With broad plan dead, Md. Democrats picking ‘winners and losers’ for sales tax

ANNAPOLIS — After abandoning a broad sales tax expansion plan the previous night, lawmakers Thursday added some businesses to a proposal to extend the sales tax to a cluster of services in Maryland as they attempt to cobble together revenues to pay for a signature education proposal.

The debate in a subcommittee of the House Ways and Means Committee comes as the full House of Delegates prepares to debate and possibly give final approval to a controversial and expensive plan to overhaul public education known as the Kirwan Commission recommendations.

“We were really pleased that the legislature decided to reject such a massive tax increase on a broad swath of businesses,” said Mike O’Halloran, state director of the National Federation of Independent Businesses, in reference to Wednesday’s defeat of the broad sales tax expansion. “Now it looks like they are more interested in picking winners and losers.”

O’Halloran said those winners and losers will likely end up in a smaller bill sponsored by Montgomery Democratic Del. Lorig Charkoudian. That proposal was barely addressed by business groups who flocked to Annapolis on Monday to bat down Luedtke’s sales tax expansion.

By comparison, Charkoudian’s proposal to tax services, such as art storage and fur cleaning and storage and other services she said were used by wealthier Marylander, was much more modest — an additional $74 million annually by 2025 — compared to the multibillion-dollar expansion proposed by Luedtke.

The changes are part of eight bills that lawmakers estimate — a final analysis has not been completed — could generate between $600 and $700 million annually once they are fully implemented.

The Ways and Means Revenue Subcommittee Thursday added services to the Charkoudian bill, including interior design, tour operators, watch and clock repair, hair removal and replacement services, personal chefs, and social escort services.

At the same time they removed some items, such as marine services, which significantly reduced the known revenue impact of the bill to about $71 million annually. The revenue that would be reaped from some items added to the measure on Thursday, such as escort services, could not be estimated. They are likely to increase the overall revenues that would be collected under the bill.

Other proposed items to tax, such as balloon messages and singing telegrams, were nixed “just because it’s silly,” said Del. Eric Luedtke, D-Montgomery and chair of the subcommittee.

The final version of the bill is expected to be sent to the full Ways and Means Committee on Friday.

The House is expected to hold a preliminary debate Friday morning on the 198-page bill implementing the Kirwan Commission recommendations and funding formulas. The plan would cost $4 billion annually when it is fully phased in by 2030.

Under the Kirwan recommendations, public school systems would hire highly trained and nationally certified teachers — paying them $60,000 to $80,000 annually. It would also fund mandatory pre-K programs for poor families and improve curriculums for students to make them college- or career-ready by the 10th grade. The plan calls for closing achievement gaps between white and minority students.

Republicans are expected to offer a number of amendments to the bill in a debate that is expected to be lengthy.

The House could then give its final approval to the proposal during a Friday night session scheduled for 7 p.m.

Lawmakers have been grappling with how to pay for the state share of the Kirwan costs, estimated at about $2.8 billion by 2030.

The subcommittee voted unanimously Wednesday night to kill a $2.9 billion expansion of the sales tax to nearly every service business in the state. The measure was sponsored by Luedtke.

“We heard a lot of concerns from small business owners and appreciate them sharing their thoughts with us,” said Luedtke. “That bill was always one option on the table. Recognizing the public’s concerns, we defeated the bill unanimously, bipartisanly and moved our revenue package in its place.”

Luedtke called for the panel to vote down the measure and voted to kill his own bill.

He said the alternative currently on the table could pay for the first six or seven years of the education plan.

Other proposals from the House remain in play, including Charkoudian’s.

Gov. Larry Hogan praised the defeat of the massive expansion of the sales tax but warned others were on the horizon.

“While we successfully blocked this proposal, sadly, legislators are still trying to raise taxes by hundreds of millions of dollars,” Hogan said in a statement, adding he would continue to oppose sales tax increases.

The House is considering bills that would expand the sales tax to digital downloads of products such as books, music, movies and video games; increase the tobacco sales tax; and institute combined corporate reporting — long sought by progressive lawmakers and organizations.

Also included in the overall revenue plan is the legalization of sports betting and taxing online advertising.

In all, the proposals, if they are passed and generate the predicted revenues, would still fall short of the full cost of the state’s share. Local governments would be required to find revenues for their own shares of the plan.

Del. Kathy Szeliga, R-Baltimore and Harford counties, said the moves are nibbling around the edges and won’t pay for the costs of Kirwan.

“Kirwan is going to cost $3-$4 billion per year and that’s going to require tax increases,” said Szeliga. “In the end, the majority party that is pushing this behemoth (education) bill through is still going to have to figure out how to pay for it.”