Maryland could soon begin to collect sales taxes from online purchases.
It’s just a question of when and how much could be collected. State officials are scrambling for answers.
A spokesman for Comptroller Peter Franchot referred reporters to a statement on Facebook but said the state’s top tax collector is seeking advice from the Office of the Attorney General on whether the state can begin to collect a 6 percent sales tax now or if additional regulation is necessary.
The spokesman said Franchot believes that no additional or enabling legislation is necessary.
Franchot, on his Facebook page, applauded the 5-4 decision handed down by the U.S. Supreme Court Thursday morning.
“In this age of e-commerce, the current federal law — as established in the 1992 Quill v. North Dakota ruling — is fundamentally outdated and unfair,” Franchot wrote in his statement. “It effectively penalizes ‘bricks-and-mortar’ businesses that choose to locate, hire employees and invest in the State of Maryland.”
The effects of such an increase aren’t immediately known and appear to be a moving target.
A 2014 report on the issue of sales tax and e-commerce estimated that the state could lose as much as $176 million in calendar year 2018 from online sales.
A spokesman for the comptroller’s office, speaking six hours after the Supreme Court ruling, said $100 million annually might be more reasonable.
Del. Anne R. Kaiser, D-Montgomery and chairwoman of the House Ways and Means Committee, said she has “heard estimates of between $20 million and $100 million annually.”
States can start charging online retailers local sales tax even if they don’t have physical presence in the jurisdiction, the U.S. Supreme Court ruled Thursday.
The 5-4 ruling in South Dakota v. Wayfair Inc. overturns a lower court ruling striking down a South Dakota law that imposed sales taxes on online retailers who have no physical presence in the state but make 200 separate sales transactions or deliver a minimum of $100,000 in goods to the state annually.
The court, in its decision, said it was correcting rulings that predated the modern internet and the shift to e-commerce.
“If it becomes apparent that the court’s Commerce Clause decisions prohibit the states from exercising their lawful sovereign powers, the court should be vigilant in correcting that error,” wrote Justice Anthony M. Kennedy for the majority.
Kennedy added that the “Internet revolution has made its earlier error all the more egregious and harmful.”
Forty one states — including Maryland — two U.S. territories and the District of Columbia all asked the court to side with South Dakota and allow the collection of sales tax, noting that e-commerce was driving down sales tax revenue and placing an undue burden on taxpayers who buy products from in-state retailers.
A spokeswoman for Gov. Larry Hogan said the first-term Republican was reviewing the decision and planned on consulting with Franchot. Hogan ran an anti-tax campaign in 2014. The spokeswoman declined to answer questions about whether the governor would similarly oppose the application of sales taxes to online goods.
In 2015, Hogan vetoed a bill imposing the 6 percent sales tax to online companies that book hotel rooms. Hogan, in his veto letter, cited concerns about an ongoing court case between the comptroller and online companies. The legislature overrode that veto the following year.
Kaiser, the House Ways and Means Committee, said lawmakers are also looking for answers hours after the decision. The legislature has wrestled with the issue off and on for years to no avail.
“Some saw it as a tax increase,” said Kaiser. “I always saw it as a protection of in-state businesses.”
Kaiser said she and other lawmakers are waiting for a legislative analysis to determine if the state can simply impose the tax.
The inability of states including Maryland to collect sales tax has been seen as both a drain on revenue and an uneven playing field for local retailers.
In Maryland, sales tax is charged on online purchases when the retailer has a physical location within the state. Amazon’s construction of a warehouse in Baltimore has been credited with offsetting declines in sales tax revenue, but it is unclear what the specific effect has been since individual tax information is confidential by law.
Maryland’s law doesn’t apply to smaller online retailers or streaming services such as Netflix. It also doesn’t apply to affiliate retailers who sell through Amazon.
State budget analysts have noted the growth of e-commerce and its effects in shrinking sales tax revenue in Maryland. The size of the effect isn’t completely known.
In most cases, the state requires purchasers residing in Maryland to self-report and remit the tax to the state. That tax is almost never collected and state officials — and now the Supreme Court — acknowledge it’s unenforceable.
“Part of the sales tax write-down isn’t just internet sales,” said Kaiser. “It’s also the changing nature of our economy into a service economy and we have to catch up.”