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Maryland businesses could end up paying higher property taxes
when buildings and land are sold.
Gov. Martin O’Malley is
pushing for a new law that would close what some have called a
tax loophole, which allows commercial property owners to avoid
paying state recordation and transfer taxes following a sale.
How the Tax Exemption Works
When residential property
is sold, owners are required to pay transfer and recordation
taxes based on the sales price. However, Maryland law allows
commercial buildings or real estate to be transferred into a
limited liability company (LLC).
The owner can then sell the
controlling interest in the LLC, and since the law does not
require these transactions to be recorded with the assessments
and taxation department, the deals are not subject to
recordation or transfer taxes.
Will
Lawmakers Approve a Change?
For more than 15 years, the
Maryland Legislature has debated whether to tax controlling
interest property transfers. A measure to do away with the
exemption on commercial property sales passed the House of
Delegates several times but was always killed by the Senate
Budget and Taxation Committee.
Neighboring states
including Delaware, New Jersey, Pennsylvania, Virginia and D.C.
have voted to eliminate the tax exemption.
Gov. O'Malley may call a
special session of the legislature to address this and other
issues related to the state’s projected $1.7 billion budget
shortfall for next year. Otherwise lawmakers will consider the
proposal during the regular session in January.
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