O'Malley's 2008 millionaire surtax was intended to raise the income tax bill of wealthy families by 32 percent and raise an extra $106 million in revenue. Instead, it prompted one-third of Maryland's top earners to leave the state, sending tax revenue plummeting by 22 percent. Instead of collecting that extra $106 million, O'Malley's blunder actually cost the state $257 million. The Wall Street Journal's analysis of federal tax-return data found that "Maryland lost $1 billion of its net tax base in 2008" from residents moving to other states. That means the millionaire tax is still costing local governments much-needed revenue.
O'Malley's seemed to have learned his lesson in January, when his press secretary told CNN Money, "We can balance the budget through cuts and without new taxes." Just four months later, however, the governor wrote a letter to state Comptroller Peter Franchot asking him to find out just how much sales tax revenue the state was supposedly losing to Internet sales. Since the study is being conducted by the Maryland Bureau of Revenue Estimates, it's clearly only a matter of when -- not if -- O'Malley and his pals in Annapolis will try to get their sticky fingers on the growing Internet sales pie.
One little problem: In 1992, the Supreme Court ruled in Quill Corp. v. North Dakota that states could not require out-of-state retailers to collect sales taxes unless those retailers had a physical presence in the state, heretofore defined as a brick-and-mortar store or office. However, equally rapacious politicians in other states are attempting to expand that definition. In response, large e-retailers like Seattle-based Amazon.com and Utah-based Overstock.com are already moving to end local marketing arrangements and close warehouses and distribution centers in their states. The retailers argue, persuasively, that it would be extremely burdensome to collect revenue for more than 8,000 taxing jurisdictions in the U.S. Texas Gov. Rick Perry vetoed such revenue-seeking legislation for precisely that reason.
Everybody but O'Malley can see where this is going. Just like the flight of the millionaires, an Internet tax will cost Marylanders dearly in jobs and business opportunities lost to more enlightened and business-friendly states.