ANNAPOLIS – When John Thomas decided to keep the 1994 Acura Vigor he had been leasing, the dealer told him he had to pay sales tax — one that Thomas thought he had already paid.
In fact, Thomas had paid a sales tax when he agreed to lease the car. When he went to buy it last year, the Catonsville resident was told he would have to pay again.
That seemed unfair to Thomas. It also seemed unfair to Del. Thomas Dewberry, D-Catonsville, and Del. Robert Frank, D- Reisterstown, who sponsored a bill to exempt car lessees from the double-taxing standard.
“That’s a burden we shouldn’t be putting on consumers,” Frank said.
But the Maryland Department of Transportation opposes the bill, which would mean the loss of $3.2 million in taxes in the first year if the bill passes.
Those taxes now go to the Transportation Trust Fund, which is used to build and maintain state roads and to operate airports, the port and mass transit services, among other functions.
“We have built a program based on receipt of this money,” said Beverley Swaim-Staley, chief financial officer for MDOT.
The bill could cost state and local governments $25.9 million by 2003, she said, and noted that those reductions could eventually hurt the agency’s ability to sell bonds for road projects.
But Dewberry said the current law is “a form of double taxation.” He and Frank said that the $2.4 billion budgeted for the Transportation Trust Fund for fiscal 1999 can handle the loss.
“I think the trust fund can absorb it,” Frank said.
Lessees currently pay a sales tax either up-front or in monthly lease payments. The state charges sales tax again, based on the fair-market value of the car, when the dealer sells it to the lessee.
The bill would eliminate the second sales tax if the car buyer is the same person who leased the car and paid the original sales tax on it.
But the bill comes at a time when some lawmakers are worried about the Transportation Trust Fund’s ability to meet future roads needs. State analysts and MDOT officials have said the trust fund has enough to get by without a tax increase, for the foreseeable future.
In a bow to MDOT, Dewberry and Frank have asked that the effective date on their bill be moved back a year, to October 1999, to give the agency time to deal with the revenue loss.
But Frank said he is still against the double-tax.
“I think to give that back to the citizens of Maryland is more than fair,” Frank said.
The delegates sponsored the bill after lessees complained to them about the double-tax.
Thomas, 76, a retired Air Force sergeant, paid a sales tax of $1,258.85 when he leased his $25,177 Acura and was slapped with another $673.38 tax bill when he went to register the car, then valued at $13,467.
“Paying a tax for something I already paid a tax for is ridiculous,” Thomas told the House Ways and Means Committee this month.
Randallstown insurance salesman Joe McAleer, 31, decided not to buy a 1995 Honda Accord he was leasing when he was faced with the prospect of paying a sales tax, again, on it.
“It’s just a loophole that needs to be changed,” McAleer said.
The double-tax especially hurts people who cannot afford to purchase a car upfront and use leasing as a way to gradually pay for one, he said.
“We pay enough taxes as it is,” he said. “It’s very difficult to pay another 5 percent on the same car.”
Dewberry said he would not lease a car because of it.
“I don’t think I would knowing this now,” Dewberry said.