Main Street Fairness Act Will Level the Playing Field for Small, Local Businesses
Position statement supporting Senate Bill 855
Given before the Senate Budget and Taxation Committee
Maryland’s current sales tax system doesn’t apply to all businesses in the same way. Small, local retailers must collect and remit sales taxes for their customers’ purchases, while some online sellers can avoid collecting the taxes their customers owe – in effect allowing customers to pay a lower price by avoiding state sales taxes. Senate Bill 855 would narrow this loophole and level the playing field for homegrown Maryland businesses. It would also generate much-needed revenue to support essential state services.
Under current law, online retailers that have a physical presence in the state, such as a distribution center, must collect and remit Maryland sales taxes. This applies to about 40 of the 50 largest online retailers, according to the comptroller’s office[i]. That means that many other large online retailers based out of state have an unfair advantage over businesses that have chosen to invest in Maryland. Broadening the group of businesses responsible for collecting the taxes their customers owe would create a more fair system.
This would not apply to very small businesses, such as someone making and selling crafts out of their home. A business would have to sell at least $10,000 worth of goods to at least 200 different Maryland customers for four consecutive quarters before the company would have to begin collecting and remitting Maryland taxes. This is a reasonable exemption that protects small home-based businesses as well as businesses that make infrequent sales in Maryland.
While it is difficult to determine exactly how many businesses would fall into the new category, it is clear that narrowing this loophole would generate significant revenue for the state. According to one estimate, there may be $320 million in uncollected sales taxes in the current fiscal year[ii]. Given that policymakers are once again facing a budget that leaves many needs unmet, additional revenue will help the state make the needed investments in schools, transportation, and other services Maryland residents businesses rely on every day[iii].
As more and more purchases move out of local stores and into online retailers, Maryland must take steps to modernize its sales tax system, otherwise revenues will continue to decline. Senate Bill 855 takes a fair and reasonable step toward a more modern sales tax system that reflects our purchasing habits in the 21st century.
For these reasons, the Maryland Center on Economic Policy respectfully requests that the Senate Budget and Taxation Committee make a favorable report on Senate Bill 855.
[i] Fiscal and Policy Note for Senate Bill 855, Department of Legislative Services, 2017. http://mgaleg.maryland.gov/2017RS/fnotes/bil_0005/sb0855.pdf
[ii] Ibid
[iii] Maryland’s Budget Leaves Unmet Needs, Maryland Center on Economic Policy, January 2017. http://www.mdeconomy.org/marylands-current-budget-leaves-unmet-needs/
