• Maryland’s IDOT Recordation Tax Exemption Survives - For Now
  • April 13, 2012 | Author: Lawrence F. Haislip
  • Law Firm: Miles & Stockbridge P.C. - Baltimore Office
  • Taxing Indemnity Deeds of Trust (“IDOTs”) was a significant budget and policy priority of the O’Malley administration in the just-concluded session of the Maryland General Assembly. This year’s move to eliminate, or at any rate to radically curtail, the recordation tax exemption, which has applied to so-called “indemnity” mortgages and deeds of trust for more than 40 years, represented the continuation of a struggle which has been waged in the Democrat-controlled legislature for at least the last dozen years. This year it appeared that those efforts came as close as ever to succeeding. Governor O’Malley’s proposed change to the Maryland recordation tax statute was buried at page 44 of the Senate’s 48-page budget reconciliation bill, which was introduced in January at the request of the administration. A companion bill was introduced in the House of Delegates. The governor included the mortgage tax as a sweetener to help alleviate the hundreds of millions of dollars in teacher pension liabilities which the administration’s budget would have shifted from the state to the several counties. As the legislative session wound down to Monday night’s close, it appeared the sweetener had done the trick: the proposal passed both chambers, having survived several attempts to eliminate the provision or at least to lessen its impact.

    But a funny thing happened on the way to reconciliation.  The bill failed to pass in the final hours and minutes of the legislative session, and that spelled an end to the latest attempt to kill the IDOT recordation tax exemption.

    The IDOT recordation tax exemption has survived what appears to be its closest near-death experience, and it remains alive and well—for now. Barring the calling of a special session of the legislature later this year to take up and pass the administration’s budget reconciliation bill, the governor and the Democrat-controlled legislature will have to wait until January 2013 in order to have another go at repeal. Maryland’s real estate and real estate finance industry can breathe a little easier, at least in the interim. The practical effect of the change would have been to significantly increase the transaction costs of doing real-estate secured commercial lending in Maryland. The state already has the unenviable distinction of having one of the highest recordation and transfer tax regimes of any mid-Atlantic state. The elimination of the IDOT exemption —if and when it occurs—will surely cause the cost of doing commercial real estate deals in Maryland to skyrocket.