With the end of the 2010 Maryland General Assembly session this week, business leaders breathed a sigh of relief that they were not hit with any new taxes in this election year. But they are already gearing up for some tax battles next year.

"I'm concerned about 2011. There is clearly a day of reckoning that will come," said Ellen Valentino, Maryland state director for the National Federation of Independent Business, a trade group for small businesses. "Some tough decisions on taxes, revenues and expenditures lie ahead."

Added Ronald Wineholt, vice president of government affairs for the Maryland Chamber of Commerce: "2011 will be interesting."

Legislators this session passed 810 bills and four resolutions, out of more than 2,700 introduced. That was more than the 799 bills approved last year and 747 in 2008.

But controversial ones for the business community were few and far between.

The election year had a lot to do with that, said Thomas S. Saquella, president of the Maryland Retailers Association.

"A lot of bills are introduced that sound good," he said. "Most don't get enacted. Legislators are extremely cautious in an election year."

What was different from some election years was the budget shortfall, with lawmakers having little money to spare to promise new programs they could tout on the campaign trail, said Saquella, who has lobbied as president of the retailers group for 25 years and plans to retire this summer.

Two pieces of legislation that generated controversy — accepting $126.8 million in federal stimulus funds to bolster the state's unemployment insurance trust fund and a hiring tax credit — passed several weeks ago and were quickly signed into law by Gov. Martin O'Malley (D).

Some business leaders, such as Valentino, wanted to see some unemployment tax rate relief for small employers, which O'Malley originally proposed. Others, such as those with the Maryland chamber, preferred that businesses pay more now to strengthen the trust fund and get lower rates sooner.

While that measure was a tax increase, it was one forced by state law when so many unemployed workers applied for benefits that the trust fund was depleted to virtually zero. Unemployment taxes are determined annually based on the amount of money in the trust fund as of Sept. 30 the prior year.

Accepting the federal stimulus funds requires Maryland to extend benefits to more workers and thus raises costs to employers. But a compromise was worked out to lower costs in other ways, such as eliminating sick claims filed by unemployed workers.

"That was probably my biggest disappointment," Valentino said of not seeing lower unemployment tax rates.

She added that despite the lack of tax increases, it was difficult to characterize the session as a "win for small business." The budget being the legislature's central focus "took a lot of wind out of the sails of many of the other issues," Valentino said.

The unemployment tax fund was the biggest issue for most Maryland employers, Kathleen T. Snyder, president and CEO of the Maryland chamber, said in an e-mail. The original bill, while well-intentioned, would have increased state borrowing from the federal government, as well as long-term costs to employers, she said.

"The resulting compromise was enacted in a manner that will qualify the state for the federal funds, strengthen the long-term health of the unemployment insurance trust fund, reduce interest on late payments and allow employers to use payment plans to extend unemployment insurance payments this year," Snyder said.

Hopes for hiring

The jobs tax credit, which took effect in late March, gives employers a $5,000 credit for each unemployed worker hired this year. The original proposal was $3,000, but the Maryland chamber recommended raising the credit to $5,000.

Still, even at that level, Wineholt said he was not sure how many employers would be encouraged to hire an unemployed worker.

"Even if it is a hire for a minimum-wage job, that still costs an employer $15,000 in wages each year, plus taxes and other costs," he said.

Thomas W. Loveland, CEO of Mind Over Machines, a 50-employee Web applications company in Owings Mills, said his business "possibly" will be able to take advantage of the credit this year.

"The [information technology] industry is doing better than most industries," Loveland said. "It's a great idea."

At least 19 applications for the tax credit have been certified by the Department of Labor, Licensing and Regulation, state officials said.

In the last nine months, Amethyst Technologies, a Baltimore biotechnology company, hired six people who were unemployed and has plans for 20 additional jobs this year, said CEO Kimberly Brown. The new tax credit will help fund the company's expansion into food and beverage, hospitals and aviation, she said.

Other states that have implemented job tax credits have seen mixed results, Valentino said.

"Everybody hopes for growth and new hires," she said. "But the jury is out on this. At least we can measure its success rate."

Saquella said his retail group is starting to promote the job tax credit.

"I hope it will have some impact," he said. "Most retailers likely won't be able to hire full-time workers initially. It will be more part-time employees."

Wineholt said he was pleased that a bill letting small businesses pay property taxes in installments passed.

Lisa Fadden, vice president of public affairs for the Montgomery County Chamber of Commerce, said she was thrilled that a legislation to appoint a blue ribbon commission to study short- and long-term transportation funding needs passed.

"Hopefully, we can make some progress on real solutions to transportation funding," Fadden said.

Getting an additional $2 million for the bioscience investment tax credit was a huge win, said Renée M. Winsky, CEO of the Tech Council of Maryland. That program will now have $8 million for fiscal 2011.

The extra $2 million came at the expense of the state's stem cell research funding program, but the funding remained near this year's with $10.4 million. The Senate had recommended cutting the stem cell research fund to $6.2 million, while O'Malley had proposed level-funding at $12.4 million.

Dan Gincel, director of the Maryland Stem Cell Research Fund, said he was pleased that the legislature preserved most of O'Malley's recommendation.

"We look forward to continuing the advancement of Maryland's nationally recognized stem cell program," he said.

The extension of the research and development tax credit until 2021 was another big development for the state's high-tech sector, Winsky said.

The Greater Baltimore Committee did a lot of one-on-one education work with legislators on programs such as the biotech investment tax credit that paid off, said Donald C. Fry, president and CEO. Not only was there little public talk of cutting that program as there was last year, but the funds were increased, he said.

"There is a greater understanding of the importance of that bioscience tax credit now," Fry said. "It's critically important that even if you're dealing with limited dollars to leverage dollars toward programs that will demonstrate your commitment to those growth industries."

Legislation to extend the availability of tax incentives for rehabilitating historic buildings and expand them to other structures in preferred growth areas was another key issue to the Greater Baltimore Committee, Fry said.

The tax incentive program is a proven, highly effective tool for creating jobs and private-sector investments while also revitalizing communities, he said.

Fry said he would like the historical building rehabilitation program be a true tax credit rather than a grant, but he understood the tight budget environment under which legislators operated. "They made the program better, which is a significant step," he said.

Kevin Atticks, executive director of the Maryland Wineries Association, praised the passage of the Maryland Winery Modernization Act, which he said greatly improves winery laws.

The bill passed due to several years of concerted effort and the cooperation and support of the comptroller and alcohol groups, Atticks said.

State wineries have had to get a county license to sell wine, but some counties have been more stringent than others about serving wine on winery premises, he said. The new legislation standardizes those rules.

The act also includes a provision for the comptroller to study the impact of direct shipping of wine in Maryland. His association did not take a position on direct shipping, Atticks said.

Some disappointments

Legislation mandating employee shift breaks was a disappointment for Saquella and other business leaders. The measures do not apply to restaurants or franchises with fewer than six employees at the location.

Similar legislation was withdrawn in 2007 and died in committee in 2008 and 2009.

Most retail association members probably already do more than what the bill requires, but the legal issue is a concern, Saquella said.

"Our members don't want attorneys filing lawsuits because of shift breaks," he said. "The biggest impact of this for many of our members will be that they will have to keep good records on employee breaks."

Among the approved bills opposed by the Maryland chamber is a measure that will permit a private citizen to file a civil action on behalf of the state against a person who has made a false medical claim, which supporters said will enable the state to recover millions of dollars while cracking down on fraud. Courts will be allowed to award a certain percentage of the proceeds of the action to the individual, which Wineholt said will give people an incentive to file more lawsuits.

The false claims bill was among 170 signed into law this week by O'Malley. "That was a disappointment," Wineholt said.

Some legislators tried to pass bills to raise taxes, election year or not. Those included extending the so-called "millionaire's tax" and implementing combined reporting, which targets companies that operate in multiple states.

Loveland, co-founder of the Maryland Computer Services Association, an Owings Mills grassroots organization that formed in 2007 to oppose a sales tax on computer services, said he was glad that the millionaire's tax was not extended. That tax came about as part of a solution to repeal the high-tech tax in 2008 and was supposed to sunset, he said.

"We pledged then that the tax would sunset," Loveland said. "If an organization can't keep its word, it doesn't have integrity."

Leaders of Loveland's computer organization and the Tech Council announced Wednesday that they are combining forces.

Looking ahead

Legislators face tough challenges next year because so many programs have already been cut, Winsky said. Some level of combined reporting could be passed, as well as an increase in income taxes, she said.

"They have to come up with revenue somewhere," Winsky said.

She said she would like to see the cap raised on the research and development tax credit and more money allocated for the biotech investment tax credit, as recommended in the 2020 state biotech plan. "Those programs have track records of creating jobs and bringing in more investment," Winsky said.

Loveland said he would like to see legislators next year find more funding and mentoring programs for startups and small companies.

The Maryland Technology Development Corp. and DBED "models have been copied elsewhere and proven to result in very effective returns on investment," he said.

Long-term solutions to solving budget problems were not addressed this year and need to be next year, Wineholt said. The state operating budget was again balanced through a heavy reliance on fund shifts and borrowing from special funds, as well as federal stimulus funds, Snyder said.

Legislators next year face major budget decisions after some commissions and task forces report back on ways to contain state employee retirement and health care costs, teacher pension expenses and other costs, she said.

All that adds up to more battles against tax increase proposals next year, business leaders said.

"Maryland's competitiveness relative to other states is a key concern," Fadden said.

A big impact will be who wins the governor's race, as former Gov. Robert L. Ehrlich Jr., who is seeking the Republican nomination, opposes raising the sales tax, while O'Malley has supported it, Saquella said.

Valentino said her group is looking at new ways to ensure that the small-business voice is heard.

"We have to do a better job," she said.

Business bills in 2010

Some business-related legislation approved by the General Assembly this session:

SB 64: Extends the research and development income tax credit to 2021.

SB 71: Extends the Small Business Reserve Program through 2016.

SB 106: Allows a $5,000 tax credit to employers for each new hire of unemployed workers through Dec. 31.

SB 107: Authorizes the state to accept $126.8 million in federal stimulus funds to boost the unemployment insurance trust fund, and expands benefits to more workers but lowers some other costs. Businesses can pay their taxes in installments, and monthly interest on late payments is reduced.

SB 229/HB 710: Appoints a blue ribbon commission to study short- and long-term transportation funding needs.

SB 283/HB 470: Makes permanent the dedication of 6 percent of corporate income tax revenues to the Higher Education Investment Fund.

SB 690/HB 1009: Allows a corporation to elect to be a specified benefit corporation. Maryland is the first state to create this new type of corporation, which gives executives legal protection to consider the community and environment along with shareholder value in making decisions.

HB 475: Provides $10 million in annual grants for up to a 25 percent credit for commercial rehabilitation of historic buildings and a 10 percent credit for other rehabilitations in designated growth areas.

HB 484: Allows small businesses with real property tax bills of less than $50,000 to pay in semiannual installments starting in 2011.

Some business-related bills that did not pass:

SB 181: Would have allowed dependents to stay on health insurance policies up to age 30.

SB 638/ HB 755: Would have required employers to annually provide electronic or written notice to employees who may be eligible for the earned income tax credit.

SB 769/HB 622: Would have increased the cap on noneconomic damage awards for lawsuits alleging personal injury or wrongful death resulting from medical malpractice.

SB 824: Would have imposed sales tax on out-of-state vendors that advertised in Maryland.

SB 913/HB 1177: Would have extended the 6.25 percent individual income tax known as the "millionaire's tax."

Staff Writer Chris Huntemann contributed to this report.