Hard-to-figure tax form is boon to Md. preparers

Comptroller Schaefer vows to replace form driving taxpayers nuts

Taxes

February 05, 1999|By Gady A. Epstein | Gady A. Epstein,SUN STAFF

Michael D. Walls is the kind of guy who loves the new, more complicated Maryland tax form. He loves the separate calculations for state and local taxes, the 10 new lines, the four extra work sheets.

Walls is not a sadist. He's a tax preparer, and business is picking up.

"Much, much busier," Walls said as eight customers sat waiting in his cozy brick office on Light Street in South Baltimore. "We're happy as can be about it."

It's a different story elsewhere in Maryland. People filling out their tax returns are figuring out that the rules are different now for local and state taxes, requiring more arithmetic. The easy, one-page tax form is history.

"It's complicated. It's irritating," said Maryland Comptroller William Donald Schaefer, who said fixing the tax form is a "high priority" for him. "By next year, it'll be much simpler."

Tax return errors are up over last year, and some taxpayers are upset that the much ballyhooed state income tax cut isn't saving them any money on local income taxes.

Schaefer and legislators are hearing complaints on talk shows, in e-mail and over the telephone -- a situation that might lead one to think taxes had been raised, not cut.

"I'm getting criticized because they've got to fill out extra lines," said state Sen. Patrick J. Hogan, a Montgomery County Republican. "They're not blaming the county. They're blaming me."

The whole problem started two years ago, when legislators approved a phased-in, 10 percent cut in state income taxes but agreed not to pass it on to local governments.

Because local piggyback taxes are a percentage of the state rate, Baltimore and Maryland's 23 counties would have lost hundreds of millions of dollars annually.

So, as Marylanders fill out their returns for 1998, the first year of the cut, the state tax is 4.875 percent. But local taxes are still figured using the old 5 percent rate and different deductions.

That requires extra calculations, which is easy enough for electronic tax filings, but is leading to more mistakes for the majority of people who file paper returns.

If the January filings are any indication, there will be hundreds of thousands more errors than last year.

Early filers "are the sophisticated filers," said Sen. Barbara A. Hoffman, a Baltimore Democrat and chairwoman of the Senate Budget and Taxation Committee. "So what's going to happen when the paper-and-pencil guys file, you know, on the last day?"

Marvin Bond, spokesman for the comptroller, recently helped a visitor navigate the new Form 502 Maryland tax return, the form most taxpayers will fill out this year. He said it's not all that complicated, once you know the new wrinkles.

One nettlesome change is that on lines 16 and 29, married couples must figure their two-income deductions separately for state and local taxes.

In an arcane side effect of the tax cut, the standard two-income deduction changed this year from $1,200 to $1,154 for the state tax, but not for the local tax. Comptroller officials say reversing this change alone would greatly simplify the forms.

Different exemptions

Then there are the different exemptions for figuring out the local tax. For the state tax, each exemption is worth $1,750, but for the local tax, each exemption is worth $1,200. After that, you calculate what the 5 percent state tax would have been so you can figure out the local piggyback tax.

Get it?

On a recent weekday evening, Walls talked a woman through this minutia over the telephone. He offered to do her taxes for free if she came by his office, but she declined and hung up.

"A lot of people are going to need more help," he said.

Legislators hope to make changes for next year during the 90-day General Assembly session that ends April 12.

Hoffman and other influential senators want the local piggyback rates to be re-stated as a percentage of the state tax, not the old 5 percent figure.

For example, Baltimore's piggyback tax is 50 percent of the 5 percent state rate, but would show up as roughly 51 percent of the current state tax. When the 10 percent tax cut is fully phased in by 2003, Baltimore's piggyback rate would be more than 55 percent.

Replaced by tax table

Under Hoffman's plan, the differing sets of exemptions could be dropped, and all that arithmetic could be replaced with a simple tax table.

But counties may not like the perception that their tax rates are going up. And they won't think much of Hoffman's other idea: Force counties to keep their piggyback rates at or below the current 60 percent cap, even after they're linked to the reduced state tax.

That would amount to a mandated tax cut for the five counties at the 60 percent rate, including Montgomery and Prince George's.

Meanwhile, leading House members have not indicated what they want to do with the new tax forms, though they appear interested in making some changes.

Del. Anne Healey, a Prince George's County Democrat, made clear at a recent meeting of the House Ways and Means Committee that it was the Senate's tax cut plan that created this problem.

"This committee's not responsible for this mess," Healey said.

Pub Date: 2/05/99

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