Carol Park is a senior policy analyst at the Maryland Public Policy Institute.
For the first half of 2018, Maryland leaders were preoccupied with Amazon.com, assembling an $8.5 billion incentive package to attract the online giant’s second headquarters to the state. Maryland’s brick-and-mortar shops could be excused for feeling ignored.
Then on June 21, the tide turned in favor of Maryland’s streetside businesses when the Supreme Court ruled in South Dakota v. Wayfair that states can assess sales tax on goods sold online to state residents even if the online merchants are out of state. Maryland Comptroller Peter Franchot (D) was “exceedingly pleased” with the ruling because it reversed a “fundamentally outdated and unfair” decision from 1992 that had prevented states from collecting online sales taxes.
Fair enough. The online sales tax loophole was unfair for the traditional shops in Maryland that were struggling to compete with their online counterparts. But the question is, does the Supreme Court’s decision actually address this unfairness?
According to retail analyst Neil Saunders, the biggest losers of the Supreme Court decision “are online-only retailers, especially smaller ones. Those retailers may face headaches complying with various state sales tax laws.” Under the new system, online businesses will have to collect 9,600 different local sales taxes across the country. As such, the ones that lack the resources, accountants and tax lawyers necessary to comply with those tax requirements will be at a competitive disadvantage. Bigger companies such as Amazon, which have already been collecting taxes on many sales, will be less affected. (Jeffrey P. Bezos, Amazon’s founder and chief executive, owns The Post.)
Today, many entrepreneurs start out by setting up an online shop. Extending the burden from small, brick-and-mortar retailers to small, online-only entrepreneurs puts a damper on this innovation. How can Maryland respond to the ruling to minimize the harmful impact on Maryland’s low-income consumers and online-only retailers while truly leveling the playing field between all types of businesses in Maryland?
Immediately after the ruling, Maryland politicians began clashing over the estimated $100 million to $252 million bonanza in expected online sales tax revenue. Sen. Richard S. Madaleno Jr. (D-Montgomery) argued that the money should flow into schools and fund the Kirwan Commission proposals for new education spending. Sen. Nancy J. King (D-Montgomery) argued that the money should be saved.
Instead of wasting months arguing about which programs are worthier of additional spending, Maryland can give the revenue back to Marylanders in an across-the board sales tax reduction. As Sen. Andrew A. Serafini (R-Washington) argued, “Any federal action that creates additional revenue we should not treat as a windfall. . . . We should look for ways to give it back to the taxpayers.”
Over the course of the past few decades, Maryland’s sales taxes have increased steadily: from 3 percent to 4 percent in 1968, from 4 percent to 5 percent in 1977 and finally from 5 percent to 6 percent in 2008. In fiscal 2017, Maryland collected a hefty $4.5 billion in sales and use tax, which is expected to increase to $4.6 billion in 2018.
Some argue that the additional tax revenue from online sales would not be enough to justify even a 1 percent reduction of sales tax. No problem. This year, New Jersey reduced its statewide sales tax rate from 6.875 percent to 6.625 percent. Baby steps are what will bring Maryland onto the correct path to growth and prosperity.
Maryland’s high income inequality is often the justification for increasing spending on social programs. However, unlike social programs that only help certain groups, a sales tax reform would empower literally everyone in Maryland, including the low-income consumers and the small, online-only entrepreneurs that have been hard hit by the Supreme Court’s decision.
Amid the intensifying national debate surrounding what the South Dakota v. Wayfair ruling implies, Maryland leaders should remember that shifting unfairness from one group of taxpayers to another does not bring justice. The disposition of additional revenue from the Federal Tax Cut and Jobs Act of 2017 had already dominated Maryland’s 2018 legislative session. Another round of unproductive discussion will hardly bring equity back to Maryland’s business environment.