By Rolando Garcia
ANNAPOLIS – Increasing the state’s sales tax would deal a serious blow to Maryland businesses by driving more shoppers to out-of-state and Internet retailers, business groups told legislators Wednesday.
Supporters of the tax hike argued that raising the sales tax would provide a steady source of revenue for public education.
The House Ways and Means Committee, the body’s tax-writing panel, took up several revenue measures and heard testimony, but took no action.
One bill, proposed by Ways and Means Chairwoman Sheila Hixson, would raise the sales tax from 5 to 6 percent, raising an estimated $550 million in new revenue annually.
However, analysis by the Department of Legislative Services shows it could also result in a $600 million decrease in retail sales in Maryland.
A sales tax hike would put Maryland merchants at a disadvantage to those in Delaware, where there is no sales tax, and to Internet retailers, said Tom Saquella, president of the Maryland Retailers Association.
“I don’t see why Maryland should provide a subsidy to Amazon.com at the expense of our storefront merchants,” Saquella said.
Pennsylvania, too, could lure away Maryland shoppers, Saquella said, because it has no sales tax on clothing purchases.
Delegate Luiz Simmons, D-Montgomery, introduced a bill similar to Hixson’s except his would earmark the new revenue for public schools. Raising the sales tax is the least-painful funding alternative for education, Simmons said.
“Devoting (new sales tax revenue) to education makes it politically more palatable to vote for,” Simmons said.
The tax increase would mean a family making $15,000 annually would fork over an extra $55, and a household making $70,000 would pay an additional $211, according to Legislative Services estimates.
Simmons acknowledged the sales tax hits poor people, who spend a larger portion of their income on taxable items, the hardest, but said the money would be plowed back into public schools in the neediest communities.
Gov. Robert Ehrlich has vowed to veto any tax increases, and has proposed legalizing slot machines to solve the state’s fiscal woes.
If the tax hike is unacceptable, Simmons suggested the committee consider his fallback bill, which would submit the sales tax proposal for voter approval in a referendum. Conservative Democrats and Republicans reluctant to support tax hikes may be willing to support sending the issue to the voters, Simmons said.
General Assembly Democrats are waiting for their leadership to get behind a tax measure, and the longer they wait, the more slots become inevitable, Simmons said.
Republicans on the committee showed no sign of budging from their anti-tax position.
“Everyday I see neighbor after neighbor going to Delaware and it’s hurting our merchants,” said Delegate D. Page Elmore, R-Wicomico.
The committee also discussed a bill to let municipal governments impose a 1 percent tax on food and beverages sold in restaurants. With state highway funds to cities slashed, local government officials told legislators cities and towns must be given the power to find new sources of revenue.
-30- CNS 2-18-04