Maryland State Delegate Jim Gilchrist of Rockville has proposed a far reaching change to the Maryland tax code that would add sales taxes to 34 additional services starting January 1, 2013 including:
- cable television
- automobile repair warranties
- auto repair and road service
- parking (although it exempts state government, of course)
- docking services
- shoe repair
- public lockers
- employment agencies
- temporary help
- tax preparation services
- notary public
- testing labs
- weighing machines
- physical fitness facilities
- dieting services
- barbers and hair stylists
- management consulting
- pest exterminators
- interior decorating
- shop window decorating
Really? Do we need more taxes in this economy? Do we want to add more government paperwork to small businesses, such as barbers, interior decorators, and shoe repairmen? Tax the service that helps prepare our taxes? Tax unemployed people who are trying to get temporary job or get help from an employment agency? Really?
This change in the law has not been adopted but is under consideration by the State House of Delegates, so you still have time to voice your opinion. State government legislation is notoriously hard to follow (and the legislature has been reluctant to be more transparent because it would mean giving up control) but according to the Rockville Chamber of Commerce, House Bill 1051 will be heard by the Ways and Means Committee on Tuesday, March 6. If you have concerns, contact the delegates that represent Rockville:
- Luiz Simmons: firstname.lastname@example.org
- Kumar Barve: email@example.com
- Jim Gilchrist: firstname.lastname@example.org (who proposed this legislation with Delegate Sheila Hixson on February 10)
Read House Bill 1051 for yourself–everything in bold capitals is new.
Aren’t we taxed enough? We can’t even keep up with all the imposed hidden fees and taxes. Maybe the people voting for these taxes are making too much salary. Those small taxes will probably be more of a burden.
I would be in favor for an increase in general tax and not a gas tax. However, I would also like to see more wasteful programs cut which we don’t see.
Today I received the following response to my opposition to HB 1051 from Delegate Luiz Simmons (and it’s okay that he calls me by my first name; I’ve met him several times at events around Rockville):
Forgive me please for not responding sooner to your thoughtful note. As you know, Maryland- probably due to overspending and poor planning- is facing yet another $1 billion deficit. I have tried over the years– admittedly with small success– to restrain State spending and reorder our spending priorities. For example, I have a bill to eliminate the $100 million a year planned subsidy/gift to Maryland horse racing and redirect the funds to school construction. It is astonishing to me that we are prepared to pour $100 million a year down the rat hole which is Maryland horse racing. I am not opposed to the horse racing business, but I am categorically opposed to spending $1 billion every 10 years so that we socialize their losses and allow them to privatize the profits.
For the reasons that you stress, I am disinclined to raise the gas tax or to extend the sales tax to auto repairs and other services. I very much appreciate your taking the time to contact me and I look forward to hearing from you in the future if I can be of assistance to you and your family. It is a privilege to serve you. Luiz
On March 12, I received the following email response from Delegate Gilchrist:
Thank you for your email regarding House Bill 1051, Sales and Use Tax-Services sponsored by the Chair of Ways and Means, Sheila Hixson and myself. This bill was heard before the Ways and Means Committee on March 6 and generated a great deal of both written and verbal testimony. As Chairman Hixson herself noted, this bill was designed to show what services are not taxed in Maryland, not to necessarily mandate a sales tax to them.
This bill was one of several introduced this year to address the budget deficit. Other measures introduced were a shift in the pension costs from the state to the counties, severe (doomsday) cuts, and measures to increase revenues like an across-the-board tax hike. Still more were reinstating the millionaire’s tax and enacting combined reporting.
As Chairman Hixson also noted, all bills before the committee will be equally considered, few will ultimately be enacted. The Senate has the ‘first crack’ at the budget bill this year, and their version will be voted on this week. Then it will come to the House for discussion.
Thank you for sharing your opinion with me.
On March 8, Delegate Barve sent me the following response by mail:
Thank you for your correspondence regarding potential changes to the sales tax. I appreciate the time you took to share your thoughts on this issue.
As you may know, House Bill 1051 would alter the definition of a “taxable service” to impose the tax on a wide variety of services — including car mechanics, tax preparers, and self storage facilities among others. This bill is currently being reviewed by the House Ways and Means Committee, of which I am a member. I will keep you informed as this issue evolves and keep your views in mind as the legislative process moves forward.
Thank you again for taking time to share your perspective with me. If you have any further questions regarding this issue, please feel free to contact me.
Kumar P. Barve
Bill Neil shared a thoughtful response on the Twinbrook Neighbors Yahoo Group that he wrote back in July 2008. Some of the formatting has been lost, but otherwise it’s intact and I don’t think he’ll mind me posting it here as well.
“In the complex budget maneuvering of 2007-2008, the Maryland Legislature chose to raise the sales tax from 5% to 6% with the expected revenue increase to be $687 million in FY 2009. Based on 2007 numbers, the MD sales tax raised 3.62 billion dollars, 27% of the state’s general revenue, second compared to the 7.04 billion and 52.4% raised by the personal income tax (and just $598 million and 4.5% raised by corporate income taxes) Although Governor O’Malley extended the services taxed to four new categories, it was not a very bold effort and ended up targeting a “weak lobbying link” – computer services – which then rallied to repeal its inclusion. The significant thing here was the potential revenue raised by just this one category of service: $207 million. It is suggestive of Maryland’s deeper failure, to extend the sales tax base from its 1947 starting point of taxing only tangible goods, to capture the vast changes since then in an economy which has become more and more service oriented.
“National tax studies indicate about 168 categories of services which might be included in a sales tax – and Maryland taxes only 39 of them. In the fall of 2007, the Center on Budget and Policy Priorities proposed taxing services such as cable and satellite TV, auto repairs, interior decorating, pet grooming, and country club memberships, which they say would have raised an additional $163 million. The list again hints at the unwillingness to take on the tough lobbies and therefore the big numbers: accounting, engineering, legal services, advertising. As a matter of fact, I have been unable to find even studies which would tell us what each of these services would generate if included in the sales tax. The closest we have, using broader categories which don’t highlight these services, comes from the Puddester Commission from November of 2002: Its list of revenue to be raised by “Taxation of Services” reads as follows:
“Business Services” – 600-700 million
“Information Services” – 325-385 million
“Professional Services” – 200-260
“Transportation” – 200-250
“Financial Services” – 150-230
“Personal” – 75-115
“Repair Services” – 50-80
Total Revenue from taxing “these” services: $1.6-2.2 Billion
“House Bill 448 from 2007 started to head down this path. It proposed 30 new services to be included under MD’s existing 5% sales tax, and the revenue generated would have been an additional $657 million – without raising the rate to 6%. A sampling of the new services in the bill: auto repair and services, parking, barber and beauty salons, docking and boat services, engineering, storage, (shoe repair!), tax preparation and locker and storage facilities…..personnel and temp. Agencies….the numbers raised on certain services are impressive: engineering: $82.8 million; personnel and temp. $65.7 million.
“This leads me to the conclusion that Progressives should keep the impressive categories from House Bill 448, drop the silly ones like shoe repair, and add advertising, accounting, legal, management and p.r
“The obstacle is political: to get a legislature full of lawyers and accountants and sensitive to the lobbying power of the other big services named above (real estate-advertising?), to even consider producing a study showing what the excluded services would raise in revenue. (Personal note: I’ve heard a high ranking state leader say these categories would never even be brought up, never put on the table, in answer to me directly raising the question in January of 2008).
“Who has pushed in the Past: Progressive Maryland listed the same list as I have above from the Puddester Commission in their “Fiscal Crisis Briefing Book” from 2008, but it was near the end of a long document and did not seem to be a high priority.
“Another Approach: There has been some discussion in Annapolis of enacting a Gross Receipts Tax, which 7 states have some variation of: Del., Kent., Mich., New Mexico, Ohio, Texas and Wash. – which functions almost like a sales tax on the purchasers of services as well as goods. Economists don’t like the pyramiding effect: many of our “hollowed out” business entities purchase accounting, advertising, etc. services from outside firms and each time they bought them, they would be hit by this tax…so this is a big obstacle…and progressives don’t seem too high on this approach, nor many economists. In a phone conversation I had with Neil Bergsman of the Maryland Budget and Tax Policy Institute (July 10) he favors, if we want to head down this route of taxing services, that the legislature bring all services under its sales tax – a kind of grand House Bill 448, and then enumerate which categories and exemptions it feels would be necessary to make it function well. I might add that part of the political trade-off in Annapolis might well be to reduce other corporate taxes if either this grand inclusion of services or the Gross Receipts Tax is enacted. Illinois considered the GRT approach – 1-2% would raise 6-8 billion…but it was not enacted.”