Maryland would become one of the first states to decouple from the federal Opportunity Zone program under a bill advancing in the House of Delegates.
H.B. 224, sponsored by Del. Julie Palakovich Carr (D), passed its second reading in the House March 10.
The bill, which is based on legislation enacted in North Carolina that decoupled that state from the program, would require taxpayers to add back to Maryland adjusted gross income or Maryland modified income the amount of capital gains deferred or excluded under the Opportunity Zone program created by the federal Tax Cuts and Jobs Act.
The program allows investors to temporarily defer taxes on capital gains if the gains are invested in areas designated as Opportunity Zones. Because Maryland generally conforms to changes in the federal tax code, the state automatically conformed to the changes.
“These tax breaks at the federal level are exceptionally lucrative . . . the bottom line is [investors] are getting a 61 percent discount on their federal taxes because of those federal tax breaks,” Palakovich Carr said during a February 12 House Ways and Means Committee hearing.
Michael Mazerov, senior fellow at the Center for Budget and Policy Priorities, said that to his knowledge, Maryland would be the second state to proactively decouple.
In February 12 testimony on the bill, Mazerov said the most important reason Maryland should decouple from the provisions is to avoid subsidizing investments in projects located outside the state. “Many Opportunity Zone funds intend to invest in projects on a nationwide or at least a multistate basis, and many Opportunity Zones will be set up to fund a specific project — those projects can be outside Maryland,” he said.
Economic development watchdog Good Jobs First has also advocated for states to decouple from the provisions over concerns about revenue losses resulting from the tax breaks and the program’s lack of accountability and transparency safeguards.
“In this time of public health emergency and with the forthcoming economic downturn, states need revenue to support their healthcare systems and for relief to workers; states should not provide lucrative tax breaks to a wealthy few,” Kasia Tarczynska of Good Jobs First told Tax Notes March 11.
The measure is part of a revenue package meant to fund the Blueprint for Maryland’s Future, a plan that would make major reforms to Maryland’s public schools. H.B. 224 would generate an estimated $13.5 million in general fund revenue in fiscal 2021, according to the bill’s fiscal note.
The bill would take effect July 1 and would apply to tax years beginning on or after December 31, 2019.
Last year Maryland enacted legislation (S.B. 581) to provide additional tax breaks to businesses within Opportunity Zones. The bill, which passed with bipartisan support, was estimated to reduce revenues by $4.5 million in fiscal 2020 and $37.1 million in fiscal 2024.