Recently, The Baltimore Sun published a commentary from two Maryland tax practitioners critical of the Office of the Comptroller’s handling of Maryland Electing Pass-Through Entity (PTE) tax filings (“Maryland tax processing problems frustrate business owners,” May 29). While they accurately highlight challenges in implementing Maryland’s 2020 PTE law, their commentary inaccurately links these issues to the agency’s new tax processing system (which will solve the problem when fully implemented), fails to acknowledge the agency’s dual responsibilities to promptly process tax filings while also protecting taxpayers from paying erroneous or fraudulent refund claims due to simply rubber-stamping returns, and ignores the significant efforts already underway to improve the process.

The Maryland General Assembly enacted the Pass-Through Entities and Corporations bill in 2020 in response to the 2017 Tax Cuts and Jobs Act, which significantly limited the state and local tax deductions that could be made on federal taxes. To protect Marylanders from a massive federal tax hike, Maryland’s PTE law allows members of electing PTEs to claim a credit against their state income taxes for their share of taxes paid by the PTE. This reduces the member’s tax burden and largely, if not completely, offsets the impact of federal tax changes. Many PTEs in Maryland jumped at the opportunity to make the election.

The outdated legacy tax processing system used by our agency is not equipped to make the adjustments needed to verify PTEs and match them with the owners looking to claim the credit. The agency has therefore had to develop a manual process to review PTE filings to prevent the state from issuing erroneous refunds or credits and to fulfill requirements of the law. A thorough verification process safeguards our state tax system against exploitation by individuals attempting to defraud the state and taxpayers.

Our agency receives more than 3 million personal income tax filings annually and more than 4.5 million business tax filings submitted to our agency throughout the year. During the 2023 tax year, we have processed more than 2.9 million individual returns and issued nearly 1.9 million refunds which represents a significantly faster processing rate than previous years.

Of those millions of returns, roughly 30,000 are PTE filings from our business taxpayers and 90% of those PTE filings are submitted on paper instead of electronically which limits our agency’s ability to automate processing. We are deeply committed to providing the highest level of customer service by vetting returns for accuracy. Given that half of PTE credits claimed during the 2021 tax year were valued between $5,000 and $50,000 and the average credit claimed is close to $37,000, there is a significant amount at stake both for the state and for our taxpayers. The state granted more than $1 billion in PTE credits for tax year 2021.

The original PTE measure was passed during the abbreviated COVID session in 2020 and lawmakers have helpfully taken steps to refine and update PTE-related laws including redefining income types, members, entities and tax obligations and further standardizing filings between Maryland-based and out-of-state PTEs. These updates, along with recent process improvements put in place by Comptroller Brooke Lierman, have helped to streamline our process and remove some of the red tape PTE filers encounter including:

Eliminating bureaucratic hurdles: We have streamlined our ability to validate the PTE credits claimed by members, leveraging K-1 information reported by the PTE.

Increased staffing: Additional funding in the Fiscal Year 2024 budget allowed us to hire more staff in our revenue administration division and significantly improve processing times.

Automated validation: We have developed a report to automatically validate credit amounts. While some manual intervention is necessary, this report streamlines the process, assisting with approximately 30% of claimed credits and working towards 70% with full electronic submission.

Under Comptroller Lierman’s leadership, our agency has also transformed our communications efforts to ensure we are providing updates to tax preparers, holding webinars on new systems and publishing information on a new webpage with all our resources on PTEs while we work to develop an entirely new website with streamlined resources. We are now regularly engaged with the Maryland Association of CPA’s as well. Comptroller Lierman and I will continue to work with members of Maryland’s tax industry to systematically improve our agency’s processes and performance to deliver an innovative, accessible and efficient tax system and look forward to migrating to our new Maryland Tax Connect system for all tax types which will ultimately solve these challenges.

The Office of the Comptroller is dedicated to ensuring that our tax system is fair, accurate and responsive to the needs of all Marylanders. Every day we are moving toward new, modern systems that will increase our ability to serve Marylanders better. We appreciate the opportunity to continually improve with input and cooperation from our partners and taxpayers.

— Andrew Schaufele, Annapolis The writer is chief deputy comptroller for the Maryland Office of the Comptroller.