When comparing state income tax rates, most people, including site selection consultants and chief financial officers, fail to appreciate that Maryland's personal income tax rate is understated by as much as 62%.
While the Free State's nominal income tax rate is 4.75%, counties are required to tax your income as well. The aptly named "piggyback" tax adds up to an additional 3% tax on income. At 7.75% the State of Maryland's total income tax bite ranks highest among nearby states and remains one of the highest in the country. By contrast, the highest rate in Virginia is 5.75%. The impact on Maryland business is obvious: Maryland employers pay higher wages than their out-of-state competitors to compensate for the Free State's heavy tax on personal income.
The State of Maryland's much touted 10% personal income tax reduction is deceiving. In 1997 the highest rate in the Free State was 8.00%. Since then the rate has dropped to 7.75%. That's a mere 3.125% rate reduction over five years. Even after accounting for concurrent exemption increases, the real personal income tax reduction is not even close to the advertised 10%.
|
Compare |
Tax on |
Tax on |
|
Montgomery County, MD
|
$2,890 |
$6,470 |
|
Arlington County, VA
|
$1,808 |
$4,292 |
CORPORATE INCOME TAX
For most corporations located in the Free State the tax is a flat 7% of federal taxable income subject to some adjustments. Except for certain manufacturers, multi-state apportionment is based upon three factors, not just sales. Maryland property and payroll figure prominently in the calculation, effectively punishing any corporation with sizeable investments or operations located in the State of Maryland.
Worse, Maryland's corporate income tax rate may be going up. Consider the following:
- The Free State has dedicated a substantial part of its revenue from corporate income tax to funding of mass transit.
- At the same time, the Mass Transit Administration has begun to provide 9,000 state workers using mass transit with free rides to and from work. "It's just the first of many price tags that are coming due to the Maryland taxpayer as a result of the governor's unrelenting drive to transform Maryland from the Free State to the Union State," says Senator Martin G. Madden, in the December 22, 2000 edition of The Baltimore Sun.