Reed Smith Client Alerts

Last week, the Maryland General Assembly wrapped up its 2015 legislative session. From a tax perspective, it was a relatively quiet term. Nevertheless, a few bills were enacted that taxpayers should be aware of.

Tax Amnesty Program to Kick Off Fall 2015 The Maryland General Assembly passed legislation to enact a tax amnesty program that will run from September 1 to October 30, 2015. Under the program, the Comptroller will waive all civil penalties and one-half of any interest for taxpayers who failed to file a return required or pay a tax imposed on or before December 31, 2014. The program is applicable to personal and corporate income, withholding, sales and use, and admission and amusement taxes. Any taxpayer that was granted amnesty under a Maryland tax amnesty program between 1999 – 2014 or that was eligible for the July 1 – November 1, 2004 settlement period for tax years prior to 2003 (which was aimed at intangible holding companies) cannot participate in the 2015 amnesty program. Taxpayers should take note that, unlike amnesty programs in some other states that prohibit taxpayers from participating in an amnesty program if they are under audit or have otherwise been identified by the tax agency, the legislation approving Maryland’s amnesty program does not include such a limitation. Thus, all taxpayers with potential or definite Maryland tax liabilities should consider the amnesty program even if they have current audits, or assessment appeals pending before the Comptroller’s Office. The most recent amnesty program (which occurred in 2009) generated $38.9 million for the state.1

(New?) Sales Tax on Online Travel Companies Maryland enacted legislation that subjects online travel companies to the state’s sales tax.2 The legislation amends the definition of “vendor” for sales tax purposes to include an “accommodations intermediary,” which is defined as a person, other than an accommodations provider (e.g., hotel operator), who facilitates the sale or use of an accommodation and charges a buyer the taxable price for the accommodation, but does not provide the actual accommodation.

Under the new law, an accommodations intermediary is required to collect and remit sales tax on the full price the consumer pays the intermediary, whereas current practice among most online travel companies is to collect sales tax on the discounted rate the online travel company pays the hotel.

The legislation has been characterized by the legislature as a clarification of current law, because the Comptroller’s Office interprets the current law as already providing it with authority to collect sales tax on the full price that an intermediary charges a consumer for accommodation. However, many travel companies argued that the legislation effectively created a new sales tax on travel services. Litigation is pending at the Maryland Tax Court involving the sales tax treatment of accommodation intermediaries under the law in effect prior to the new legislation.3 It is unclear whether the legislature’s characterization of the new legislation as a mere “clarification” will have any impact on the outcome of the ongoing Tax Court litigation.

Repeal of the Mandatory “Rain Tax” In 2012, Maryland enacted a storm water remediation fee applicable in the state’s 10 largest counties in response to certain anti-pollution standards imposed by the U.S. Environmental Protection Agency on Maryland, New York, Pennsylvania, Virginia, West Virginia and D.C. (Maryland was the only state to impose a levy to meet the EPA’s standards.) The 2012 law required the counties to impose a storm water remediation fee on businesses and individuals (based on the amount of impervious surface on each property in the county), though it left it to the discretion of each county to set the amount of the fee. The tax has been considered to be an unconstitutional, state-mandated tax by many critics.

During this year’s legislative session, the General Assembly enacted legislation that repeals the mandate to collect the fee and, instead, authorizes the counties to collect the fee.4 The law also requires the counties to file a financial assurance plan beginning July 1, 2016 that identifies the actions the locality will take to comply with certain environmental standards and that specifically identifies the funding sources that will support those efforts.

In response to scrutiny concerning the mandatory “rain tax,” many counties shifted the blame, stating that they were required by law to charge the fee. Now that the mandate has been lifted, it will be interesting to see how many counties actually elect to abandon the storm water remediation levy.

Maryland to “Tax” Transportation Network Services The General Assembly passed legislation that establishes a regulatory framework for transportation network services, which includes services facilitated by rideshare companies such as Uber and Lyft, but excludes taxicab, sedan, and limousine services.5 Although the new law focuses primarily on insurance and licensing requirements, it also authorizes counties and municipalities within the state to impose an assessment of up to 25 cents per trip on a ride booked through a digital transportation network. The assessment is imposed on trips that originate within the county or municipality, and the transportation network company (e.g., Uber or Lyft) is required to collect and remit the assessment on behalf of the driver. The assessment will be administered by the Comptroller’s Office, which will collect the assessments and then distribute the revenue to the county or municipality that is the source of the revenue (i.e., where the rider was picked up). The law is effective July 1, 2015.

Retroactive Reduction in Interest Rate on Wynne Refunds Last year, the Maryland General Assembly passed legislation to retroactively reduce the state’s interest rate on any income tax refunds that result from a final decision in Maryland State Comptroller of the Treasury v. Brian Wynne, et al., 431 Md. 147 (Md. 2013), cert granted 134 S. Ct. 2660, No. 13-485 (2014).6 The Wynne case involves Maryland’s credit regime for taxes paid to other states, and whether such credits must be allowed against the county portion of the Maryland income tax. Specifically, the 2014 budget includes a provision that limits the interest rate payable on any Wynne-related refunds (should the U.S. Supreme Court rule against the state) to a percentage, rounded to the nearest whole number, that is equal to the average prime rate of interest quoted by commercial banks to large businesses during fiscal 2015, based on a determination by the Board of Governors of the Federal Reserve Bank. Although the applicable average prime rate of interest for 2015 has yet to be determined, the average prime rate of interest quoted by commercial banks to large businesses as of March 2015 was 3.25% – far less than the 13% statutory rate of interest typically paid on refunds. Should the U.S. Supreme Court decide the Wynne case in the taxpayer’s favor, there will almost certainly be challenges to this potentially unconstitutional, retroactive, rate reduction.

This year’s state budget approved by the General Assembly includes additional provisions that are contingent upon the Wynne decision.7 For more on why the Wynne case should be of interest to corporate taxpayers, see our perspective, originally published in Bloomberg BNA, on Why Corporate Taxpayers Should Care About Wynne.

This Alert is a part of a series of periodic updates on recent judicial, legislative and policy developments in the state of Maryland. For more information on any of the legislative developments discussed in this Alert, please contact one of the authors, or the Reed Smith attorney with whom you regularly work. For more information on Reed Smith’s Maryland tax practice, visit

About Reed Smith State Tax Reed Smith’s state and local tax practice is composed of more than 30 lawyers across seven offices nationwide. The practice focuses on state and local audit defense and refund appeals (from the administrative level through the appellate courts), as well as planning and transactional matters involving income, franchise, unclaimed property, sales and use, and property tax issues. View our State Tax team.

  1. See HB 1233 / SB 763.
  2. See HB 1065 / SB 190.
  3., LP v. Comptroller of the Treasury, Md. Tax Ct. Docket No. 12-SU-OO-1184 (filed December 13, 2012).
  4. See SB 863.
  5. See SB 868.
  6. See SB 172, section 16, 2014 Legislative Session.
  7. See HB 72, sections 4, 26, 27. Section 4 of the legislation provides for a credit against the local tax for taxes paid to another state, assuming the total allowable credit is not absorbed at the state level. However, section 26 of the legislation makes clear that this provision only takes effect if the U.S. Supreme Court decision in Wynne expressly or in effect invalidates the practice under Maryland law of allowing a credit only against the state income tax. Section 27 of the legislation provides information about the specific state fund to be used to pay Wynne refunds and requires local governments to reimburse the state based on each county’s proportionate share of the refunds issued.


Client Alert 2015-104