On March 6, 2012, David W. Hillery, CPA, JD, gave testimony on the proposed sales tax on services on behalf of the West Anne Arundel County Chamber to the Maryland House Ways and Means Committee. Details of the bill and his testimony are below.
Bill Summary: This bill would extend the sales tax to 29 additional services, including such business services as tax preparation, management consulting and business consulting, real property management, testing labs, staffing services, drafting, and business brokerage services.
Chamber Position: The West Anne Arundel County Chamber of Commerce consists of approximately four hundred (400) businesses located in the Fort Meade and surrounding areas with members located from Annapolis to Prince George’s and Montgomery Counties. The majority of our members are businesses with less than five employees and, like many small businesses in Maryland, service providers of one type or another.
It is the view of the Chamber that of the various methods available to raise revenue, expanding the scope of the sales tax to the additional service providers listed in the bill is more regressive and inefficient than other options. In addition it forces small businesses to take on collection activities on behalf of the State without adequate compensation.
The additional services listed in the bill are used by citizens every day. These citizens are also being burdened by potential increases in taxes on fuel, income taxes, a surcharge to fund wind energy, flush taxes and other proposed revenue raises. A few, such as the tax on real estate management services and temporary help, would fall on small businesses. For instance, the tax on real estate management fees is passed onto the tenants of small shops in strip malls through common area maintenance (CAM) charges. These same businesses face extra costs of higher unemployment insurance and additional regulations of their day to day business operations.
Our second reason for opposing this bill is the collection burden being forced on small businesses. For those who have not had to collect and remit sales tax in the past, the costs of additional record keeping, accounting systems, invoicing and collection, both in terms of dollars and time, can become expensive. Dollars and time spent in this collection activity are not being spent to produce services that generate revenue.
Our third reason for opposition to this bill is the assumption that the sales tax can be easily added to and collected from the service purchaser. Individuals can choose where to have services such as auto maintenance performed. To compete, Maryland providers will have to lower their charges so the total bill is close to the bill from an out of state provider, thereby effectively absorbing the tax themselves. Collection is another issue. Many service providers have long payment cycles. There is a significant period of time between the invoicing date and collection. When will the tax be due to the State? Questions such as these show that implementing such a tax is more difficult than it seems.
For these reasons, the West Anne Arundel County Chamber strongly urges opposition of House Bill 1051.
West County Chamber website: westcountychamber.org