- The Washington Times - Tuesday, January 1, 2008

ANNAPOLIS — One of a variety of tax increases set to take effect in Maryland today could help some smokers keep their resolutions to kick the habit this year: a doubling of the cigarette tax from $1 to $2 a pack.

The vehicle titling tax is going up from 5 percent to 6 percent, and the corporate income tax will rise from 7 percent to 8.25 percent. Other taxes, including a jump in the sales tax from 5 percent to 6 percent, also are going up this week.

Together, the tax increases amount to more than $1.3 billion — the result of a three-week special session of the General Assembly that ended Nov. 19. Gov. Martin O’Malley, a Democrat, called the session to get new revenue on the books as soon as possible to pay for a shortfall in the state’s budget.

However, Maryland Republicans have been working on a legal case to overturn the session, which included measures to raise taxes and let voters decide whether to legalize slot machines in a constitutional amendment. The Republican Party is arguing that the Senate adjourned too long without permission from the House during the special session, violating the state constitution.

Democrats say the argument is absurd, and the taxes are still on track. But the legal battle is continuing in the courts.

A tobacco tax increase means Maryland will go from having the 22nd highest tobacco tax in the nation to being tied for the fourth highest, said Vincent DeMarco, president of the Maryland Citizens’ Health Initiative.

The tobacco tax increase will raise about $98 million for the current fiscal year and $162 million the next fiscal year, according to estimates by the Department of Legislative Services. The money will be used to help fund an expansion of health care coverage to about 100,000 uninsured Maryland residents.

The jump in Maryland’s vehicle titling tax will raise an estimated $60 million for transportation projects, after trade-in deductions are taken into account. A one-time certificate of title fee is rising from $23 to $50.

Three new income tax brackets are being created in the first restructuring of the state’s income tax in 40 years. Before, Maryland’s income tax rate was mostly flat. People earning more than $3,000 in taxable income were paying a 4.75 rate. The three new rates affect single filers who earn more than $150,000 and joint filers who make more than $200,000 with new rates between 5 percent and 5.5 percent.

The Tax Reform Act of 2007 also will expand the refundable earned income tax credit starting today.

The income tax changes are expected to net the state about $29 million in the next fiscal year.

The state’s corporate income tax increase will help generate the increased revenue for a new higher education fund and the state’s general fund. The new Higher Education Investment Fund will receive an estimated $16 million in fiscal 2008 and $55 million in fiscal 2009, representing about 6 percent of total corporate income tax revenue.

While New Year’s Day marks the start of most of the new taxes, more increases are just days away. For example, the state’s sales tax is going up from 5 percent to 6 percent on Thursday. The increase, which is one of the key revenue raisers under the whole tax package, will generate an estimated $315 million in the current fiscal year and $687 million in fiscal 2009.

A tax on electronic bingo and tip jars in parts of Western Maryland also will kick in on Thursday, putting a 20 percent state admissions and amusement tax on net receipts from the operations.

An extension of the sales tax to computer services, which proved to be a thorny issue during the special session, won’t take effect until July 1. Business groups are expected to push to repeal the tax, arguing that business groups didn’t get an opportunity to testify at public hearings on the change and that the tax will have a big impact on small businesses. But legislative leaders say it will be tough to find a replacement for the sales tax extension, which will raise an estimated $200 million in fiscal 2009.

“There’s no will for $200 million in other types of taxes,” Senate President Thomas V. Mike Miller Jr. said in a recent interview.

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