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HB 1318
Department of Legislative Services
Maryland General Assembly
2021 Session
FISCAL AND POLICY NOTE
First Reader
House Bill 1318 (Delegate Howard)
Ways and Means
Maryland Business Tax Relief Act
This emergency bill (1) allows employers to defer submitting specified contribution and
employment reports related to unemployment insurance (UI) to the Maryland Department
of Labor (MDL); (2) creates a nonrefundable State income tax credit for up to $250 of the
costs incurred to purchase or newly lease point-of-sale credit card processing equipment
featuring contactless payment technology; (3) doubles the amount of the sales tax vendor
credit; (4) provides various sales and use tax exemptions; and (5) provides for a
local-option property tax credit for businesses impacted by Executive Order 20-03-23-01.
The income tax credit provision takes effect July 1, 2021, and applies to taxable years
beginning after December 31, 2020. The property tax credit provision takes effect
June 1, 2021, and applies to taxable years beginning after June 30, 2021.
Fiscal Summary
State Effect: MDL can implement the bill with existing budgeted resources. Nonbudgeted
Unemployment Insurance Trust Fund (UITF) revenues are affected from FY 2021 through
2023, as discussed below. Nonbudgeted UITF expenditures are affected only to the extent
that funds are used to repay the principal on outstanding loans in FY 2022 and/or 2023.
General fund expenditures may increase for interest payments in FY 2022 and/or 2023.
General fund revenues decrease by a significant amount beginning in FY 2021 due to sales
and use tax changes and beginning in FY 2022 due to income tax credits. General fund
expenditures increase by $141,300 over FY 2021 and 2022 due to one-time implementation
costs at the Comptroller’s Office.
Local Effect: Local highway user revenues decrease beginning in FY 2022 to the extent
tax credits are claimed against the corporate income tax. Local property tax revenues
decrease in FY 2022 to the extent the property tax credit is granted. Expenditures are not
materially affected.
Small Business Effect: Meaningful.
Analysis
Bill Summary:
Unemployment Insurance Tax Deferrals
Employers may defer submitting contribution and employment reports to MDL for the
calendar quarters ending on March 31, 2021, and March 31, 2022. The reports must be
submitted by the due date for the next quarterly report, and interest may not be assessed
through the deferral period.
Sales and Use Tax Vendor Credit
The bill doubles the amount of the sales and use tax vendor credit that a person filing a
sales and use tax return may keep from 1.2% to 2.4% of the first $6,000 collected and from
0.9% to 1.8% of the excess. The maximum monthly amount a vendor may keep increases
from $500 to $1,000.
Sales and Use Tax Holiday for Back-to-school Shopping
The bill increases from $100 to $150 the taxable price of certain items (clothing and
footwear) that are eligible for the sales and use tax exemption during the annual sales and
use tax holiday for back-to-school shopping.
Sales and Use Tax Exemption for Restaurant Utilities
The bill exempts from the State sales and use tax the sale of electricity, oil, liquefied
petroleum gas, or artificial or natural gas used to operate a restaurant. For purposes of this
exemption, “restaurant” is defined as a licensed food service facility that is primarily
engaged in selling or serving food and beverages prepared for consumption on or off the
premises. “Restaurant” includes a licensed caterer food service facility, but it does not
include (1) a supermarket, convenience store, mini-mart, or similar establishment; (2) a
business, school, or institutional cafeteria; or (3) a cafeteria operated by or on behalf of the
State or a local government.
Sales and Use Tax Holiday for Restaurant Sales
Beginning in September 2021, the bill establishes an annual eight-day sales-tax-free period,
as specified, when the State sales and use tax does not apply to the sale of a food or
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nonalcoholic beverage item costing $40 or less. To qualify, the item must be sold by a
“restaurant” (generally defined as for the tax exemption for restaurant utilities, except that
a licensed caterer food service facility is not incorporated in the definition) for immediate
human consumption.
Sales and Use Tax Exemption for Personal Protective Equipment
The bill exempts sales of the following personal protective equipment (PPE) products from
the sales and use tax if the taxable price of the item is $50 or less: (1) disposable face
masks or respirators; (2) disposable gloves; (3) a plexiglas sneeze guard or transparent
partition; (4) hand sanitizer; and (5) disinfectant or sterilant products. The exemption only
applies during a declaration of a state of emergency due to a catastrophic health emergency.
Credit Card Processing Equipment Tax Credit
An individual or corporation may claim, beginning in tax year 2021, a nonrefundable tax
credit against the State income tax for up to $250 of the costs incurred to purchase or newly
lease point-of-sale credit card processing equipment featuring contactless payment
technology. Any unused amount of the credit may not be carried forward to any other tax
year.
Property Tax Exemption for Nonessential Businesses
The bill authorizes county and municipal governments to grant a one-year property tax
credit for real property owned by a nonessential business, as described under
Executive Order 20-03-23-01, if the nonessential business was forced to close to the
general public for at least 60 days due to a State or county restriction imposed as a result
of a catastrophic health emergency during calendar 2020 or 2021. The amount of the
property tax credit is limited to 15% of the amount of the property tax otherwise due.
County and municipal governments may provide for (1) the amount of the tax credit;
(2) additional eligibility criteria for the tax credit; (3) regulations and procedures for the
application and uniform processing of requests for the tax credit; and (4) any other
provision necessary to carry out the tax credit.
Current Law:
Unemployment Insurance Tax Deferrals
The Secretary of Labor must adopt regulations that set the date when employer
contributions (taxes) are due and the manner in which the contributions are to be paid.
Under those regulations, employer contributions are due by the last day of the month
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immediately following each calendar quarter. The regulations must also require that, for
any calendar year in which Table F is applicable, the Secretary offer a variety of payment
plan options that spread through the end of August the dates when contributions are due on
taxable wages for covered employment of the first six months of the calendar year.
While no Table F payment plan regulations have been adopted as required under current
law, in practice, MDL offers payment plans to employers, and the department’s website
advises employers to apply through its BEACON 2.0 portal (the system used to administer
the State’s UI program). The general plan offered in 2020 was 50% due with the quarterly
payment, with the remaining 50% due over three equal monthly installments. There is a
separate option for any individual plan that mutually serves the interest of the Division of
Unemployment Insurance and the employer.
Additionally, each calendar quarter, each employing unit must submit to the Secretary of
Labor a contribution and employment report on or before the date that the Secretary sets.
MDL regulations specify the same quarterly due dates as for contributions.
For more information on the State’s UI program, see the Appendix – Unemployment
Insurance.
Sales and Use Tax Vendor Credit
In order to cover expenses for collecting the State sales tax, persons filing timely returns
are allowed to take a vendor credit against the gross tax remitted in an amount equal to
1.2% of the first $6,000 collected and 0.9% of the excess, capped at $500 per filing period
(monthly basis).
Sales and Use Tax Holiday for Back-to-school Shopping
There is a seven-day sales-tax-free period each August for back-to-school shopping when
the purchase of any item of clothing or footwear, excluding accessories, costing $100 or
less is exempt from the State sales and use tax. In addition to clothing and footwear, the
first $40 of the taxable price of any backpack or bookbag purchased during the annual
sales-tax-free period for back-to-school shopping is also exempt from the State sales and
use tax.
Sales and Use Tax Exemption for Restaurant Utilities
Section 11-210 of the Tax-General Article exempts from the sales and use tax the sale of
machinery, equipment, and other tangible personal property used directly and
predominantly in a production activity. Section 11-101(k) of the Tax-General Article
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specifies that tangible personal property includes coal, electricity, oil, nuclear fuel
assemblies, steam, and artificial or natural gas.
The sales and use tax does not apply to (1) a sale of electricity, steam, or artificial or natural
gas for use in residential condominiums; (2) a sale of electricity, steam, or artificial or
natural gas that is delivered under a residential or domestic rate schedule on file with the
Public Service Commission; (3) a sale of coal, firewood, heating oil, or propane gas or
similar liquefied gas for use in residential property that contains no more than four units,
cooperative housing, condominiums, or other similar residential living arrangements; (4) a
sale of electricity through three or more bulk meters for use in a nonprofit planned
retirement community of more than 2,000 housing cooperative or condominium units if
ownership of units is restricted by age, any unit is served by an individual meter, and on or
before July 1, 1979, at least three bulk meters served the community; or (5) a sale of
electricity generated by specified solar energy equipment or residential wind energy
equipment for use in residential property owned by an eligible customer generator.
The sales and use tax also does not apply to the sale of geothermal equipment, residential
wind energy equipment, or solar energy equipment. “Solar energy equipment” is certain
equipment that uses solar energy to heat or cool a structure, generates electricity to be used
in a structure or supplied to the electric grid, or provides hot water for use in a structure.
Credit Card Processing Equipment Tax Credit
No similar State income tax credit exists. Under the federal and State income tax,
businesses may generally deduct the cost of purchasing or leasing credit card processing
equipment.
COVID-19 Public Health Emergency
The Governor declared a public health emergency on March 5, 2020, with the declaration
being extended several times since. The public health emergency is still in effect, and the
most recent renewal occurred on February 19, 2021.
State Revenues: The tax incentives established by the bill reduce State revenues by a
significant amount beginning in fiscal 2021. As shown in Exhibit 1, the impact of
three provisions that can be quantified reduce State revenues by $5.6 million in fiscal 2021
and by $38.3 million in fiscal 2026. The following is a brief description of the major
revenue impacts of the bill.
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 Exhibit 1
Potential Impact on State Revenues of Sales and Income Tax Provisions
Selected Fiscal Years
($ in Thousands)
Quantifiable Tax Provisions FY 2021 FY 2022 FY 2026
Sales and Use Tax Vendor Credit -$5,200 -$21,200 -$22,800
Sales and Use Tax Exemption – Restaurant Utilities -425 -1,700 -2,000
Sales and Use Tax Holiday – Restaurant Sales* 0 -13,500 -13,500
Subtotal -$5,625 -$36,400 -$38,300
Other Tax Provisions
Sales and Use Tax Holiday – Back-to-school Shopping No Effect Indeterminate Decrease
Sales and Use Tax Exemption – PPE Indeterminate Decrease
Income Tax Credit – Credit Card Processing Equipment No Effect Indeterminate Decrease
PPE: personal protective equipment
*Illustrative impact.
Source: Department of Legislative Services
Deferring Employer Contribution and Employment Reports
The bill allows employers to defer the submission of first quarter 2021 and 2022
contribution and employment reports until the due date of the second quarter reports,
without accruing interest. This analysis assumes that this provision intends to allow
employers to defer the payment of UI taxes owed, not the employment data required by the
reports. The Department of Legislative Services notes that the language in the bill mirrors
the provisions for small taxable employers in Chapter 39 of 2021 (the Act also provides a
similar deferral for small reimbursing employers).
Therefore, this estimate assumes that employers are authorized to delay two UI tax
payments, which will be billed and owed in the first quarter of 2021 and 2022, until
midyear. The overall effect is complicated by Chapter 39 of 2021, which authorizes
deferrals for small employers in 2021 and potentially 2022, and the availability of other
payment plan options upon request. That said, since small employers account for about
25% of payroll, the bill applies up to about 75% of payments, which delays the receipt of
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UITF revenues in fiscal 2021 and 2022, with spillover effects into the subsequent
fiscal year. For context, UITF is expected to collect about $1.0 billion in 2021.
Since a deferral typically does not reduce amounts owed, the bill’s effect would be limited
to potentially reallocating revenues between fiscal years, with some foregone interest
revenues. However, depending on the UITF balance (or lack thereof) over time, a delay in
UITF revenues received may result in additional borrowing to cover MDL’s cash flow
needs as UITF recovers from COVID-19-related benefit payments.
Sales and Use Tax Vendor Credit
General fund revenues decrease beginning in fiscal 2021 as a result of doubling the amount
of the sales and use tax vendor credit that vendors may keep. The sales and use tax vendor
credit is estimated to reduce revenues by approximately $5.2 million in fiscal 2021
(representing three months of the increased credit amount), $21.2 million in fiscal 2022,
and $22.8 million in fiscal 2026.
Sales and Use Tax Holiday for Back-to-school Shopping
General fund revenues decrease beginning in fiscal 2022 as a result of increasing the
maximum per-item cost by $50. The amount of the revenue decrease cannot be reliably
estimated and depends on the number of back-to-school items that cost between $100 and
$150 that are purchased each year during the sales-tax-free period. As a point of reference,
the existing sales and use tax holiday for back-to-school shopping is estimated to reduce
general fund revenues by approximately $6.8 million in fiscal 2021 and $7.1 million in
fiscal 2022. General fund revenues decrease by approximately $700,000 for each 10%
increase in the total value of the exemption that results from the increased maximum
per-item cost.
Sales and Use Tax Exemption for Restaurant Utilities
General fund revenues decrease by a significant amount beginning in fiscal 2021,
depending on the number of restaurants in the State that qualify for the exemption and the
amount of energy used by these restaurants. As a point of reference and for illustrative
purposes only, it is estimated that general fund revenues could decrease by approximately
$425,000 in fiscal 2021 (representing three months of the sales tax exemption),
$1.7 million in fiscal 2022, and $2.0 million in fiscal 2026 based on the following
assumptions:
 there are approximately 11,300 eating and drinking establishments in the State that
may qualify for the exemption, according to the Maryland Restaurant Association;
 commercial accounts are 9.5% of total energy customers;
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 commercial accounts provide for nearly 27% of total energy sales;
 approximately $134.9 million in sales taxes were remitted from light and power
companies in fiscal 2020; and
 3% annual increases in energy costs.
In addition, the actual effect on revenues in the near term may be affected by the number
of restaurants that have either closed or are operating at a reduced capacity as a result of
the COVID-19 pandemic. For example, if 40% of restaurants are closed in fiscal 2022,
general fund revenues decrease by approximately $1.0 million, based on the assumptions
above.
Sales and Use Tax Holiday for Restaurant Sales
General fund revenues decrease beginning in fiscal 2022 as a result of the sales-tax-free
period for certain food and beverage items. The amount of the decrease cannot be reliably
estimated and depends on the amount of food and beverage items costing $40 or less that
are purchased during the sales-tax-free period. In fiscal 2020, the State collected
$661.4 million in sales and use taxes from various restaurant and food service categories.
As a point of reference, and for illustrative purposes only, general fund revenues may
decrease by approximately $13.5 million annually, beginning in fiscal 2022, based on the
following assumptions:
 there are 2.2 million households in Maryland;
 the U.S. Bureau of Labor Statistics reports that U.S. households spent $3,526 on
food away-from-home purchases in 2019; and
 1.5 weeks of sales occur during the sales-tax-free period for restaurant sales.
Sales and Use Tax Exemption for Personal Protective Equipment
General fund revenues decrease as a result of the sales and use tax exemption for PPE items
costing $50 or less beginning in fiscal 2021 and during a declared health-related state of
emergency that may occur in the future. The amount of the revenue decrease cannot