Md. targeting consumers who dodge 5% sales tax

$50 million a year lost to out-of-state buying

May 25, 1999|By Larry Carson | Larry Carson,SUN STAFF

Faced with $50 million a year in uncollected sales taxes and the threat of bigger losses from Internet sales, Maryland officials took aim yesterday at consumers who buy out of state.

A new enforcement program targets people who buy furniture from companies in states like North Carolina to save the 5 percent sales tax. A team of 20 state inspectors will examine truck cargoes and manifests at roadside weigh stations, identifying Maryland customers and dispatching letters requesting they pay the tax or prove why they're exempt.

The program, announced by Comptroller William Donald Schaefer, is directed at just a portion of a growing problem. As consumers turn increasingly to Internet companies like and catalog firms, the amount of lost sales tax revenue could rise sharply above the current estimate of $50 million. But those transactions are hard for government to monitor.

"This goes beyond furniture and furniture sales," said Thomas S. Saquella, president of the Maryland Retailers Association, referring to rising Internet sales and the changing marketplace. "Government has to change as well."

The new enforcement effort began yesterday with a news conference at a state weigh station on Interstate 70 near Route 32 in Howard County, where Schaefer also announced plans to create an investigative services unit headed by former state police Superintendent Larry W. Tolliver.

Schaefer acknowledged that the checks won't catch every untaxed purchase, but the inspectors from his office will catch enough, he said, to send a message that Maryland taxes can't be ignored anymore.

"We are going to follow up," he said of the letters to furniture customers. "I mean it when I talk about compliance."

The crackdown on untaxed out-of-state furniture buying also is intended to help Maryland furniture retailers. They have pressed the state to act for several years as they saw potential sales siphoned off to North Carolina, Delaware and other states.

In fiscal 1998, Maryland collected $2.16 billion in sales and use taxes. Maryland is one of 45 states that have sales taxes and a companion use tax on out-of-state purchases. Consumers who pay sales tax to other states for purchases there get credit from Maryland, up to 5 percent.

"It's called a use tax," Schaefer said. "It is not new. The law's been in effect for 50 years. It's been there, it just hasn't been enforced."

Maryland residents who buy clothing from Lands End, a catalog retailer with no Maryland outlet, for example, are on the honor system to report and pay sales tax on their purchases. If a company physically operates in Maryland, however, it is required to collect the tax, even on catalog purchases, said Linda L. Tanton, director of compliance in the comptroller's office.

State officials are also awaiting a ruling from Anne Arundel Circuit Judge Ronald A. Silkworth, who they hope will order Furniture Land South and Royal Transport of High Point, N.C., to start collecting taxes from Maryland buyers. Maryland sued the store and trucking firm after several years of negotiations failed, Tanton said.

Wayne Laumann, president of the Maryland Home Furnishings Association and a Perry Hall furniture retailer, also attended the news conference. He's been asking for action from his state senator, Finance Committee Chairman Thomas L. Bromwell, who took the complaint to Schaefer.

"Maryland jobs are at stake if we don't do something about this," Bromwell said, noting that many locally owned furniture stores have been going out of business in recent years.

"We're not going to let 60 jobs leave the state because of the greed of North Carolina," he said, referring to Laumann's employees.

Laumann said his store paid $650,000 in sales taxes last year.

Roadside sales by independent truckers who bring trailers of furniture to sell at abandoned gas stations are also a target for state inspectors, Bromwell said.

Laumann said people have come into his Belair Road store, copied model numbers of furniture they want and told him they were going south to buy it cheaper.

Schaefer said he's had the same experience. "One of the furniture dealers came over to me, and said, `You know, I can match any price anywhere, but I can't beat that 5 percent sales tax when they don't pay it.' That's not fair. It isn't a level playing field, and the taxpayers are also losing."

The news conference was held at a weigh station to dramatize the new enforcement push. State officials provided a state tractor-trailer as a prop for television cameras. Inspectors demonstrated how they would inspect a driver's manifest, then check boxes in the trailer.

However effective the new campaign is, Schaefer said it will at least deliver a message that Maryland is pro-business and interested in helping businesses thrive here.

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