as similar to federal law as possible. "There was a chance the Legislature saw to pick up some money," he added.
Maryland taxes capital gains the same way it taxes ordinary income -- at a 5 percent top rate, subject also to a local piggyback tax of up to 2.5 percent.
While capital gains breaks are disappearing, however, some military personnel are getting a small thank-you on their 502 forms.
All combat zone pay for enlisted and warrant grade personnel -- and up to $500 a month of combat zone pay for commissioned officers -- is exempt from Maryland income tax. In addition, up to $15,000 of military pay, excluding combat pay, that military personnel earned serving outside the United States is exempt.
Neither exemption is new, Mr. Bond said. Combat pay has been
exempted for decades. The exemption
for non-combat pay earned outside the United States was enacted last year in response to concerns of parents whose sons or daughters served outside the country and were declared as Maryland residents even though they had no property here and didn't live in the state last year.
The new exemption "will probably receive its greatest application this year, simply because of the tremendous number of people who were shipped out" because of the gulf war, Mr. Bond said.
Mr. Spriggs said some of the other changes in the state tax law result from indexing exemptions and income limits for inflation. Some examples:
* The amount of income taxpayers may have before they are required to file a return rose to $5,550 for single taxpayers under 65. For joint returns, the cutoff is $10,000, Mr. Spriggs said. Last year's figures were $5,300 for an individual return and $9,550 for a joint return.
* Maryland's maximum pension exclusion has risen to $11,800 from $10,800, Mr. Spriggs said. The exclusion applies to taxable pensions, such as corporate and government employee retirement plans. Social Security and railroad retirement benefits are not subject to Maryland tax.
Mr. Bond said the state is taking two to three weeks to process refunds, which he said will not change much before April 1. He said the state will complete a Maryland return for any taxpayer who comes to a taxpayer service office and brings a completed federal tax return and W-2 forms to verify income.