Plan To Expand Sales Tax Worries Trade Groups

BERLIN -- Proposed legislation expanding the state’s sales tax to more than two dozen new services has garnered the attention of the resort and state business community.

House Bill 1051 calls for applying the state’s sales tax to services such as tax prep, property management, vehicles, commercial cleaning, cell phones, cable television, security systems, a parking facility, barber or beauty expense, sign painting, interior decorating and extermination, among others.

The bill had a hearing before the House Ways and Means Committee today at 1 p.m. No further action was taken on the bill, as of yesterday.

In advance of Tuesday’s hearing, the Greater Ocean City Chamber of Commerce sent a letter of opposition. The chamber sent out an email blast earlier in the week encouraging others to submit their own testimony as well.

“[The bill] will expand the State Sales and Use Tax to an additional 29 services, including such business services as tax preparation, management and business consulting, public relations, photographic services, real property management, testing labs, staffing services, drafting, business brokerage service and more,” the letter read. “Extending the sales tax to professional services would hinder economic growth, cripple job creation and make Maryland less competitive.”

AAA Mid-Atlantic also chimed in with its opposition, specifically the idea of applying sales tax to auto repairs and services, driving up costs for all Maryland motorists. The organization has asked all members to contact their individual legislators as well as the bill’s sponsors, Ways and Means Committee Chair Sheila Hixson and Delegate James Gilchrist, to oppose the legislation. As of Tuesday morning, over 27,000 e-mails had been sent to Maryland legislators.

“This bill will further increase the driving costs for every Maryland car owner,” said Ragina C. Averella, AAA Mid-Atlantic’s Manager of Public and Government Affairs. “Not only is a tax on car repairs and road service regressive, it could not come at a worse time. Gas prices are now at record levels and are expected to surpass $4 per gallon in the coming weeks.”

The auto club is concerned that expanding the sales tax to auto repairs and towing services would even further strain the pockets of Maryland motorists, particularly lower income families, for whom it is already difficult to pay for vehicle maintenance and repairs. Maryland already applies a sales tax on parts for auto repair. The proposed legislation would expand the tax to include labor as well, and thus further increase the cost of vehicle repairs.

According to an AAA survey released last summer, 25 percent of motorists admit that they could not pay for a car repair of $2,000 if faced with one. In that same survey, more than 50 percent of American drivers also said they are keeping their older vehicle because they do not want the financial burden of a new one.

According to AAA, the expansion of the tax to include towing and towing services will also increase the cost of car ownership.

The sales tax on auto repairs will also drive up insurance rates for Maryland drivers. Repair services are already a significant component of the cost of auto insurance claims. Adding a tax on labor for these repairs, when collision claims run into many thousands of dollars, will add significant costs to these repairs, and ultimately be passed on to Maryland car owners in terms of higher insurance premiums, says AAA.

If the bill makes it out of committee and then is approved by the House and Senate, it would go into effect Jan. 1, 2013.

While the bill has neither made it to his chamber yet nor even a vote on the House floor, Sen. Jim Mathias acknowledged he has heard from his constituents on this issue. Mathias said it’s not a bill he feels inclined to support as was the case when he voted against the extra penny on the sales tax.

“The whole notion of taxes is of great concern to folks. At some point, there has to be a consideration for revenues and where it’s going to come from we don’t know yet. We have to balance that with what services are most important to people …,” Mathias said. “If this expansion of the sales tax comes over, I’m going to look at it, and I have not had a chance to look over all the details of the specific legislation, but I’m not compelled to vote for it. However, I do need to take a complete look at it.”