Greetings from the taxman

June 24, 1992

"If it ain't broke, don't fix it," goes the conventional country wisdom. But heaven forbid if it is broke and you have to call in the Maryland General Assembly. Then you might get something that resembles the revised state sales tax code.

The first two phases of the tax changes went into effect May 1 and June 1. They covered consumer items ranging from newspapers to cigarettes, gasoline to snack foods. They also came with a rash of contradictions. A single ice cream treat, for example, is now subject to the 5 percent sales tax. A dozen ice creams aren't. Food bought on college campuses is now taxable. College food bought on a meal plan isn't. Pay-per-view telecasts at home are taxable. Closed-circuit showings of the same event at a theater are not.

Phase 3 of the tax changes arrives July 1, covering business services rather than consumer goods. Previously exempt janitorial services will be subject to state sales tax now. So will the clean-up of construction sites, fire and flood scene restorations. However, the sales tax exemption for the cleaning of heating, ventilation and air conditioning systems continues.

Also effective July 1, businesses holding Maryland sales and use tax licenses may no longer claim the resale exclusion on purchases for resale of less than $500 when made with cash, check or credit card. However, the tax won't be collected when businesses procure the items based on their credit with suppliers. Businesses have been most confused about this part of the new tax law, the state comptroller reports.

Also as part of Phase 3, employers are being sent revised schedules to withhold a bit more pay from workers who live in the five counties that have raised their piggyback income tax. Baltimore, Montgomery, Prince George's, Talbot and Allegany counties took advantage of the legislature's approval for jurisdictions to increase their local income tax rates up to 60 percent of the state tax.

Depending on the pace of the economy's rebound, other jurisdictions may follow suit next year as sentiments swing to income over property taxation. Payroll departments of Maryland companies haven't had to pay much attention to the residencies of employees over the past several years because Baltimore City and all the counties save Worcester maintained the same local income tax rate. Statewide, residents who earn more than $100,000 will have their income tax increased too as part of the tax changes approved last spring.

Was it Ronald Reagan who pondered (if never achieved) a tax system so simple the taxpayer could fill out his or her return on a postcard? With the legislature's misguided reworking of the Maryland sales tax code, postcards can continue to be used primarily for messages with pretty pictures.

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