Amazon gets help it doesn't need

December 14, 2007|By JAY HANCOCK

The recently passed tax package is a "fair" way to fix state finances, says Gov. Martin O'Malley. It "keeps Maryland businesses competitive," says House Speaker Michael E. Busch.

But Maryland taxes remain grossly unfair and anti-competitive in one way that was barely discussed at last month's special legislative session - and the situation is about to get worse.

When you buy a $149 iPod Nano from Best Buy or Circuit City, you also pay 5 percent Maryland sales tax of $7.45. But you pay zero tax when you buy one from or another Internet merchant with no Maryland presence.

This penalty on Maryland corporate citizens will rise to 6 percent Jan. 3, thanks to the legislature's sales-tax boost. This makes the incentive for consumers to forsake retailers that employ Marylanders and pay state real estate and income taxes greater than ever.

It's time for Washington and states (they need to work together) to fix the Internet sales-tax loophole, bolster state budgets and make Amazon and its kin play fair.

Next year Maryland could lose $320 million to $501 million thanks to out-of-state retail purchases for which no sales tax is collected, estimate Donald Bruce and William F. Fox of the University of Tennessee. This includes Internet and catalog sales plus people importing stuff from Delaware and other places with no sales tax.

The estimates sound high; they imply a tenth or more of the value of taxable goods bought by consumers and businesses comes from out of state. But let's say Maryland is losing only $200 million in revenue. It's still a huge amount that, if collected, could have kept O'Malley and the legislature from raising taxes so much on state residents and companies.

Of course, Marylanders are supposed to pay the state "use tax" - equivalent to the sales tax - on items they buy elsewhere that are taxed at less than the Maryland rate. But except for cars (subject to a 5 percent titling tax at registration), it's rarely collected and hardly anybody volunteers. Maryland store operators have raised heck about the unfair advantage for out-of-state merchants for years, so far to no effect.

"The guys that really get hurt tend to be the ones selling your bigger-ticket items," says Tom Saquella, head of the Maryland Retailers Association. Buy a Rolex Yacht-Master watch from Amazon and you'll save $389.95 in tax. After January 3 it'll be $467.94. Where would you shop?

For states such as Maryland that want to tax "remote" retailers, the problem is that only the federal government can regulate interstate commerce, and it hasn't done anything so far. The Sales Tax Fairness and Simplification Act, sponsored by Rep. Bill Delahunt, a Massachusetts Democrat, and co-sponsored by Maryland Democratic Rep. Elijah E. Cummings, would fix the problem.

"If there is any bill that is supportive of the small business owner in this country, it's this legislation that's before us today," Delahunt said at a hearing Monday, noting that mom-and-pop stores still anchor much of the retail economy. "And please note it's both local and remote businesses that benefit from local infrastructure, roads, fire, and safety services in our cities and towns."

Amazon benefits from street repairs when trucks deliver its goods, in other words. But it doesn't pay for them.

Unfortunately, advocates for brick-and-mortar retailers don't give Delahunt's bill much of a chance. By opening stores in Maryland, catalog retailers give the state some control over remote sales. The physical presence of L.L. Bean and Lands' End stores requires the companies to collect Maryland tax even on Internet and catalog sales. But the rest may have to wait for the next Congress.

Full disclosure: I got to thinking about these issues only after buying $330 in Christmas presents on Amazon. Now that I've outed myself, I'll be sure to file to pay the $16.50 in state sales taxes Amazon didn't charge. "I'd be happy to send you a form!" says Linda L. Tanton, deputy state comptroller.

But the best solution would be requiring Amazon to collect and remit the tax itself. Don't tempt me into skipping the sales tax on my next remote purchase.

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