Legislative / Regulatory

Why we oppose the ‘digital download’ tax

PhotoLast night I started my testimony with, "You are probably wondering why CPAs are here against the 'digital download' tax."

We were among hundreds of people in groups gathered to testify on the governor's budget bill, the Budget Reconciliation and Financing Act of 2012 (SB 152 / HB 87) in the Senate Budget and Taxation Committee. Most groups were there to oppose the numerous tax surprises contained in the bill. 

The realtors and many others were there to oppose the reduction of the mortgage deduction. Then there were various groups against the increases of the income tax rate, additional sales taxes on tobacco products, and of course the digital download tax.

The hearing started at 1 p.m. with a lot of chaos as the hearing room was overflowing with people lining up to testify. We finshed up around 7 p.m. and the hearing was still going well into the night. 

Here are our key points:

  1. A tax on taxes. The bill's language is so broadly written that it could be extended to lots of other "digital" things, like CPAs who need to download standards and regulations updates (mostly required from the government) and keep their software updated. Thus Marylanders will be forced to bear a tax on top of the CPAs services they need to file taxes. Sounds like King George in colonial times to me?
  2. A tax on taxes, part 2. It could be extended to e-filing of taxes which is mandated by the federal and state governments. Here again, the government mandates something and then taxes it, so they can get their revenue?
  3. Compliance nightmare. This type pf legislation will be nearly impossible to comply with, audit, and enforce. How do you know where the person is downloading the update? If a CPA is in New York City preparing a tax return and downloads an update, where is he/she really getting the product, Maryland or New York? How do you account for that?
  4. Non-profit eductaional programs. We would potentially have to tax our webcasts and other "digital products" putting us at an unfair business advantage with out of state and even for profit organizations. 

Then I just found out that even blogs are covered by this far-reaching legislation! 

This just seems to be an idea whose time has not come. It was not well thought out and sets a very bad precedent in addition to ulimited compliance and collection challenges. 

Here is some coverage from yesterday about our testimony: Hometown Annapolis

In other news: There is now talk about a general increase in state income tax of .25 percent to balance the budget. Other proposals are to broaden the sales tax base by taxing services. Yep -- accounting, tax and consulting on the table as a major proposal in addition to the bill we will be fighting next week (HB 1051 Sales Tax on Services).

Buckle up, it will be a wild ride.

According to the BBJ, Maryland ranks 42nd in the nation for a favorable business climate. This kind of legislation can send us even further down the list.

For more background: