Study Finds Taxing Online Sales Would Bring in Less Revenue Than Anticipated

As previously reported, the Board of Revenue Estimates was asked to conduct a study to determine how much revenue is lost due to Internet sales and what can be done to recoup the money. However, the study, which was just recently released, found that extending the sales tax to online sales would not recoup as much as anticipated. As reported by MarylandReporter.com:

While passing state legislation taxing online merchandise has the possibility of netting Maryland up to $40 million in additional revenues, Comptroller Peter Franchot said in a study released Friday that it would more likely raise much less and embroil the state in a long legal battle.

“Remote sellers have shown a determination to minimize their tax-collection obligations in response to actions of other states,” Franchot wrote in a letter to Gov. Martin O’Malley. “In the absence of federal legislation that would authorize states to require online sellers to collect taxes, it is obvious they will continue to do so, and the amount of revenue that would be accessible to the State is modest, if not minimal.”

There are two pieces of legislation being considered by Congress, but both would require changes to Maryland’s law.

Two pieces of federal legislation are pending that would give all states the authority to tax online merchants. However, the study states, one of them requires a uniform sales tax rate – meaning the new 9% alcohol tax would likely have to be repealed.

The other would mandate the adoption of the streamlined sales and use tax Proposed by the National Governors Association and the National Conference of State Legislatures, this law would simplify how sales taxes are collected across states. If this law passed, Maryland’s tax law would have to be significantly changed to conform to it.

Proposals for a streamlined sales and use tax also have fiscal consequences for local governments.  As previously reported, local taxes that are not widely imposed or whose rates vary would not be permitted.  Since most counties impose a hotel tax, the effect is unclear. However, other local sales and service taxes such as those on energy and utilities will most likely be affected.

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