If you're a Marylander who purchased clothes, furniture or other items out-of-state and avoided Maryland's sales tax, the tax collector may soon come calling.
That's because a little-known provision of the state's sales tax law requires residents to pay as much as a 5 percent levy on all purchases meant for in-state use, regardless of where the sale occurred.
Hardly anyone obeys the law, which results in an estimated $50 million worth of uncollected sales tax on large out-of-state purchases for things like appliances, computers and furniture. Enforcement also has been largely nonexistent. But Comptroller William Donald Schaefer (D) says he's ready to change all that.
"We're going to go after everybody who's avoiding sales tax," said Schaefer, the former Maryland governor. "We're enforcing the law. It's never been done before."
Schaefer has begun his campaign by taking aim at out-of-state furniture sales, since Maryland furniture dealers have complained loudly that these transactions undercut their sales and have forced many of their brethren out of business. State leaders have taken up their cause, much to the dismay of residents, who view the effort with disdain.
"That's ridiculous," said Linda Tucker, of Bowie, who purchased a wardrobe at a North Carolina store without paying Maryland sales tax. "It seems to be a direct violation of constitutional law, one state telling another state what they have to do. Maryland seems to be a very antiquated state."
The reality is that Maryland, Virginia and 43 other states and the District have laws on the books requiring customers to pay in-state sales tax on out-of-state purchases. Maryland's stepped-up enforcement is part of a larger battle states have been waging for years to capture the millions that escape their reach annually through mail-order catalogue sales, border-state purchases and, more recently, Internet transactions.
States want to require Internet and mail-order merchants to collect sales taxes even if they do not have a physical presence in the state where the goods are shipped. Currently, businesses are not required to collect taxes for states in which they do not operate. Instead, the onus is on purchasers to report what they owe and send it in.
Few customers are aware of the requirement. And mail-order and Internet representatives have argued successfully before the Supreme Court that it would be too burdensome to require them to learn the tax rates -- and exemptions -- for the various jurisdictions to collect the tax themselves.
"States have been unhappy with these rulings and have sought to have Congress change this," said Chet Dalzell, spokesman for the Direct Marketing Association, representing 4,500 companies with mail-order, television and Internet sales. "Every effort to date has found bipartisan opposition to extending state taxing power in this way."
But that doesn't keep states from trying. Maryland, for instance, is in the midst of a two-year-old lawsuit against Furnitureland South of North Carolina, which bills itself as "The World's Largest Home Furnishings Showplace." State officials contend that the company and its delivery company, Royal Transport Inc., are in Maryland so often that they are essentially in-state retailers attempting to skirt the sales tax law.
"They do in-home delivery, furniture setup and some limited repair of furniture," said Assistant Attorney General Deborah Bacharach, who represents the comptroller's office in the litigation. "They are here almost every day."
But attorneys for Furnitureland argued during court proceedings that Maryland is attempting to make an end run around federal law. Maryland brought the suit "in order to establish precedent for requiring other out-of-state vendors to collect Maryland sales and use tax on shipments to Maryland customers," attorneys wrote in court papers.
The case was argued this month before Anne Arundel County Circuit Court Judge Ronald A. Silkworth, who has not yet issued a ruling.
Maryland has resorted to other ways to collect the tax. The first initiative, announced last week, will involve investigators from Schaefer's office periodically checking the cargo of trucks entering the state. Maryland residents receiving shipments likely will receive a letter from Schaefer's office, informing them of the tax and -- at least initially -- asking them to remit it promptly.
The current effort is aimed primarily at large furniture sales, but Schaefer is hoping it will increase the public's understanding of the tax law and force residents to 'fess up when they make big purchases. He has yet to outline how the state might go about compelling more people to comply.
It's going to be an uphill battle because even people who should know better have run afoul of the law.
The man Schaefer tapped to lead the effort -- Larry W. Tolliver, the former state police superintendent and former Anne Arundel County police chief -- realized last week that he had not paid taxes on a leather sofa he purchased over the Internet. He paid a tax and fine of $418 last week.
"I wasn't even familiar with it myself," said Tolliver, who said the new enforcement effort could be underway within a week. "I think there's a lot of money slipping through the coffers of the state. We don't think many people knew about the law."
Those who know about the law don't like it. In effect since 1947, the sales and use tax has applied to all tangible property that is consumed, possessed, stored or used in Maryland. Items are taxable to the extent they are not taxed elsewhere; the state grants a credit -- up to the 5 percent limit -- for sales tax paid to another state.
In fiscal 1998, the state collected $2.16 billion in sales taxes -- almost all of it from purchases in Maryland. More than half the revenue came from the sale of clothing, furniture, appliances and building and industrial supplies.
Schaefer said he's gotten an earful from angry residents, who are afraid they will be accosted for buying a carton of cigarettes or some other insignificant item without paying state taxes. While not paying taxes on such purchases is technically illegal, Schaefer said his focus is big-ticket purchases. Even that, however, is controversial.
"I've already had people call me up saying: `You've collected enough taxes. Why are you trying to do this to us?' " Schaefer said. "They really don't understand that it's not new. We're not trying to harass anyone. Most people have thought about the law but never really thought it applied to them."