House OKs bill on taxes

Corporate loophole in real estate transfer fees would be closed

Senate ponders its version

Measure could boost Howard revenue by $1 million a year House OKs bill to close loophole in corporate transfer taxes

March 26, 2002|By Larry Carson | Larry Carson,SUN STAFF

A bill designed to close what supporters call a lucrative corporate real estate tax loophole and increase Howard County's tax income by an estimated $1 million a year was approved by the House of Delegates last night in a 90-39 vote.

The bill, denounced by business boosters but hailed by others as a way to boost sagging government revenues across Maryland during the recession, would stop the use of so-called shell corporations to transfer land without paying recordation and transfer taxes.

Instead of transferring land in courthouse records after a sale - triggering the taxes - the corporate owners create a new corporation and sell one corporation to another - thus avoiding the tax. A Department of Legislative Reference analysis said if the bill becomes law, cash-strapped local governments could see $16 million more in revenue next year, and the state could realize $4.8 million.

The bill would make the sale of any property worth more than $500,000 subject to the real estate taxes when the transfer is achieved through use of a controlling interest in a corporation.

"It would generate a million dollars. We would have a definite interest," said Herman Charity, Howard County Executive James N. Robey's legislative liaison.

Columbia Del. Elizabeth Bobo said she supports the measure (HB 557), which passed second reading in the House of Delegates on Saturday. She distributed a list of four commercial properties sold in Howard County in 1998 that would have produced more than $600,000 in recordation fees and transfer taxes if the law had been in effect then. They include several office buildings in Gateway Corporate Park and a $20 million building on Riverwood Drive.

"I think it's a significant bill," she said.

Maryland Association of County officials agree.

"When Joe and Jane sell their townhouse, they pay a transfer tax. When the owner of a strip mall sells a property, it should pay the tax, too," said David S. Bliden, executive director of the Maryland Association of Counties.

Michael Sanderson, the group's lobbyist, said the proposal has progressed faster in the House of Delegates because the Senate version of the bill (SB 316) "was bogged down in budget deliberations," not from any fatal opposition there.

But Howard County Sen. Robert H. Kittleman, who is a member of the Budget and Taxation Committee, said he is opposed to the idea.

"I don't think they'll know who to send a tax bill to. It will go to court," he said, saying the concept is ill-defined in the legislation and would be unenforceable because of the murky nature of corporate ownership.

"It would be a hindrance to somebody developing a shopping center," Kittleman said.

He is backed by the Maryland Chamber of Commerce, whose senior vice president for governmental affairs called the idea "trying to apply an apple to an orange situation."

W. Miles Cole said, "We oppose this legislation because you're taxing something that is not the act of transferring real estate. It's a slippery slope and very difficult to enforce. It's definitely a hindrance to people in the real estate business."

His argument is that the law requires the taxes be paid when a deed is transferred. If no deed is transferred, no tax should be paid.

"This is trying to change the intent of those taxes."

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