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Maryland Sales Tax Update

by Brent Mead / /

The threat of a devastating online affiliatesales tax, and other tax hikes, is still lurking in Maryland, but has takensome unexpected positive turns

At Tuesday’s Budget and Taxation Committee briefing, ChairmanKasemeyer stressed none of the proposals heard before the Budget and TaxationCommittee are under active consideration and he is not currently expecting totake up the issue of finding new revenue during the October special session.

Looking specifically at the issue of onlineaffiliate taxes: Maryland has twice, in 2009 and 2010, looked at implementingan Amazon Tax. SB 824 and SB 1071 would have amended Maryland’s tax code toestablish that a person, or seller, without a physical presence in the state ispresumed to engage in taxable business in the state if that person: 1) entersinto an agreement with an in-state resident by which the resident agrees, for acommission or some other consideration, to refer customers either directly orindirectly, such as through an Internet link, to that out-of-state person, and2) the cumulative gross receipts of sales from referrals are greater than$10,000 during the preceding year.

If that language looks familiar, it is becauseit is almost word-for-word the same failed legislation passed in 8 other states. The author of the two previous bills, Senator Madaleno, willagain push for such language. However, the Committee expressed some skepticismon the Amazon tax and floated a couple other ideas to target the $160 millionin unremitted sales taxes. The Committee suggested offering a temporary salestax exemption to an online-only retailer who locates a physical presence in thestate, such as a warehouse, or forcing online retailers to place a disclaimerat the end of all sales reminding customers of their obligations. NTU will bekeeping an eye out for a concrete proposal from the General Assembly.

The Committee spent significant time lookingat possible expansions of the sales tax to service industries. Currently,Maryland applies its sales tax to four sectors of the service economy(pay-per-view TV, certain cleaning services, cell phone service, and pre-paidcalling cards). Legislative Analysts for the General Assembly stated thatexpanding the 6% sales tax to other sectors has the potential to raise upwardsof one billion dollars. Taxis, cable TV, and haircuts were mentioned aspotential targets.

The briefing was intended to be‘informational’ only, the claim being that Maryland is not looking to raisetaxes, but in case we need to, here are some options. Of course, once thatoption is on the table for government, taxpayers need to watch out.

It should be some consolation that the Senate is devoting some effort to examping the possible consequences of tax hikes. That may help avoid another debacle like the repealed computer services tax in 2007. Another way to avoid such situations would be to cut spending, not raise taxes, when looking at a budget deficit.