Number of millionaire taxpayers drops in Md. 30 percent

The number of Maryland taxpayers who reported more than $1 million in personal income fell by nearly a third last year, apparently impacted by a national recession that came at the same time as a new tax surcharge for millionaires.

Tax officials said in a report filed Monday that it is difficult to say exactly why the number fell.  Some believe the state is losing millionaires who are moving away to avoid paying the tax, which amounts to 6.25 percent of revenue beyond $1 million. The tax was passed in 2008 as a replacement for an unpopular tax on computer services, which was repealed before it took effect.

The overall decline likely is related to the loss of income due to the economic recession, but there were also more millionaires who had filed Maryland tax returns in the past, but did not do so this year. The final numbers came after last month's filing extension deadline.

Maryland Comptroller Peter Franchot’s office told legislative leaders Monday that the total number of millionaires in the state fell from 7,067 to 4,910 during tax year 2008. The decline amounted to a 30 percent drop. Out of the people who filed as millionaires in 2007, 542 of them did not submit a full-year return in Maryland in 2008. That 7.7 percent disappearance is higher than in recent years, when it has hovered between 5 and 6 percent.

The numbers will play into debate during next year’s General Assembly session, since the surcharge expires after 2010. If there is an attempt to renew the tax, its impact on revenues and legal residence for tax purposes is likely to be questioned.

The tax was originally projected to raise $61 million during fiscal 2011, but if it were extended it could potentially raise more because the tax year runs through only half of the fiscal year. Ron Wineholt, vice president of government affairs for the Maryland Chamber of Commerce, said by e-mail that he doubts the tax will be as lucrative as projected.

Del. Page Elmore, R-Somerset and Wicomico, who sits on the House Ways and Means Committee, which oversees taxes, said he doesn’t think the economy is going to recover enough for the tax to be renewed next year.

“I think the important debate will be how many more people are we going to chase out of Maryland if we continue this,” Elmore said.

David Roose, who heads the state’s Bureau of Revenue Estimates, wrote in his report that there are a number of reasons why a person would file a return one year and not the next. Those include relocation, death or simple failure to pay on time, if at all.

“We cannot readily determine the reason a return is not filed and, even if we know a taxpayer has left the state, we cannot determine why,” Roose wrote.

Tom Hood, executive director of the Maryland Association of Certified Public Accountants, said there’s probably not one single reason for the decline in filers. Many people pay their business income taxes as individuals, so the slow year may have pushed results down, he said. He added that many large companies in the state have cut back or merged with outside firms in recent years, and these shifts could draw high earners away.

Also, many people who generally gain a lot of investment income may have slipped below the threshold. Still, Hood said he has heard from CPAs across the state that some people have moved away, especially those who provide services that are easy to provide from elsewhere — such as computer services.

“We have heard that some of these folks have left Maryland and gone to lower-tax jurisdictions,” Hood said. “I would not be surprised if some of them … actually have moved.”

Randolph May, president of the libertarian Free State Foundation, said he knows people that have moved as well. Though he acknowledges that is anecdotal, he said the rate of people who did not file last year is alarming.

“Especially in an area like this one, where it’s easy to move from one jurisdiction to another … it’s going to have an impact,” he said.

The Sun's Laura Smitherman has additional comments on the millionaires' report.