O'Malley Wants to Raise Sales Tax to 6%
Some Services Would No Longer Be Exempt

By John Wagner
Washington Post Staff Writer
Friday, September 21, 2007; B04

Maryland Gov. Martin O'Malley (D) proposed increasing the state sales tax from 5 to 6 percent yesterday and applying the levy to several services that are currently exempt, including health clubs, tanning salons and real estate property management.

Aides said that O'Malley's proposal would generate $804 million a year, making it the largest component of a plan that he is rolling out over several days to bridge a looming $1.7 billion budget shortfall and raise nearly $400 million more for transportation projects.

Speaking at a news conference in Howard County, O'Malley also confirmed his intentions to push for a 3-cent cut in the state property tax rate, which is 11.2 cents per $100 in assessed value. That is one of several parts of O'Malley's plan designed to make the tax code "more fair" even as he and lawmakers seek hundreds of millions of dollars in additional revenue.

"There are very few taxes that hit homeowners on fixed incomes in a rougher way," O'Malley said during his second appearance in two days at the media event, held in front of a private residence in Ellicott City.

Under O'Malley's plan, the owner of a $400,000 home would realize savings of $120 on a property tax bill once the 3-cent cut was fully phased in after three years.

O'Malley's series of rolling announcements was criticized yesterday by Senate Minority Whip Allan H. Kittleman (R-Howard) as a "traveling magic show" that has emphasized popular aspects of the plan but played down the effects of multiple tax increases.

On Wednesday, O'Malley detailed an income tax proposal that would raise rates for higher-end earners but provide at least a modest tax cut to most filers. Other parts of his plan that have not been publicly announced include a proposal to raise the cigarette tax by $1 per pack, raise the corporate income tax from 7 to 8 percent and raise the titling tax on vehicles from 5 to 6 percent.

"He's doing a very good job trying to distract Marylanders from the true effect of these measures," said Kittleman, who attended O'Malley's event and attracted reporters while he stood on a street near the site of the news conference.

A coalition of business groups led by the Maryland Chamber of Commerce also voiced concerns yesterday about aspects of O'Malley's plan, suggesting that it would lead to job losses.

However, during his appearance yesterday, O'Malley was praised by Howard County Executive Ken Ulman (D) for tackling the projected budget shortfall. Ulman also endorsed O'Malley's plan to fix the budget in a special legislative session by early November, which some lawmakers oppose.

"It's time to roll up our sleeves and get this done," Ulman said.

O'Malley acknowledged that under his sales tax proposal, "all of us are going to pay more." But he said that raising the rate to 6 percent would keep the state competitive with others in the region.

The District's sales tax rate is 5.75 percent; Virginia's is 5 percent. Virginia also taxes food at 2.5 percent, O'Malley noted, but Maryland exempts food from its tax. Pennsylvania's sales tax is 6 percent, and there is an additional 1 percent tax in Philadelphia and Pittsburgh.

O'Malley's proposal to apply the sales tax to several services that are now exempt stopped short of similar recent initiatives. A bill introduced in the last General Assembly session would have applied the sales tax to car repairs, barbershop visits, tax preparation services and more than two dozen other services.

Legislative analysts estimated that that bill could have generated more than $600 million a year in revenue. But it drew opposition from interest groups that would have been affected.

O'Malley spokesman Rick Abbruzzese said the governor chose not to go as far as that bill because he is concerned about the possible effects on working families. O'Malley's plan would generate about $74 million from adding previously exempt services, he said. Raising the rate to 6 percent would produce an additional $730 million in revenue.

Aides said O'Malley would like to cut 1 cent in each of the next three years from the state's property tax rate. When fully phased in, the proposal would cost the state $177 million a year in revenue, aides said.

State property taxes account for a relatively small share of most homeowners' bills because counties and some municipalities apply a rate several times higher than the state's. But the politics surrounding the state's levy have been heated in recent years.

The rate was raised by 4.8 cents early in the term of O'Malley's predecessor, Robert L. Ehrlich Jr. (R), then cut by 2 cents as last year's election approached. O'Malley's proposal would reduce the rate to less than what it was when Ehrlich took office in 2003.

The cut would require approval of the Board of Public Works, a three-member panel composed of O'Malley, Comptroller Peter Franchot (D) and Treasurer Nancy K. Kopp (D). Kopp said she is reserving judgment until she sees O'Malley's full proposal, a position echoed by a Franchot spokesman.