Foes exercised over sales tax

O'Malley plan to add health clubs, other services is resisted GENERAL ASSEMBLY -- SPECIAL SESSION

November 06, 2007|By Laura Smitherman | Laura Smitherman,SUN REPORTER

When Lynne Brick sat at the witness table in the General Assembly last week, she did what comes naturally - she led lawmakers in exercise, telling them to sit up tall and roll their shoulders back and repeat.

Once she had them warmed up, she warned that if they extend the state sales tax to health clubs, including her Brick Bodies chain of gyms around Baltimore, they would discourage healthy lifestyles and stifle the fight against obesity.

"People are trying to save their own lives," Brick said, "and we want to tax them for it?"

Gov. Martin O'Malley, an exercise enthusiast, has proposed taxing health clubs, tanning salons, saunas, massage parlors and property management. He wants to raise the state sales tax from 5 percent to 6 percent. The added revenue would help close a projected $1.7 billion budget shortfall for the fiscal year that will begin in July.

The across-the-board increase would cost residents far more overall, but extending the sales tax to additional services has drawn the most energetic resistance. Some lawmakers say the proposed taxation of health clubs and property management is among the ideas that might not survive the special session called by O'Malley, a Democrat, to address the budget shortfall.

Some in the Democratic-controlled legislature have come up with their own proposals, including taxing such services as extermination services, golf courses, shoe repair, parking and interior decorating. They argue that broadening the services subject to the tax would make the system more fair.

Proponents of expanding the tax also say they are targeting luxuries and not essential services, such as food and medical procedures, that traditionally have been exempt from sales tax in Maryland.

The businesses that would be affected vigorously oppose being subjected to sales taxes and argue that the proposals would be unfair to small companies.

Each business segment has its own argument for why it should not be taxed.

Bruce C. Bereano, a longtime Annapolis lobbyist, represents several of them.

A tax on tattoo and body piercing that has been floated? Bereano calls that a "culture tax" that would impinge on a centuries-old tradition. He has noted that in "the time of Adam and Eve," the serpent pierced Eve's ear in the Garden of Eden.

The proposed snack tax on potato chips, popcorn, nuts and pork rinds? Bereano says that's food, too.

"People eat it," he said. "You can't just take a segment of food and tax it."

A proposal for taxing dating services?

"How can you put a tax on love?" Bereano asks.

The governor's sales tax proposal would raise more than $700 million a year, including about $60 million from taxes on the additional services.

The sales tax is the state's second-largest source of revenue for the general fund. It is applied broadly to the sale of tangible property but to only a few services, including cell phone, commercial building cleaning and security system services.

O'Malley also wants to raise tobacco and corporate income taxes, make the state income tax system more progressive and reduce the state property tax.

The sales tax hasn't been raised since 1977. If it is raised to 6 percent, it will match the rate in Pennsylvania and West Virginia. The District of Columbia and Virginia would have lower rates, at 5.75 percent and 5 percent, respectively. Delaware has no sales tax.

Legislative leaders say they are looking at a broad range of services that could be subjected to the sales tax, and O'Malley has indicated a willingness to compromise on the details.

Baltimore resident Adam Brown said he has been bombarded with messages from special-interest groups about the sales tax. Not only does he work out at a downtown Brick Bodies, where clients are urged to sign petitions and fill out postcards to be mailed to legislators, but his landlord sent him a flier warning that his rent would go up if the sales tax was applied to property management services.

"Any time they raise my taxes, I'm not a fan of it," Brown said as he lifted weights at his gym Saturday. "But if the state is going to be a nanny and they are throwing around all these taxes, they should at least be consistent in their message."

Opponents of the health club tax argue that it runs counter to the rationale for a higher tobacco tax, which backers say would discourage unhealthy behavior. One postcard being mailed to lawmakers: "Dear elected officials, if taxing cigarettes deters smoking, what does taxing health club memberships do?"

A trade group for health clubs, the International Health, Racquet & Sportsclub Association, has helped to coordinate thousands of e-mail messages and postcards to lawmakers, and petitions.

The Maryland Association of Realtors has launched a wide-ranging lobbying fight against the property management tax that includes rallies, an advertising campaign and e-mail. The group says Maryland has the nation's seventh-most-expensive rental market and that real estate is already subject to property taxes.

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