Small businesses say proposed tax would hurt them

Local merchants say legislation would make them less competitive with similar services in nearby jurisdictions

House Bill 448 would impose the tax on certain services, including cable television, motor vehicle maintenance and repair, towing, parking facilities and services, exterminating services, sign painting services, interior decorating services and business brokerage services.

The goal of the proposed legislation is to create a new source of tax revenue to help reduce the state budget deficit, said Del. James W. Gilchrist (D-Dist.17) of Bethesda, the bill’s sponsor. He noted that both Pennsylvania and West Virginia currently tax more services than Maryland.

There will be a hearing on the bill 1 p.m. today before the House Ways and Means Committee.

Gilchrist said if the legislation passes, the additional revenue would help reduce the state’s budget deficit. One way to address that deficit is with sales taxes, he said, and instead of raising taxes for businesses that already charge it, it seemed fairer to extend the tax to other services.

However, Deines-Jones pointed out that consulting is a highly competitive field, and many clients that she does work for could choose to go elsewhere instead of paying tax to use her services. Additionally, she said, the law would mean an extra burden for her to collect and report her revenue to the state.

Deines-Jones also had concerns about how exactly the sales and use tax would work if she were to do work for a company with offices in both Maryland and Virginia. Another issue would be if she contracted work out to another consultant — would the consultant pay sales tax to her and she pay sales tax to her client? Big companies might have the resources to deal with a situation like that, but she does not, Deines-Jones said.

Lisa McGrath, director of marketing and business development at Apex Digital Systems, a small technology-consulting firm in Silver Spring, said that if the legislation should pass, her company would be less competitive in a market where there are many consulting firms. A client that spends thousands of dollars would pay a significant amount of tax if that company chose to stay with her firm, she said.

‘‘That’s a big impact,” McGrath said.

On an operational level, she said, her firm would have to revamp its computer system to keep track of the tax and keep it organized on invoices. And then, she said, there are concerns about how to interpret the law when working with global and international businesses.

‘‘It’ll be a challenge for the small businesses,” said Jane Redicker, president of the Greater Silver Spring Chamber of Commerce. ‘‘... We sent out a notice to our members to encourage them to get involved.”

Another challenge is for businesses that are Maryland-based but also provide services in the District or Virginia, Redicker said, adding it’d be difficult for those businesses to charge tax in Maryland but not elsewhere.

‘‘It puts them at a disadvantage,” Redicker said.