SB 133
Department of Legislative Services
Maryland General Assembly
2021 Session
FISCAL AND POLICY NOTE
Third Reader - Revised
Senate Bill 133 (Senator Rosapepe)
Budget and Taxation Ways and Means
Local Tax Relief for Working Families Act of 2021
This bill authorizes local governments to impose the county income tax on a bracket basis
and requires all local governments to impose a minimum tax rate of 2.25%. The bill also
alters the local income tax rates that a jurisdiction must impose in order to qualify for
enhanced State funding under the disparity grant program. This change is subject to the
jurisdiction imposing the county income tax on a bracket basis. The bill takes effect
June 1, 2021, and applies to tax year 2022 and beyond.
Fiscal Summary
State Effect: General fund expenditures increase by $505,000 in FY 2022 due to
implementation costs at the Comptroller’s Office. Future years reflect ongoing
expenditures. General fund revenues increase by a corresponding amount beginning in
FY 2022 due to additional local income tax reimbursements to the Comptroller’s Office.
(in dollars) FY 2022 FY 2023 FY 2024 FY 2025 FY 2026
GF Revenue $505,000 $357,100 $326,700 $333,400 $340,200
GF Expenditure $505,000 $357,100 $326,700 $333,400 $340,200
Net Effect $0 $0 $0 $0 $0
Note:() = decrease; GF = general funds; FF = federal funds; SF = special funds; - = indeterminate increase; (-) = indeterminate decrease
Local Effect: Local income tax revenues in all counties will decrease by $505,000 in
FY 2022 and by $340,200 in FY 2026 due to additional local income tax reimbursements.
State funding for the disparity grant program could be affected depending on whether a
jurisdiction imposes the county income tax on a bracket basis. Local expenditures are not
affected.
Small Business Effect: Potential meaningful.
 Analysis
Bill Summary:
Local Income Tax Rates
A county that imposes the county income tax on a bracket basis must (1) set, by ordinance
or resolution, the income brackets that apply to each tax rate and (2) inform the Comptroller
by July 1 prior to the year in which a new bracket is established. A county may (1) apply a
higher or equal tax rate to a higher income bracket than a rate applied to a lower income
bracket but may not apply a lower rate; (2) establish income brackets that differ from the
State income brackets; and (3) request information from the Comptroller to assist the
county in determining rates that are revenue neutral. However, any rate changes are not
required to be revenue neutral.
Without regard to whether the county imposes the income tax on a bracket basis, a county
must impose a minimum local income tax rate of at least 2.25%.
Disparity Grant Program
The bill alters the local income tax rates that a jurisdiction must impose in order to qualify
for enhanced State funding under the disparity grant program. This change is subject to the
jurisdiction imposing the county income tax on a bracket basis. Under current law, a
jurisdiction receives a minimum grant amount based on their local income tax rate.
Pursuant to the bill, the minimum grant amounts will be based on the following local
income tax rates:
 20% of the uncapped grant amount (at least 2.8% but less than 3.0%).
 40% of the uncapped grant amount (at least 2.9% for taxable income at $100,000
and under, at least 3.0% for taxable income in excess of $100,000).
 75% of the uncapped grant amount (at least 3.1% for taxable income at $100,000
and under, at least 3.2% for taxable income in excess of $100,000).
For jurisdictions that do not impose the local income tax rate on a bracket basis, the
disparity grant formula remains as specified under current law.
SB 133/ Page 2
Current Law:
Local Income Tax
The counties and Baltimore City are required to levy a local income tax on their residents.
The tax is assessed as a percentage of the taxpayer’s Maryland taxable income. Counties
are authorized to set a local income tax rate of at least 1% but not more than 3.2%. The tax
rate is a flat rate, as counties are not authorized to impose the tax at different tax rates.
Generally, each incorporated municipality shares in its county’s income taxes by receiving
a portion of the county income taxes paid by the municipality’s residents.
The Comptroller’s expenses that are necessary to administer the income tax are paid by
distributions from State and local income tax revenues. These costs include the amount
necessary to administer the local income tax.
Twelve local jurisdictions – Baltimore City and Baltimore, Caroline, Dorchester, Howard,
Kent, Montgomery, Prince George’s, Queen Anne’s, Somerset, Washington, and
Wicomico counties – are imposing the maximum income tax rate of 3.2% in tax year 2021.
By comparison, six local jurisdictions imposed the maximum rate in tax year 2014.
Worcester County currently has the lowest local income tax rate at 2.25%. Exhibit 1 shows
the county income tax rates under current law. Additional information on local income tax
rates and revenues can be found in the County Revenue Outlook report. A copy of the report
is available on the Department of Legislative Services website.
SB 133/ Page 3
 Exhibit 1
County Income Tax Rates
Calendar 2021
County Rate County Rate
Allegany 3.05% Harford 3.06%
Anne Arundel 2.81% Howard 3.20%
Baltimore City 3.20% Kent 3.20%
Baltimore 3.20% Montgomery 3.20%
Calvert 3.00% Prince George’s 3.20%
Caroline 3.20% Queen Anne’s 3.20%
Carroll 3.03% St. Mary’s 3.17%
Cecil 3.00% Somerset 3.20%
Charles 3.03% Talbot 2.40%
Dorchester 3.20% Washington 3.20%
Frederick 2.96% Wicomico 3.20%
Garrett 2.65% Worcester 2.25%
A county may change the county income tax rate by ordinance or resolution, except
Howard County may change its rate only by ordinance. A county may not impose a rate
above 2.6% until after the county has held a public hearing on the proposal. A county that
changes its rate must inform the Comptroller of the change by July 1 prior to the year in
which the new rate is established.
Exhibit 2 shows the State income tax rates under current law.
SB 133/ Page 4
 Exhibit 2
Maryland State Income Tax Rates
Current Law
Single, Dependent Filer,
Married Filing Separate Joint, Head of Household, Widower
Rate Maryland Taxable Income Rate Maryland Taxable Income
2.00% $1-$1,000 2.00% $1-$1,000
3.00% $1,001-$2,000 3.00% $1,001-$2,000
4.00% $2,001-$3,000 4.00% $2,001-$3,000
4.75% $3,001-$100,000 4.75% $3,001-$150,000
5.00% $100,001-$125,000 5.00% $150,001-$175,000
5.25% $125,001-$150,000 5.25% $175,001-$225,000
5.50% $150,001-$250,000 5.50% $225,001-$300,000
5.75% Excess of $250,000 5.75% Excess of $300,000
The Budget Reconciliation and Financing Act of 2004 (Chapter 430) established a tax on
nonresidents who are subject to the State income tax but are not subject to the county
income tax. The tax imposed is at a rate equal to the lowest county income tax rate in
Maryland (currently equal to 2.25%). Revenues generated by the special nonresident tax
are distributed to the State’s general fund; about 170,000 nonresident returns paid a total
of $133.3 million in tax year 2018.
Disparity Grant Program
The disparity grant program provides noncategorical State aid to low-wealth jurisdictions
for county government purposes. Disparity grants address the differences in the abilities of
counties to raise revenues from the local income tax, which for most counties is one of the
larger revenue sources. County governments with per capita local income tax revenues less
than 75% of the statewide average receive grants unless a county has an income tax rate
below 2.6%.
Under current law, the amount of funding received by county governments equals the lesser
of the dollar amount necessary to raise the county’s per capita income tax revenues to 75%
of the statewide average or the amount received under the cap provision. The original cap
provision did not allow county governments to receive an amount higher than what the
county received from the State in fiscal 2010. This provision was established by
Chapter 487 of 2009. However, Chapter 425 of 2013 changed the disparity grant formula
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cap provision in order to take into account a local jurisdiction’s income tax effort.
Beginning in fiscal 2014, the fiscal 2010 cap amount continues to apply, but an eligible
jurisdiction may receive a minimum grant amount that can exceed the fiscal 2010 cap based
on local tax effort. The minimum grant amounts are based on the following:
 20% of the uncapped grant amount (2.8% to 3.0% local income tax rate).
 40% of the uncapped grant amount (3.0% to 3.2% local income tax rate).
 60% of the uncapped grant amount (3.2% local income tax rate).
Chapter 738 of 2016 increased the minimum grant amount (from 60% to 67.5%) in
fiscal 2018 and 2019 for jurisdictions with a 3.2% local income tax rate. However,
Chapter 23 of 2017 modified the formula by lowering the minimum grant amount (from
67.5% to 63.75%) for fiscal 2018. Chapter 472 of 2018 extended the 67.5% minimum grant
amount until fiscal 2021.
House Bill 737 of 2020 altered the enhanced State funding by (1) increasing the minimum
grant amount from 67.5% to 75% and (2) repealing the termination date for the enhanced
funding. As a result, eligible jurisdictions would have been able to receive at least 75% of
their formula allocation under the disparity grant program beginning in fiscal 2022. This
legislative enhancement would have provided an additional $15.2 million in State funding
to six low-wealth jurisdictions. However, on May 7, 2020, the Governor vetoed the bill
due to concerns regarding the economic challenges resulting from the COVID-19
pandemic. This veto was subsequently overridden by the General Assembly at the
2021 session. Since the Administration cannot be required to fund the mandated
appropriation in the current budget bill, the six jurisdictions (Caroline, Dorchester,
Prince George’s, Somerset, Washington, and Wicomico counties) will remain subject to
the 60% minimum grant in fiscal 2022, unless the Administration provides funding for the
legislative enhancement.
Baltimore City and nine counties (Allegany, Caroline, Cecil, Dorchester, Garrett,
Prince George’s, Somerset, Washington, and Wicomico) qualify for disparity grants. Of
these jurisdictions, seven currently impose the maximum 3.2% local income tax rate, as
shown in Exhibit 3. Three of the jurisdictions (Caroline, Dorchester, and Washington)
increased their local income tax rate in recent years as a way to receive additional State
funding. State funding for the disparity grant program will total $148.0 million in
fiscal 2022. Additional information on the disparity grant program can be found in the
Overview of State Aid to Local Governments report. A copy of the report is available on
the Department of Legislative Services website.
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 Exhibit 3
Local Income Tax Rates Imposed in Jurisdictions Receiving Disparity Grants
Source: Department of Legislative Services
State Fiscal Effect: The Comptroller’s Office reports that it will incur significant
implementation costs to allow for each county to implement a bracket-based county
income tax. General fund expenditures for the Comptroller’s Office increase by $505,000
in fiscal 2022, which reflects a starting date of July 1, 2021. This estimate reflects the cost
of hiring one full-time and one part-time revenue examiner, one part-time information
technology analyst, and one part-time administrative assistant. It also reflects the cost of
hiring two contractual information technology analysts in fiscal 2022 only for data
processing changes to the income tax return processing and imaging systems and systems
testing and $60,000 in additional ongoing printing expenses for the income tax booklet.
SB 133/ Page 7
 Regular Positions 2.5
Contractual Positions 2.0
Regular Salaries and Fringe Benefits $177,124
Contractual Salaries and Fringe Benefits 246,600
Printing Expenses 60,000
Other Operating Expenses 21,238
Total FY 2022 State Expenditures $504,962
The estimate includes salaries, fringe benefits, one-time start-up costs, and ongoing
operating expenses. Future year expenditures reflect (1) salaries with annual increases and
employee turnover and ongoing operating expenses and (2) ongoing printing and computer
programming expenditures.
The Comptroller’s expenses that are necessary to administer the income tax are paid by
distributions from State and local income tax revenues. Accordingly, general fund revenues
will increase by a corresponding amount due to additional local income tax
reimbursements.
All counties currently impose a minimum tax rate of 2.25%; accordingly, there is no direct
impact on revenues generated by the special nonresident tax.
Local Revenues: Local income tax revenues in all counties will decrease by $505,000 in
fiscal 2022 and by $340,200 in fiscal 2026 due to additional local income tax
reimbursements paid to cover the Comptroller’s implementation costs as discussed above.
Local income tax revenues and disparity grant funding will be further impacted only to the
extent local governments opt to impose the county income tax as authorized by the bill.
Small Business Effect: Small businesses such as partnerships, S corporations,
limited liability companies, and sole proprietorships may be impacted to the extent local
governments alter county income tax rates as authorized by the bill. To the extent counties
impose lower tax rates on certain brackets, small businesses that report lower incomes may
have decreased tax liabilities. To the extent counties that do not impose the maximum rate
authorized under current law impose a higher rate on higher-incomes, small businesses
with higher incomes may have increased net tax liabilities.
SB 133/ Page 8
 Additional Information
Prior Introductions: Similar legislation was introduced in the 2020 session. SB 1040 of
2020 received a hearing in the Senate Budget and Taxation Committee, but no further
action was taken. Its cross file, HB 1494, passed the House and was referred to the Senate
Budget and Taxation Committee, but no further action was taken.
Designated Cross File: HB 319 (Delegate Palakovich Carr) - Ways and Means.
Information Source(s): Comptroller’s Office; Department of Legislative Services
Fiscal Note History: First Reader - January 20, 2021
rh/hlb Third Reader - March 31, 2021
Revised - Amendment(s) - March 31, 2021
Analysis by: Robert J. Rehrmann; Direct Inquiries to:
Michael D. Sanelli (410) 946-5510
(301) 970-5510
SB 133/ Page 9


Statutes affected:
Text - First - Local Tax Relief for Working Families Act of 2021: 10-106 Tax General
Text - Third - Local Tax Relief for Working Families Act of 2021: 16-501 Local Government, 10-106 Tax General