Supporting Documents & Reference Materials

The following links lead to PDF copies of documents available through the Maryland General Assembly Web site and/or documents made available upon my request at the time of this writing, as well as, links to related articles in other publications.

Please note that the legislative process in Maryland is very fluid and things can happen over a short period of time - which is precisely why I am so concerned. So, the versions of specific Bills you may find using any of the links on this page may or may not be exactly the same version being considered at any given time. Documents were current at the time they were posted.

The Proposed Legislation in Senate Bill 523 - 3rd Reading

The following links lead to PDF copies of various versions of the "advertising nexus language" in SB 523 as suggested by the House Ways and Means Committee and the Senate Budget and Taxation Committee. Note that the "Online Sales Tax" or "Amazon Tax" or "Affiliate Sales Tax" or "Affiliate Nexus" or "Advertising Nexus" language is CAPITALIZED and/or underlined, which means it is the opinion of the Senate Budget and Taxation Committee that CAPITALIZED language be included and the opinion of the House Ways and Means Committee that underlined language not be included - at least I think that's correct.

SENATE BILL 523 - Applicable Pages Only - (PDF that opens in a new window) - The 3 pages of SB 523 that are applicable to this issue, with yellow highlighting starting towards the bottom of the first page, to clearly show the legislation in question. Note: because it has been highlighted and saved to this Web site, this is not an "official" copy. However, it is the actual portion of the Bill as it was available on the Maryland Web site on March 20th, 2012.

SENATE BILL 523 - (PDF that opens in a new window) - The full marked-up text, as currently available on the Maryland State Web site, after review by the Maryland House of Delegates, Ways and Means Committee.

Note: Language in the above referenced document, which is displayed in normal type is currently in the tax code. CAPITALS INDICATE MATTER ADDED TO EXISTING LAW. [Brackets] indicate matter deleted from existing law. Underlining indicates amendments to bill. Strike out indicates matter stricken from the bill by amendment or deleted from the law by amendment.

Article - Tax - General 11-701 - (PDF version that will open in a new window) - Senate Bill 523, Amendment #4 as provided to B4UBUILD.COM on March 15th, 2012, upon my request (the same day) to see the language provided to Senators prior to their vote on the evening of March 14th, 2012

Note: Language in the above referenced document, which is displayed in normal type is currently in the tax code. Language in CAPITAL LETTERS would be added to the Laws of Maryland with Amendment #4.

Interesting Discoveries & Observations

eBay - State of Maryland’s Unclaimed Property On-line Auction - The State of Maryland is currently selling unclaimed property, over the Internet, through an agreement they have with the eBay auction Web site. That property is being "advertised" to people throughout the United States and eBay is almost certainly being compensated when an item is sold. Under the "Shipping and payments" tab of individual items being offered for sale is the following statement:

Seller charges sales tax for items shipped to: MD*(6.0%) .

* Tax applies to subtotal + S&H for these states only

Apparently, the seller (State of Maryland) does not find it practical, or necessary, to know and follow the complicated Sales and Use tax laws of any other state, or county, or city, or town, or airport, or other local taxing jurisdiction anywhere else in the United States - since they state that sales tax is only being collected on items shipped to Maryland.

Is that fair to local businesses, in all other States, which must collect sales tax on sales to local residents?

Is it really that difficult for Maryland to collect and remit sales tax, on applicable products, at the applicable rate, during the applicable times of the year, while taking into consideration all applicable exempt items based upon "official" product and usage descriptions, for every other taxing jurisdiction in the United States and submit a sales and use tax report, using the applicable form(s), and submitting it to the proper taxing authority, no later than the "x" day of every month as required by the tax laws of each specific taxing jurisdiction... or be subject to fines, penalties, interest, late charges, and/or possibly time in jail if they fail to comply with the laws of an out-of-state buyer's local taxing jurisdiction?

Yes, there is a bit of sarcasm being displayed here, but I do not mean any disrespect. However, the point I am trying to make - in every way that I possibly can - is that this "online sales tax" issue is considerably more complicated and much more difficult to fully understand than it first appears.

Also note that if the State of Maryland actually collects sales tax at the 6 percent tax rate they say they are charging, sales tax would not be properly applied in all instances as specifically defined in the 220 pages (more or less) of legal language listed under Title 03-Comptroller of the Treasury, Subtitles 03.01 through 03.06 as referenced in this COMAR (Code of Maryland Regulations) search results page: http://www.dsd.state.md.us/comar/subtitle_chapters/03_Chapters.aspx

Does that mean that the State of Maryland might be responsible for fines, penalties, interest, and/or late charges for not following their own sales and use tax laws by not using the actual "6 percent, as follows" tax rate chart to determine the correct tax on applicable products and services?

Is it possible that "online sales tax" legislation is more complicated than proponents are making it out to be, because local sales and use taxes around the country have grown so complicated?

Is it conceivable that the "unintended consequences" of this legislation, which are certain to occur since they have in every other state where similar laws have been enacted, might far outweigh any possible gains?

Sales Tax Specific Information on Other Web Sites

Amazon tax - According to Wikipedia, "Amazon.com has been criticized for collecting sales taxes from customers in only five U.S. states. Several states have passed or are considering "Amazon tax" laws designed to compel Amazon to collect local sales and use taxes from customers. The U.S. has no federal sales tax. In most countries where Amazon operates, a sales tax or value added tax is uniform throughout the country, and Amazon is obliged to collect it from all customers."

Note that Amazon.com does not pay sales tax when someone buys a product or service from them - regardless of the state or country to where the purchase is being sent. Buyers pay sales taxes. Sellers collect sales tax, from buyers, on behalf of local taxing jurisdictions.

And, Amazon.com will not be required to pay sales tax to Maryland should this legislation be enacted into law, because they will still not have a physical presence in Maryland. Should this legislation be passed, you will still be able to go directly to Amazon.com, make a purchase, and no sales tax will be added to it for you to pay. However, you will owe the state of Maryland a "use tax" for all applicable products and services you purchase from a seller in another state on which you have not paid at least "6 percent, as follows" sales tax.

The customer or buyer is the party that is required to pay sales and use taxes. States have forced the responsibility to collect those sales taxes on businesses with a physical presence in that state. This legislation is attempting to make all out-of-state vendors, with more than $10,000 in sales within Maryland, and an advertising agreement with any Maryland resident, a "local business" with a "physical presence" so that Maryland sales tax laws can be forced upon them.

Out-of-state vendors will simply terminate advertising agreements with all Maryland entities and thus comply with the new law - no new taxes, no increase in sales tax collections, and less taxable income for Maryland residents.

Arguably, and overly simplified, this is what the Interstate Commerce Clause was designed to protect against - people in one state being forced to comply with burdensome laws and regulations and tariffs and taxes placed upon them by another state, simply because they wish to make arm's length transactions with people in that other state.

COMAR Online - Code of Maryland Regulations, which is updated every 2 weeks by the Office of the Secretary of State of Maryland, Division of State Documents (DSD). However, "it should be noted that by law the only 'official' version of COMAR is the printed version. These documents are a reference source and are always superseded by the printed version of COMAR." Also, there is no way to download an entire chapter or subtitle at the present time; "You need to open each regulation individually."

Maryland sales and use tax regulations in COMAR appear to occupy approximately 220 pages of legalese as listed under Title 03-Comptroller of the Treasury, Subtitles 03.01 through 03.06 as referenced in this search results page: http://www.dsd.state.md.us/comar/subtitle_chapters/03_Chapters.aspx

Transactions in Interstate Commerce (COMAR 03.06.01.25) - This appears to be the portion of Maryland tax code relating to the Interstate Commerce clause of the U.S. Constitution that this "Online Sales Tax" proposal (which is not a tax at all, but rather "Advertising Nexus" language) is attempting to circumvent by claiming that the act of paying a Maryland resident to place an advertisement, of any kind, anywhere within Maryland is grounds for saying that any advertiser located in any other place in the world (well, probably just within the United States) has therefore created a "physical presence" (nexus) in the state as a result of that advertising agreement and is therefore required to follow all applicable sales and use tax laws in this state - or at least that is how it appears to this layperson.

"The [sales] tax does not apply to a transaction which is not within the taxing power of this State under the Constitution of the United States, as interpreted from time to time by applicable court decisions."

MarylandTaxes.com - Official site of the Comptroller of Maryland, which deals with Maryland taxes of all types and attempts to "simplify" the legal language in the above documents and answer specific questions about specific aspects of the Maryland Sales & Use Tax code.

Unfortunately, like many laws and regulations our governments create, unless you know exactly what you don't know it is difficult to be certain that you are getting all of the information you may need in order to not be in violation of something.

Maryland Sales and Use Tax - direct link to the page on MarylandTaxes.com that deals with the "6 percent, as follows" sales and use tax, which is impossible to accurately calculate with a basic hand-held calculator using 6%. It is actually based upon an official "6% RATE CHART" that adds 6 cents tax to purchases of as little as 84 cents up to and including 1.00 dollar on all applicable products and services purchased and/or used in the state of Maryland - at least I think that is stated correctly.

Maryland Consumer Use Tax Return For Purchases Form - (PDF) - The official form as it appeared on 3/19/2012, which Maryland requires consumers to use to report use tax while stating... "We’re all familiar with Maryland’s sales tax, but far fewer people know about the use tax and when they must pay it."

Also note that the form must be submitted by the 20th of the month following the previous quarter, and that it tells those filing it to use a tax rate of 6% when the actual tax code is based upon a tax rate chart because Maryland has a "unique" way of "rounding" sales tax. For example, if one were to file their use tax as "officially" instructed, they would submit 5 cents for a taxable item or service they purchased online or in another state where they paid less than 6% tax on an 84 cent item. According to the rate chart, the correct tax is 6 cents. Technically, anyone following instructions would be failing to submit the proper use tax and that one penny would be grounds for penalties and interest - and conceivably, legal action.

Of course, as Maryland well knows, that penny adds up over multiple sales. However, before asking the entire world to learn a new way of rounding numbers, and punishing them if they do not, perhaps sales and use taxes could be made easier for everyone to calculate. Consumer compliance might even improve if one could determine the taxes they owe, on anything they purchase, using a basic hand-held calculator.

What about tax holidays, and exempted items, and taxable services, and "medicine and medical equipment" and "agricultural supplies" and all of the other special circumstances that are not listed on the form, for which consumers would NOT owe use tax?

What if an out-of-state vendor tells the customer it is a "tax included" sale in their state and they are "absorbing" the tax?

While it might be relatively easy for a vendor that sells a very targeted selection of similar items - for example, electronics, or downloaded movies, or candy - to easily define all of the products in their inventory and therefore clearly assign a taxable status, sellers that are dealing with hundreds of thousands of individual products, across a wide variety of "official taxable descriptions", would have a much more difficult time. The "classification" process would be very time consuming and frequently inaccurate, which are both major liabilities to assume when they are not required to continue in business.

Brick and mortar stores deal with one set of tax codes - still not an easy task - that apply to the exact address where they are located. If/when they wish to sell their products online - to a state where they already have a physical presence and must already collect sales tax - they can use the individual product databases from their existing stores for determining tax on each item shipped to the jurisdiction where the physical store is located. It is still difficult, especially for stores with a wide selection of merchandise, but reusing an existing database that has already been assembled over many years is far easier than assembling one from scratch for the thousands of individual tax jurisdictions across the country.

While I realize this is all relating to the Consumer Use Tax form, most of the same conditions exist for ALL businesses - local and remote. Putting this in the context of an out-of-state vendor, all they have to do to avoid running afoul of this complex Maryland tax law, which even Maryland appears to have trouble properly communicating to its own citizens, is move their existing taxable advertising dollars from Maryland to another state.

Terminating ALL advertising agreements within Maryland is the only practical and responsible business decision out-of-state sellers will be able to make in order to assure that they do not place their business in jeopardy. This will be the result of any overreaching, state-by-state implementation of expansive tax nexus legislation.

Wikipedia - Sales Taxes in the United States - a very brief example of the widely varying application of sales and use taxes in the 45 states that currently have them. Many states have local, sometimes very local, piggy-back sales taxes where the correct tax must be figured by Street Address and not by ZIP Code.

Streamlined Sales Tax Governing Board - in theory, this is a very good idea; make it simple for out-of-state sellers to collect sales taxes for states where customers live and/or have their purchases sent. Unfortunately, things are seldom as simple as one organization's viewpoint would make it appear and details can make all the difference. Accordingly, in my humble opinion, some of the arguments being made and the specific implementation of this approach to collecting sales taxes in remote locations is less than perfect. And, rules and regulations have a way of morphing over time. So, the implementation of this approach, which might seem fair and cost effective for small businesses at the present time, is likely to result in extremely costly compliance costs in the future.

And, some states - Maryland for example - are currently benefiting from a "unique" way of "rounding" sales tax percentages where a 6% sales tax is actually a "6 percent, as follows" tax according to a rate chart and a complex set of rules for determining what and when any specific product or service (as officially defined) is actually taxed. So, universal compliance is unlikely to happen unless it is truly simplified and addressed by Congress at a national level.

Comments & Opinions

Brick and mortar stores, by their nature, do not move and customers come to them. So, tax rates, tax charts, taxable products and services, "official" product descriptions, and the full list of exemptions will remain relatively static for that specific store. The product databases vendors need to create and use in order to follow complicated local sales tax laws can be reused when they sell their products or services online. And, if you are a small business offering a limited range of products or services that are substantially similar in description and intended use, a personal visit to your local Maryland sales tax office will help small business owners understand the sales tax code as it relates specifically to their business.

However, Internet businesses with a huge selection of products and services, products and services from private sellers, and products and services being sold to literally thousands of state and local tax jurisdictions throughout the U.S. would first need to establish many massive databases. These databases need to include "approved" product-by-product descriptions and applicable taxes, in order to be certain they are applying the correct sales tax on every single item being offered to customers in any given location — down to the Street Address in some states because piggy-back taxes may be applied by local tax jurisdictions at the county, precinct, city, town, parish and/or individual airport level.

This is NOT a "new online sales tax" - Maryland consumers already owe a "use tax" on any products or services they purchase for use in the state on which they have not paid the full amount of the applicable "6 percent, as follows" sales tax that currently exists in Maryland.

This is NOT an "affiliate tax" - Maryland advertising affiliates will not be taxed. Affiliate contracts with advertisers will be revoked as the only viable business option for out-of-state sellers to avoid being unnecessarily exposed to complicated tax codes and burdensome tax compliance requirements in the laws of other states, sometimes thousands of miles away, in which they are not physically located.

Taxable income from advertising will simply be transferred to other states where this type of legislation does not exist.

And, Maryland residents will still be able to go directly to vendors in any other state or any other country and buy whatever they want directly, without those vendors collecting sales taxes on behalf of the state where the customer lives.

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[ introduction ] [ letter to lawmakers ] [ supporting documents ] [ unintended consequences(?) ]

B4UBUILD.COM - Advertising Nexus Will Harm Maryland - Supporting Documents

Supporting Documents & Reference Materials

The Proposed Legislation in Senate Bill 523 - 3rd Reading

Interesting Discoveries & Observations

Related News Stories & Articles on Other Web Sites

Sales Tax Specific Information on Other Web Sites

Comments & Opinions