Golf courses, cable television, legal services and parking garages made a list of 16 services in Maryland that currently are not subject to the state's sales tax but could be, according to a presentation to senators on a powerful state spending panel.
Nonpartisan state budget analysts included revenue estimates for applying either a 2 percent sales tax or a 6 percent sales tax to a variety of services. They also provided lawmakers with an overview of how states are grasping to address lost sales tax revenue from Internet sales.
Lawmakers will be grappling with a $1.1 billion deficit when they return in January for their regular 90-day session. Members of the Senate Budget and Taxation Committee emphasized that they are not actively considering legislation to apply the sales tax to any of the services outlined Tuesday afternoon.
"I just want everybody to understand, there's nothing that's before us," said Sen. Ed DeGrange, D-Anne Arundel. "Nothing is being considered to be expanded, and we're just here to hear comments."
Nevertheless, the hearing room was full of lobbyists and representatives of the business community who warned the panel that extending the sales tax could chase businesses to neighboring states.
"It puts us at a competitive disadvantage and would actually result in the loss of some jobs and revenue for the state of Maryland," Kathleen Snyder, who is the president of the Maryland Chamber of Commerce.
The idea of extending the sales tax to services in Maryland was a volatile issue when lawmakers took up the issue in the 2007 special session. Almost as soon as a service was mentioned as a possible new revenue source, representatives from those businesses loudly protested the idea. Once lawmakers settled on extending the sales tax to computer services, it proved to be so unpopular that it was repealed before it ever took effect out of concern that businesses would leave the state.
On the current list, extending the sales tax to engineering services raised the most money, $70.5 million a year with a 2 percent tax and $211.5 million with a 6 percent tax.
A 2 percent tax on legal services would generate $41 million and $121 million with a 6 percent tax. Cable television wasn't far behind legal services. A 2 percent tax on cable services would raise an estimated $38.3 million, while a 6 percent tax would create $115 million.
Automobile repair services, couriers, health and fitness centers, barber and beauty shops, parking garages and taxis and limousine services also were mentioned. Employment placing agencies, payroll processing, satellite television, financial holding companies, corporate managing offices and commercial machinery repair services also were included.
As far as collecting sales taxes from Internet sales, the Supreme Court ruled in a 1992 decision that states could only require companies that had a physical presence within the state to collect sales taxes. Legislation has been introduced in Congress to address the authority of the states to require online sellers to collect taxes from remote sales. The Streamlined Sales and Use Tax Agreement would standardize sales tax laws and filing requirements for Internet retailers. There are 24 states that have adopted the streamlined sales tax, but Maryland has not made the statutory changes necessary to comply.
Under current state law, Maryland will adopt the agreement if Congress gives states authority to collect taxes on remote sales. But without express federal authority to require sellers to collect taxes on remote sales and to ratify the Streamlined Sales and Use Tax agreement, the state comptroller has said Maryland's compliance with the agreement would create a reduction in state and local revenues. That's primarily because of a rounding rule for sales and use tax transactions and likely pre-emption of selected local sales taxes, state analysts said.