Local taxes increase for some

State residents may pay more to county governments

`It's annoying'

To avoid confusion of Md. cut, forms, calculations changed

March 20, 2000|By William F. Zorzi Jr. | William F. Zorzi Jr.,SUN STAFF

Think you're paying less to the government than you did before the state cut income taxes?

Think again.

While Marylanders are paying less in state income taxes, about half will turn over more to local governments when they file their returns this spring because the General Assembly wanted to simplify the way people figure their taxes.

The change means that as seniors, singles and couples with no children calculate their taxes for 1999, they will pay more local income tax than they did for 1998. On average, single taxpayers will pay about $23 more -- and $36 a year more by 2002, state officials estimate.

"I don't think that's fair, that they can do that without making you aware of it," said Lynn Pirrera, a Baltimore retiree who discovered that she and her husband will pay $22.78 more to the city this time.

"They tell us when they give us the slightest little bit of a discount. How come they swept this under the carpet?" Pirrera asked.

Overall, these taxpayers are paying less in combined state and local taxes because of the state tax cut. But that does not seem to appease Pirrera and a few others who have called the Maryland comptroller's office and local officials to complain.

Sen. Barbara A. Hoffman, the Baltimore Democrat who chairs the Senate Budget and Taxation Committee, said legislators and other officials knew that the change approved by the Assembly last year would mean more local income tax for some.

"It's not a whole lot, but it's annoying," Hoffman said.

"Some people are paying more, and some people are paying less," she said. "It depends on how many dependents you have."

The confusion started last year at this time, as taxpayers prepared their returns for 1998. It was the first year that everyone paid lower state income taxes under the phased-in, 10 percent cut passed by the legislature in 1997.

Because local taxes were not cut at the time, taxpayers had to do separate calculations to figure their local and state tax.

"That generated a lot of taxpayer complaints, taxpayer errors and confusion," said David F. Roose, director of revenue estimates for the state comptroller's office.

The General Assembly fixed the problem by changing the way local taxes are calculated. Instead of being a piggyback tax that was a percentage of state taxes owed, the local tax became a straight percentage of one's income.

Figuring the local tax without any connection to the state tax is easier. But it also means taxpayers lose an advantage of the state tax system that's so obscure few people notice it: The state tax rate is significantly lower for the first $3,000 of income.

Without that, people pay a little more in local taxes -- unless they have children or other dependents. The legislature increased the amount one can deduct from local taxable income for every dependent, which helps offset the quirky tax increase.

That means about half of Maryland's 2 million taxpayers -- couples with children, for example -- will pay less local tax than they did for 1998 because of the change.

Taxpayers like Pirrera pay more.

"There was a recognition at the time that this would affect the amount of local tax the taxpayer would pay," Roose said. "But that was part of the trade-off to simplify the return and address the concerns of the counties. It's an unfortunate impact."

He said it was conceivable, with the state tax cut, that a low-income single taxpayer could pay more overall. He said that was unlikely, however.

Statewide, local jurisdictions will take in an estimated $2 million more for 1999 than they would have with the piggyback tax -- a small percentage of the $2.6 billion in local income taxes collected by the state comptroller's office.

"The idea of this was to be revenue neutral, and based on the estimates, it is revenue neutral," Roose said.

How much more -- or less -- a taxpayer pays depends on where he lives and how many exemptions, such as children or a spouse, he can claim on his tax form. This year, such exemptions have been increased to $1,850 each.

A single Anne Arundel County resident with the estimated state average income of $47,300 will pay $23 more in local taxes for 1999. A childless couple or single parent of one with that same income will pay an estimated $6 more.

But a family of four with that income will pay $27 less in local income tax to the county, state officials estimate.

Those amounts are based on a new local income tax rate of about 2.5 percent of taxable income that is used by 11 of the state's jurisdictions, including Baltimore City, Anne Arundel County and Harford County.

Those local rates will vary slightly over the next three years, when the state tax cut is fully implemented.

How the change means more local tax

While Marylanders are paying less in state income taxes, about half of the state's 2 million taxpayers will pay more income tax to their local governments for 1999.

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