The Maryland comptroller warned Gov. Martin O’Malley about the risks of taxing Internet sales. Although the state loses millions of dollars in revenue every year from online and catalog sales that are not taxed, changing state laws to allow the taxes would benefit Maryland only slightly, Comptroller Peter Franchot told O’Malley in a letter.
Franchot estimated that the state lost $198 million of sales tax revenue in 2010 due to remote sales — about half of which were by online retailers — representing about 5.4 percent of gross sales tax collection. In fiscal 2013, the state stands to lose $243 million in tax revenue.
The state would increase revenue by at most $20 million to $40 million annually, but is more likely to bring in about $5 million if it began taxing Internet sales, Franchot said.
O’Malley’s office requested a study on Internet taxation earlier this year.
If both federal and state lawmakers were to change their Internet sales-tax rules, Maryland could net at best an increase of between $123 and $173 million in revenue, he said.
But even in that scenario, the state would not be able to force retailers without any physical presence in the state — like Amazon.com, Overstock.com and Netflix Inc. — to collect sales tax.
Maryland likely would face legal action by online retailers if state lawmakers attempted to legislate change without the federal government also changing its no-tax policy.
“Remote sellers have shown a determination to minimize their tax-collection obligations in response to actions of other states,” Franchot wrote. “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.”
Currently 16 states have enacted or proposed legislation to require online retailers to collect sales tax, according to CCH Group, a group that provides research and information for tax and audit workers.
Two bills before Congress seek to tax Internet sales — the Main Street Fairness Act and the Marketplace Equity Act. Both would require changes to Maryland’s sales tax before the state could require online businesses to collect sales tax, Franchot said.
O’Malley spokeswoman Raquel Guillory said the governor is reviewing the study and was not ready to comment.
