Md. business groups denounce plan to expand sales tax

ANNAPOLIS —  Members of more than 30 organizations and professional groups descended on the state capital Monday in opposition to a proposal that would expand the state’s sales tax on their businesses.

The proposal would add billions of dollars to the state’s coffers at a time when Democratic lawmakers are scrambling to figure out how to fund an ambitious public education program meant to dramatically improve teacher pay and student achievement. The plan is being panned by Gov. Larry Hogan as a budget buster that would require massive tax increases, something he has said he would adamantly oppose.

Mike O’Halloran, director of the National Federation of Independent Businesses, said House Bill 1628 “represents the largest tax hike in Maryland history — $2.9 billion. It is a regressive tax on our state’s small businesses and their customers.”

O’Halloran called the bill “a big, big deal for Maryland businesses.”

O’Halloran and representatives of 30 organizations spoke to reporters while outside, near the State Treasury building, scores of Maryland real estate agents protested the proposal sponsored by Del. Eric Luedtke, D-Montgomery, chanting anti-tax slogans and carrying signs.

“The fact that we’ve all come together in opposition to this bill should demonstrate to the legislature how meaningful and negative this bill is,” said Dana Williams, president of the Maryland State Bar Association.

The House Ways and Means Committee Monday held hearings on bills, including one sponsored by Del. Lorig Charkoudian that would apply the sales tax to a handful of businesses, adding about $74 million annually to the state coffers.

“The idea behind this bill is we selected a number of services that tend to be used by wealthier families, wealthier households in our state such as art storage, fur storage and cleaning, marine services, interior design, country club  memberships and lobbying,” said Charkoudian.

Most of the focus, however, was on Luedtke’s House Bill 1628. The bill proposes a reduction in the overall sales tax by 1 cent but would apply it to all but a handful of industries such as medical, day care, and nonprofits.

Luedtke said the bill was intended to spark a conversation. Of the more than 100 people signed up to testify on the bill, just eight were in favor of the proposal — including the sponsors of the bills.

“If we are to continue using the sales tax as a source of revenue for our schools and our roads and our fire departments and all the other services we provide to the citizens of Maryland, we are going to need to grapple with this issue of taxing services at some point,” said Luedtke.

Under Luedtke’s bill, the expansion of the sales tax to services represents $3.7 billion in new taxes. The state would net $2.9 billion after the 1 cent reduction in goods already taxed is taken into account.

“At the end of the day, I think, most people in this room even if they hate the bill would agree that fully funding our schools is essential,” said Luedtke. “We need to make sure that every kind in the state of Maryland has access to a good education. I think this is one option, only one option, for how we get there.”

Lawmakers are considering a number of options, including Charkoudian’s bill, as well as proposals in the House and Senate to impose a sales tax on digital downloads and streaming services as well as one on online advertising. Sports gaming and tobacco-related taxes are also on the table.

Luedtke’s proposal — there is no identical bill in the Senate — is the only one that would fully fund the balance of the state’s $2.8 billion share of of the Kirwan recommendations.

Luedtke said the uptick in revenue projections over earlier preliminary reports gives lawmakers “a lot of flexibility” in lowering the overall tax rate further. Each half-percent reduction equals about a $700 million decrease in projected revenues, said Luedtke.

Also a possibility: striking some industries from the list of those to be taxed under the proposal.

“That’s a conversation, I think, we should all be open to,” said Luedtke.

Hogan said the bill would amount to more than $1,700 in new taxes to the average Maryland family. It’s a figure that appears to be based on the cost to each of the 6 million men, women and children multiplied by four.

Luedtke, the bill’s sponsor, said the average cost for a Maryland family making the median income of $84,000 annually would be bout $3 per week in additional taxes. The plan, he said, is weighted so that wealthier Marylanders pay more because they will likely consume more services.

The bills come as lawmakers look for a way to pay for a proposal that would overhaul the state’s public education system. The projected price tag is at $4 billion annually, before inflation, by 2030 once it is fully phased in.

Luedtke said the hope is that the House will complete work on the final version of the Kirwan bill as well as a funding mechanism and send them to the Senate by March 16.