Plan to broaden sales tax worries service sector

December 30, 1990|By Suzanne Wooton

If Maryland is "tax hell," as Money magazine once alleged, then surely its sales tax structure is heaven's reply. A walk down "The Avenue" in Baltimore's Hampden will show you why.

Drop off the old Bulova at Heiss Jewelers for cleaning. Slip into Gary's Hair Salon for a trim, maybe even a manicure. If you're feeling really blah, ease into one of the tanning booths at The Hair Bear.

Before you head home, pick up your resoled loafers at Hampden Shoe Repair. Get your shirts at Sanitake Cleaners on Chestnut, stop by Tom Lake's repair shop to check on your videocassette recorder and head to Northern Auto, where Bill Sprinkle has finished aligning the front wheels on your 1985 Chevette.

During the entire trip, you won't pay a penny of sales tax.

If you wanted to send a fax, have a chair reupholstered, hire a temporary secretary or have your house cleaned, that would be tax-free, too.

The state's 5 percent sales tax covers almost no services. And even though most retail commodities are covered, there are a host of special exemptions, ranging from cigarettes and oyster tongs to newspapers and snack foods.

As a result, the Maryland Commission on State Taxes and Tax Structure -- a gubernatorial task force headed by Montgomery lawyer R. Robert Linowes -- recommended last month that much of the state's growing service sector be subject to the sales tax.

The proposed categories include personal services, non-residential telecommunications such as faxes, repairs, maintenance, decorating and information services.

It also suggested that the current hodgepodge of exemptions be scrutinized by the General Assembly and that Maryland place a sales tax on cigarettes, as 38 other states already do (like other states, Maryland already charges an excise tax on cigarettes.) In addition, it says, the tax rate should be raised from 5 percent rate to 5.5 percent -- the first increase since 1977.

The sales tax increase is part of a package. Also proposed is an overhaul of Maryland's tax structure that would alter the income tax burden in favor of lower- and middle-income taxpayers, lower property taxes and impose a 2 percent annual property tax on boats and cars.

In the midst of a recession, Gov. William Donald Schaefer has not indicated whether he will ask the legislature to approve any part of the plan.

Critics say that raising the sales tax would hurt business as well as consumers, particularly lower-income people, while the commission argues that a broader-based sales tax would not only be more equitable but would also produce desperately needed money.

Currently, the state gets only 15 percent of its revenues from the sales tax, compared with a national average of 25 percent. Even when the 5 percent titling tax on cars and boats is included, Maryland's sales tax burden remains substantially lower than that of other states, according to the commission.

As a result, the commission believes, the state is losing millions of dollars -- millions it could use to close the growing gap in education spending between rich and poor areas; millions it could use to tackle growing problems in health, transportation and public safety. The plan earmarks new sales-tax revenues for those specific needs.

"It would provide money and funds to help reduce the disparity between the more wealthy jurisdictions and the poorer jurisdictions," Mr. Linowes said.

The working-class community of Hampden, bordered by the Jones Falls on the west and Wyman Park to the east, could benefit greatly under the commission's plan to shift proportionately more of the new money to the city of Baltimore and other poorer areas of the state. Many Hampden residents would get income and property tax breaks, too.

There are two ways to get more sales tax money: raise the rate or increase the number of categories covered. To raise some $512 million, the commission wants to do both.

Critics argue that the poor and working-class people who live in Hampden would be forced to spend proportionately more of their income on sales tax than their wealthier neighbors -- in Roland Park, for instance. Others contend that the new plan unfairly excludes professional services often used, or provided, by wealthier people.

For instance, the commission's proposal means that Mr. Lake would have to add $3.57 to his $65 bill at Hampden TV to repair a VCR or a television set. But Waldman, Grossfeld, Appel and Baer across the street would not have to start charging sales tax on its legal advice.

Gary and Donna Oates would have to raise the price of a haircut from $10 to $10.55, and cable television would cost 5.5 percent more every month. But Air Analysis Associates, the environmental consultant on 36th Street, would not have to add 5.5 percent to the cost of advice about indoor pollution.

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