Online retailers could start paying state sales taxes to Maryland in October if lawmakers approve new regulations proposed by Comptroller Peter Franchot's office.
The proposal by the Comptroller's Office comes after the U.S. Supreme Court ruled 5-4 in June to overturn a 1992 ruling that prevented states from imposing sales taxes on online sales and catalog companies that don't have a physical presence in the state where they make a sale.
Under the proposed regulations, the state will levy a 6 percent sales and use tax on online retailers who either have sales of at least $100,000 from goods and services delivered in Maryland or at least 200 transactions. If approved by the General Assembly's Joint Committee on Administrative, Executive, and Legislative Review, the regulations would go into effect on Oct. 1.
The Comptroller's Office estimates the state will collect between $50 million and $150 million, though it states the "the precise level of impact is uncertain" and it's unclear which industries could be most affected.
Analysts from the state's nonpartisan Department of Legislatives generally concurred that the impact would be a "potentially significant amount" but advised that revenue collected in the short term could be different anticipated depending on compliance of online retailers, further legislative changes or potential lawsuits.
The revenue estimate is lower than previously expected. A 2011 study by the Comptroller's Office estimated that uncollected sales taxes from remote sales to Maryland residents could total approximately $295 million in fiscal 2018. State analysts in 2017 updated that year's projection from $287 million to $320 million.
The Department of Legislative Services attributes several factors to the uncertainty in the estimates. For one, the 2011 estimate does not take into account changes that have happened since then. For example, online retail giant Amazon.com began collecting Maryland sales taxes in October 2014.
Initial estimates were that Amazon (NASDAQ: AMZN) would collect and remit around $80 million in state sales taxes in fiscal 2017, according to the Department of Legislative Services. Due to confidentiality requirements the amount actually remitted by Amazon is not available.
The state also does not know how many other online retailers have begun collecting Maryland sales tax since 2011 or how many actually sell to customers in the state, though both are "thought to be substantial."
Regardless of the exact numbers, state officials generally agree that imposing sales taxes on out-of-state online retailers will benefit small businesses in Maryland and the state government. Consumers could be saddled with higher costs.
"The rise in costs related to the application of sales and use tax will eventually fall to consumers, who will either spend a greater portion of their income or consume fewer goods," the Comptroller's Office said in its proposal. "All else equal, as prices rise, consumption falls."
Smaller retailers in Maryland will benefit because they will longer have to compete on an "un-level playing field."
"While internet sellers may still have the most cost-effective strategy, the normalizing of the 6 percent sales and use tax across the marketplace will result in Maryland’s small businesses becoming more competitive, potentially leading to increases in sales and employment," the Comptroller's Office said.
Assistant Comptroller Joseph Shapiro said the proposed regulations are still with the legislative committee. He hopes to hear from the committee this week.