Report Urges States to Broaden Their Sales Tax Base

A blog on Maryland’s Money Matters highlights a report published by the Center on Budget and Policy Priorities, which urges States to broaden their sales tax base and increase revenues. The report titled, Four Steps to Moving Sales Taxes into the 21st Century,” offers the following four recommendations:

1.   Tax more services. 

When the state established a sales tax in 1947, goods made up 60 percent of household receipts. Today, goods weigh far less in the share of total consumption; households spend almost 68 percent of their budgets on services, most of which are not subject to the 6 percent state sales tax.

2.   Tax tangible goods purchased online.

Online purchases make up a significant portion of Maryland consumer spending, and very few of these transactions are taxed. According to a study by the state Comptroller, “In 2010, Maryland lost an estimated $198.4 million in sales and use tax revenue from the sale of tangible goods by remote sellers, which represents about 5.4 percent of gross sales tax collections.”

3.   Tax digital downloads.

Maryland does not currently tax online downloads. The Comptroller’s sales tax study estimated the foregone tax revenue from the sale of digital goods (such as online downloads of software, music, ebooks, and movies) amounts to roughly $5 million per year if these sales were taxed at a rate of 6 percent.

4.   Eliminate the online hotel tax loophole.

Online travel agencies often do not collect the full value of hotel taxes owed to the state. A loophole allows these websites to apply the tax on the wholesale rate the travel firms pay the hotels rather than the higher retail rate that would be charged to a consumer who booked a room directly with the hotel.

MACo has been following some of these issues closely and has reported on them on Conduit Street.  The elimination of the online hotel tax loophole would also result in additional revenue for counties through the hotel tax.

Previous coverage on the taxation of online purchases

Previous coverage on eliminating the online hotel tax loophole

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