ANNAPOLIS — Two tax bills — one aimed at retirees and the other at medical cannabis — overcame their first hurdle at the General Assembly this week, but their future is far from certain.
A handful of residents supported the bills, which Sen. Ron Young (D-District 3) sponsored, at a Senate Budget and Taxation Committee hearing Thursday morning.
One bill aims to offer relief to seniors on their retirement income, and the other wants to conform medical cannabis growers, processors, dispensaries and independent testing laboratories with other state businesses by granting them the right to deduct operating expenses before taxes.
“I think it’s a matter of equity,” Young said.
Despite making nearly $100 million of sales in 2018, medical cannabis businesses were unable to deduct salaries and equipment costs like other businesses in the state, he said. Young’s bill, SB 9, would change the state law to allow these expenses to be deducted to determine the modified income of the business.
Ashlie Bagwell, a lobbyist speaking on behalf of the Maryland Medical Dispensary Association, emphasized the bill doesn’t create any special exception or treatment for cannabis businesses, but allows them to write off normal business expenses.
Carissa Cartalemi, owner of Starbuds in Baltimore, testified in support of the bill and criticized the tax law, which hinders an already strictly regulated industry.
“Tell any business owner that they can’t deduct $250,000 in expenses in just their first year, and they’ll tell you that hurts a lot,” Cartalemi said.
Young said Friday he felt encouraged in the possibility of the bill moving forward.
“I know there’s several committee members that want to pass it, but I don’t know everyone’s opinion,” Young said.
Sales in the medical cannabis industry are expected to grow to $250 million by 2020. If passed, the bill would decrease state general fund revenue by an estimated $3.1 million that fiscal year, according to a Department of Legislative Services analysis. The growing number of small businesses that are licensed operators of medical cannabis facilities stand to benefit from the change.
Senior tax relief
Young is also aiming to provide tax relief to seniors in order to keep them in their communities, rather than move to Pennsylvania, Delaware, West Virginia or other states where taxes are lower.
If passed, SB 65 would allow retirees to deduct a maximum of $75,000 from their income tax in a process that would be phased in over the next five years. The maximum deductions would begin at $33,000 in tax 2019, $43,500 in 2020, $54,000 in 2021, $64,500 in 2022 and $75,000 in each tax year thereafter.
Young was not optimistic that the bill would make it out of committee, but it’s one he submits annually because it’s a conversation that needs to take place, he said. He estimates he speaks to one or two middle-income homeowners a month who are approaching retirement and considering moving out of state due to taxes.
The income tax relief was initially limited to retirees making less than $100,000 a year. The bill has since been modified to limit it to retirees making less than 35 percent above the median household income of the state. The adjustment puts the cap slightly below the original $100,000 mark, but it will adjust over time, Young said.
The Department of Legislative Services’ analysis of the bill found it would reduce state general fund and local revenue significantly by increasing the value of the maximum exclusion, and by allowing income from other plans or sources to qualify for deductions. However, the state already loses revenue from existing exemptions.
In 2018, the Department of Budget and Management estimates the state lost out on revenue to the tune of:
$212.5 million from a subtraction modification for Social Security benefits.
$167.5 million from an existing pension exclusion.
$30.6 million from personal exemptions.
Losses to state revenue from Young’s bill are estimated to exceed $350 million annually by fiscal 2024, and decrease local income tax revenue by at least $230 million annually within the same time frame, according to the analysis.
Young criticized the analysis for looking only at the direct losses to the state and not the other revenue and benefits of keeping seniors in Maryland, such as sale tax, real estate tax and human capital.
“All we ever do is look at what the law says. We don’t balance it with the benefits of staying,” Young said.
In 2018, the Frederick County Senior Services Division had 429 regular volunteers who donated 15,826 hours of volunteer time. The majority of the division’s volunteers were older adults.
More than half of the volunteers helped deliver meals for homebound people through the Meals on Wheels program, which is crucial to helping some of the county’s most vulnerable residents stay out of assisted living and long-term care centers, which are expensive, said Kitty Devilbiss, the division’s community services manager.
The volunteers also assist with Medicare enrollment and participate in classes at the county’s senior centers themselves.
For several years, Frederick County has been preparing for a growth in its senior population, which is expected to outnumber school-aged children by the year 2020, said Kathy Schey, who runs the division.
The women were not currently aware of seniors opting to move out of the area — away from communities and churches that have been centerpieces of their lives — due to taxes, but that does not mean it doesn’t happen. While the division interacts with a swath of Frederick County seniors, it is not nearly all of them, they said.
“One of our goals here ... is really empower, equip and engage seniors, so we can all live the best lives we can,” Devilbiss said.