SB 578
Department of Legislative Services
Maryland General Assembly
2021 Session
FISCAL AND POLICY NOTE
Third Reader - Revised
Senate Bill 578 (Senator McCray)
Budget and Taxation Ways and Means
Income Tax - Internal Revenue Code Amendments - Decoupling
This bill alters the automatic one-year decoupling provision under the State personal and
corporate income tax by specifying that the provision applies to amendments of the Internal
Revenue Code (IRC) that reduce State revenues in any taxable year that precedes the
calendar year in which the amendment is enacted. The bill takes effect July 1, 2021, and
applies to tax year 2021 and beyond.
Fiscal Summary
State Effect: The Comptroller’s Office can implement the bill with existing budgeted
resources. State revenues are not directly impacted.
Local Effect: Local expenditures are not affected. Local revenues are not directly
impacted.
Small Business Effect: Potential meaningful.
Analysis
Bill Summary/Current Law:
Current Law
The Budget Reconciliation and Financing Act of 2002 (Chapter 440) included a general
one-year income tax “decoupling” provision. Within 60 days after an amendment of IRC
is enacted, the Comptroller must submit a report to the Governor and the General Assembly
that outlines the changes in IRC, the impact on State revenues, and how different types of
taxpayers will be affected. If the Comptroller determines that the federal tax change alters
taxpayer income and will impact State revenues by at least $5 million (positive or negative)
in the fiscal year that begins during the calendar year in which the federal tax change was
enacted, the federal tax change does not apply for Maryland income tax purposes for any
taxable year that begins in the calendar year in which the federal tax change is enacted.
Otherwise, the federal tax change applies for Maryland income tax purposes in that tax
year. After this first tax year, amendments to IRC apply for Maryland income tax purposes
unless otherwise explicitly provided by law.
Bill Provisions
The automatic decoupling provision generally prevents a change to the federal tax code
from significantly impacting State revenues until the General Assembly has the opportunity
to either accept or reject the change. However, the automatic decoupling does not apply to
federal legislation that, in its year of enactment, would alter the computation of taxable
income for previous taxable years. The bill specifies that beginning in tax year 2021 the
automatic decoupling provision also applies for any taxable year that precedes the
calendar year in which the amendment is enacted and the Comptroller’s Office determines
that the federal tax change will impact State revenues by at least $5 million in the fiscal year
preceding the calendar year in which the amendment is enacted.
State/Local Revenues: The bill alters the automatic decoupling provision to also apply to
any taxable year that precedes the calendar year in which the federal tax amendment is
enacted. The bill may result in additional circumstances in which the State decouples from
a federal tax provision that would have significantly increased or decreased State revenues
in a fiscal year.
Local revenues may be similarly impacted through a change in local income tax revenues
and/or local highway user revenues.
Small Business Effect: Small businesses could be positively or negatively impacted by
the bill. The bill may prevent certain small business impacts of federal tax changes, whether
positive or negative, from also flowing through for State income tax purposes.
Additional Information
Prior Introductions: None.
Designated Cross File: None.
SB 578/ Page 2
Information Source(s): Comptroller’s Office; Department of Legislative Services
Fiscal Note History: First Reader - February 22, 2021
rh/hlb Third Reader - April 10, 2021
Revised - Amendment(s) - April 10, 2021
Analysis by: Robert J. Rehrmann Direct Inquiries to:
(410) 946-5510
(301) 970-5510
SB 578/ Page 3


Statutes affected:
Text - First - Income Tax - Retroactive Changes Under the Federal CARES Act - Addition Modification: 10-205 Tax General, 2-304 Tax General, 10-306 Tax General