By Daniel Menefee
Maryland jurisdictions that received $21 million in overpayments of income tax receipts between 2010 and 2014 will not have to pay it back under a bill headed towards passage in the Maryland General Assembly.
The bill, SB397, is sponsored by the Sen. George Edwards, a Western Maryland Republican, and Sen. Richard Madaleno, a Montgomery County Democrat.
Last fall Comptroller Peter Franchot reported that $21 million in overpayments of local income tax revenue were sent to 86 jurisdictions in tax years 2010 to 2104. It was also discovered that 83 jurisdictions were short-changed and got less than their share of local income tax receipts.
Franchot’s remedy was swift and money went immediately to the jurisdictions that were short changed. Jurisdictions that received overpayments were given 10-year payment plans that were to run from 2024 to 2034.
“For a lot of communities this [would be] very difficult for them to pay off,” Madaleno said at the bill’s hearing in February. “There are taxpayers in these communities that are going to be asked to pay back these funds…they never benefited from and I don’t know if that’s fair.”
‘State should eat the cost’
“The state made the mistake, the state should eat the cost,” Madaleno said.
Each year the comptroller distributes to each locality its share of the income tax receipts from its residents, which is “the greater of 17% of the county income tax liability or 0.37% of the Maryland taxable income of the jurisdiction’s residents,” according to the fiscal note.
Last year the comptroller’s office said software was coded improperly in 2010 that misclassified street addresses in the jurisdictions.
The bill, SB397, would forgive the overpayments and repeal the requirement to pay it back. Any jurisdiction that has made payments will be reimbursed. A House version of the bill, HB1413, cleared the Senate Budget and Taxation Committee on Thursday.
The comptroller’s office told Maryland Reporter Thursday that they were OK with the legislature forgiving the tax liability.
“The comptroller is fine with abiding by the General Assembly’s decision,” said Franchot’s communications director, Joseph Shapiro. Shapiro said the comptroller’s office has taken steps to make sure it never happens again.
“The Comptroller’s Office is proud of our reputation as the finest comptroller’s office in the nation,” Shapiro said in a statement. “We did, however, discover this error and instantly after learning about the issue, we launched an internal review, and hired a third-party expert to undergo a statewide audit.
“We have swiftly taken immediate and long-term steps to implement the expert recommendations, to both fix the issues that exist and improve the process for the future. And we’ve worked closely with our local partners throughout the process, to keep them properly informed, and we have ensured that this will never happen again.”