Although climate-related legislation occupied a large part of the legislative agenda in 2022, the General Assembly took up a number of other initiatives of interest to commercial real estate. Over the next several editions, NAIOP 360 will focus on legislation related to taxes and fees, building codes, forest conservation, water quality and the public’s right to appeal permits and approvals. This week’s focus is taxes and fees.
Before the start of the 2022 General Assembly session, budget projections showed the state in a strong fiscal position with an estimated $6 billion surplus over the next several years. This coupled with the traditional reluctance to raise taxes in an election year reduced the number of tax proposals. Still, the assembly considered a number of tax and fee bills that should be of interest to NAIOP members.
One of the most impactful fee proposals was passed into law as part of Senate Bill 528, the Climate Solutions Now Act. The building emissions limitations established by the bill include an alternative compliance fee that could come into play by 2030. The fee could provide a less expensive compliance alternative for difficult to decarbonize buildings. The fee is to be set by the Maryland Department of Environment at a level not lower than the social cost of carbon – currently $51 per ton of greenhouse gas emissions.
Enforcement of Montgomery County’s Building Energy Performance Standard led to the introduction of House Bill 61 / Senate Bill 81. The companion bills would have authorized charter counties to impose fees on building owners of up to $10 per square foot for failure to comply with building energy performance standards. The scale of the proposed fees was unprecedented for Maryland, even for the most egregious environmental violations. The fee structure based on square footage also was significantly higher than other benchmarks like the social cost of carbon. Because there is a weak relationship between square footage and the carbon emissions of a building, the bill would result in uneven and disproportionately high penalties among buildings.
Senate Bill 361, Income Tax – Carried Interest – Additional Tax returned for the fourth year. Advocates argued the bill was written to target hedge fund managers. But the bill’s definitions of carried interest and investment activities also resulted in a 17% surtax on the profits of real estate management companies and development partnerships. As in previous years, the bill died in the Senate Budget and Taxation Committee.
House Bill 316 would have broken the long-time practice of uniform taxation of real estate by authorizing the City of Baltimore to set different real estate tax rates based on property class. This type of legislative initiative generally results in increasing the already disproportionate share of property tax paid by commercial real estate to local governments. The bill died in the House Ways and Means Committee.
The Howard County Board of Education has been struggling with a building maintenance backlog that has grown to an estimated $400-$500 million. For the second year in a row, the Howard County Delegation considered legislation that would have imposed an excise tax on commercial construction to pay for deferred school building maintenance. Since 2009, the existing excise tax on commercial construction has been dedicated to road capacity. The rationale for the tax is based on a fairly well-established link between commercial construction and transportation infrastructure needs. The proposed expansion of the tax to pay for deferred school maintenance projects had none of the direct connections that justified the establishment of the existing excise tax. The delegation failed to act on the bill.
Senate Bill 247 / House Bill 69 requires that local governments must receive notice of an assessment appeal decision that reduces the value of commercial property by 20% or more. The bills give local governments 90 days to appeal the decision and specify the criteria used to evaluate an appeal.
Historic Revitalization Tax Credit is reauthorized and the maximum amount of the commercial tax credit is increased by Senate Bill 289 and House Bill 87. The bills also require that the governor’s budget include $20 million in commercial tax credits each year beginning in 2024.