State explains the ABCs of raising revenue Report lists which sources hold best taxability value.

January 21, 1992|By Laura Lippman | Laura Lippman,Annapolis Bureau

ANNAPOLIS -- You didn't want to get an "A" on this report card.

At least, not if you have cable television, get your car repaired or buy newspapers.

These were just a few items and services exempt from Maryland sales tax that got "A" ratings as potential sources of revenue yesterday from the Department of Fiscal Services.

Wrestling with a budget deficit estimated at $1.2 billion next year, lawmakers are looking at applying the sales tax to goods and services they've spared before.

The legislative analysts gave the Senate Budget and Taxation Committee a sweeping list of potential targets, rating each on an A-B-C scale.

High ratings were not based solely on how much revenue each item would generate, but on the fairness of taxing the item, its impact and the ease of collection, according to officials.

Steven Skinner, a Fiscal Services analyst, said an "A" rating for an item meant repealing the tax exemption would eliminate an inequity and bring in money quickly. In some cases, he said, an "A" meant the exemption served a "very limited purpose."

The analysts also looked at broadening the sales tax base by adding categories of goods and services that haven't been taxed before -- personal and business services, residential fuel and groceries.

When analysts ranked these items, it considered whether a tax would force vendors and consumers out of state, Mr. Skinner said.

Overall, the "A" ratings would raise about $200 million, while a 1-cent increase in the 5 percent sales tax -- the pet proposal of committee chairman Laurence Levitan -- would raise an estimated $330 million.

After the hearing, Mr. Levitan, D-Montgomery, said he was still convinced that an increase was the way to go. "It's easier to do that now," he said. "This would be more time-consuming."

A straightforward increase in the current sales tax would take about 60 days to put into effect. While some new taxes, such as a levy on auto repair, could be enacted that quickly, others would take longer because the affected businesses don't have accounts with the comptroller's office.

For example, a newspaper tax -- embraced warmly by several senators -- would raise an estimated $11.6 million, but would take longer to implement.

Other "A" rated proposals, and the amounts they would raise, include:

* Food sales in school and college cafeterias ($6.1 million), and in hospital cafeterias open to the public ($1.3 million).

* Dietary animal food, mentioned in Gov. William Donald Schaefer's State of the State address ($100,000).

* Food prepared at grocery stores for immediate consumption, such as salads and sandwiches ($12.6 million).

* Cable television ($15.9 million), custom telephone calling services ($2.4 million) and calls to 900 and 976 numbers ($900,000).

* Barber shop and beauty services ($13.3 million), dry cleaning ($13.8 million), funeral services ($4 million) and shoe repair ($500,000).

* Lowering the fee the state pays businesses for collecting the sales tax ($7.5 million). Vendors currently get 1.2 percent of the total they collect. Under yesterday's proposal, they would get only .6 percent of collections over $5,000.

While the list included more than 30 business services, only repairs and automotive service received an "A" rating. Taxes on accounting, engineering and legal services were graded "C."

Potential sales tax targets

Items and services now exempt from Maryland sales tax that are potential sources of revenue:

* Food sales in school and college cafeterias and in hospital cafeterias open to the public.

* Dietary animal food.

* Food prepared at grocery stores for immediate consumption, such as salads and sandwiches.

* Cable television, newspapers, custom telephone calling services and calls to 900 and 976 numbers.

* Barber shop and beauty services, dry cleaning, funeral services and shoe repair.

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