This ‘weed’ definitely should be pulled

In just a few weeks, spring will be upon us. Hints of warm weather presage the blossoms that shower Maryland with color. But with flowers also come weeds, and that is the best term we can use to describe the proposal introduced in the General Assembly to tax the provision of certain business-to-business services.

Taxing services is a perennial (pun intended) idea, one which seems to flourish in the corridors of our legislature in purportedly desperate times.

And it won’t be good, for Maryland or for the people who live here. The tax certainly won’t result in a $1 billion of extra, i.e., net, revenue. And, of course, all the revenue it does raise, net or not, will come out of the pockets of Marylanders.

A good place to start, of course, is with the proposed legislation itself, which sets forth the services to be taxed at 2.5% “if both the provider of the service and the buyer are business entities.”
This creates an immediate issue: What sort of due diligence must a provider of services perform to determine whether the purchaser of the service is a business entity? Is an affidavit sufficient? Included among the taxable services is “A photography, design, or printing service.” The purchaser offers to pay by personal check or personal credit card: What is the seller of services supposed to do, hire a detective agency to find out whether a business is behind the purchase?

The Maryland Association of Certified Public Accountants, Inc. has produced a valuable analysis of what this proposed tax would really mean, which is a heavy new burden on small business, and we commend its white paper to our readers.

Large companies can simply pack up and leave Maryland if this additional tax tacked on to their service bills becomes the straw that breaks the camel’s back. Gone will be a substantial source of revenue. Interim measures can also be taken to avoid the tax: Bring as much of the recurring taxable services in house; after all the service tax is on a transaction, and to not to pay the tax, eliminate the transaction but hold on to the services.

Small businesses can neither move to another jurisdiction nor bring services in house. Big businesses are incentivized to leave the state; small businesses grow smaller or close up or don’t open. Ergo, less tax revenue and higher prices.

Practical examples: Baltimore sports teams who hire a Maryland “sports . . . advertising service” charged tax. Hire your ad professionals, who can work in any state, as employees and don’t pay a continuing 2.5% tax. Fewer Maryland jobs, less tax paid. And this is how we get to $1 billion?

Another example: Employee placement services are taxed, as are landscaping services, financial planning and tax preparation services, along with accounting, bookkeeping, billing, and payroll services, as well as a valet or parking service other than a public parking garage. Add to that list a performing arts advertising service and the aforementioned photography service. Put all these together and you have a tax and logistical nightmare for any film or video production company.

Maryland can kiss film production goodbye, along with the attendant tax revenue and publicity for a state badly in need of some good press.

We do not pretend to outline all the myriad bad things that will occur if this bill becomes law. Or of all the ambiguities packed into such a small space. But we are confident of one thing — taxing services raises legal issues but reduces revenue.

We urge the General Assembly to bury this proposal quietly and without benefit of clergy. And to help the General Assembly to reach the correct result, legislators should be contacted by everyone who will lose business, have to pay more for accounting to separate the nontaxable wheat from the taxable chaff (and pay tax on the accounting services as well, a nightmare roundelay), and have to pay extra money to fund this tax. In other words, everyone.

We see this proposal as falling within the timeworn category: Something needs to be done; this is something. It certainly is.

Editorial Advisory Board member Susan Francis did not participate in this opinion.

EDITORIAL ADVISORY BOARD MEMBERS

James B. Astrachan, Chair

James K. Archibald

Gary E. Bair

Eric Easton

Arthur F. Fergenson

Nancy Forster

Susan Francis

Julie C. Janofsky

Ericka N. King

George Nilson

Catherine Curran O’Malley

Angela W. Russell

Debra G. Schubert

Jeff Sovern

H. Mark Stichel

The Daily Record Editorial Advisory Board is composed of members of the legal profession who serve voluntarily and are independent of The Daily Record. Through their ongoing exchange of views, members of the board attempt to develop consensus on issues of importance to the bench, bar and public. When their minds meet, unsigned opinions will result. When they differ, or if a conflict exists, majority views and the names of members who do not participate will appear. Members of the community are invited to contribute letters to the editor and/or columns about opinions expressed by the Editorial Advisory Board.