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Testimony to the Maryland House Ways & Means Committee on H.B. 1286 – Maryland’s Tax Rates Dismiss Regional Tax Competition

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Download Testimony to the Maryland House Ways & Means Committee on H.B. 1286 – Maryland’s Tax Rates Dismiss Regional Tax Competition

Key Findings

  • From a regional vantage point, it seems that Maryland is dismissing the possible effect of taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. competition. With the sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding. rate of 6% Maryland is currently tied with Pennsylvania, West Virginia, and Washington, D.C. in having the highest sales tax in the region; coming in higher than Virginia (5%) and Delaware (0%).
  • Sales taxes not only impact consumers, but they can also have a detrimental effect on businesses. The seller and the consumer both bear a portion of the costs of the sales tax, the consumer through a higher price with tax included and the producer through a lower list price.
  • The Comptroller’s office has estimated that revenue from the 2008 tax increases ran 44% under projection, suggesting negative economic impacts from the tax increase. Sales tax receipts were projected to fall 3.5% in FY 2009 after adjusting for the rate increase and other law changes, with all major components of the sales tax declining except for receipts from utilities.
  • A sales tax reduction would be a positive first step toward improving the state’s business tax climate. The 20% reduction in the rate (from 6% to 5%) would result in a rise in Maryland’s State Business Tax Climate Index from 45th to 43rd.
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