Council OKs bill to cut tax on equipment Gary-backed measure eliminates levy for research, development

'Ludicrous,' unions say

Exemption estimated to save research firms $2.2 million in 5 years

November 19, 1996|By Scott Wilson | Scott Wilson,SUN STAFF

Anne Arundel County became last night the third Maryland subdivision to eliminate property taxes on equipment used for research and development, primarily computer hardware and software.

By a 7-0 vote, the County Council approved the legislation that is backed by the Gary administration as a way for Anne Arundel to attract and retain coveted high-tech business.

County Executive John G. Gary, a Republican, is expected to sign the bill within days.

"This establishes us in a leadership position at a modest cost," said Michael S. Lofton, chief executive officer of the Anne Arundel Economic Development Corp. "The challenge now is to turn this advantage into investment."

The legislation would save research companies in the county an estimated $2.2 million in taxes over the next five years.

But before last night's vote, the county auditor's office warned that the bill, which relies on a supply-side strategy of cutting taxes to raise revenue, could increase the tax burden on homeowners if it fails to generate more revenue.

"We wish to note that if the county continues to collect the maximum property taxes possible under the tax cap, any reduction in taxes resulting from this exemption will have to be offset by an increase in taxes on other taxpayers," said County Auditor Teresa Sutherland's Oct. 18 analysis of the bill.

The tax exemption could cost Anne Arundel an average of almost $500,000 in lost tax revenue annually over the next five years, according to administration estimates.

That amounts to roughly a half-cent on the property tax rate.

But county economic development officials say the plan will more than pay for itself through a better business climate, although no financial projections have been presented.

County finance officials have worried publicly that property tax revenues, which account for most of Anne Arundel's income, rose just 2.4 percent last year, the smallest increase since 1986.

Gary has cited that development as one reason why most county employees have not received pay raises for three years.

Union leaders called the tax break "ludicrous."

To help Northrop Grumman

The bill is largely designed to help Northrop Grumman Corp., which received an $11.5 million economic incentive package from the state in September.

With passage of the legislation, the company is expected to add 1,500 jobs at its Linthicum plant.

Last night, Anne Arundel joined Carroll and Worcester as the only other counties to eliminate property taxes on research and development equipment.

Frederick, Kent, Queen Anne's and Talbot counties have never levied the tax. The county's move fits with the state's economic development strategy.

Last year, the General Assembly passed legislation granting companies a tax break on half of the assessed value of research and development equipment. Gary's legislation extends that tax break to the remaining 50 percent.

Savings to other businesses

Businesses in Anne Arundel spend an estimated $10 million a year on equipment used in designing and building new technology. Utility companies would not get tax relief under the bill. But savings to other businesses would be considerable.

With the state tax break, a company saves $714 in property taxes the first year on $100,000 worth of computer equipment.

By extending the exemption, Anne Arundel will save that company an additional $1,190 in taxes the first year.

Pub Date: 11/19/96

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