"I suspect we'll oppose it," said Jack Murphy, executive director of the Maryland-Delaware-DC Press Association, which represents news media companies' interests in the region. "Our reading is it would affect any newspaper that has a paywall, or an electronic edition that a newspaper might produce. With the strain on newspaper finances right now, why would we do anything that might discourage people from supporting the news business?"
(The Baltimore Sun and Carroll County Times are among the local news organizations that offer digital subscriptions.)
A study by the Comptroller's office last fall estimated that the state's market for digital goods will approach $200 million in 2013. The O'Malley proposal aims to collect a fraction of that amount: $5 million from a tax on digital downloads, and $21 million from vendors and independent contractors who act as affiliates for an out-of-state entity, such as Amazon.
But it's challenging to collect sales taxes from in-state affiliates that sell products on an website based outside Maryland. Some online retailers respond to such taxation attempts by changing their business operations to avoid triggering an instance where they would have to collect the tax from consumers.
Generally, online retailers don't have to collect sales tax in states where they do not have some type of physical presence, though some states have exceptions for software companies.
Joseph Shapiro, a spokesman for Comptroller Peter Franchot, said the state official "strongly agrees with the principle of tax fairness and leveling the playing field for Maryland's bricks and mortar stores."
"However, he believes without federal action, any revenue collected will be minimal and could lead to legal challenges," Shapiro wrote in an email to The Baltimore Sun. "He urges Congress to act and give states the tools they need to ensure tax fairness."
Efforts at the federal level to create a systematic and comprehensive framework for states to collect taxes from Internet sales have foundered for years. Amazon has pushed Congress to support federal legislation, a company spokesman said.
"For more than a decade, we've supported a national approach to sales tax," spokesman Scott Stanzel said in an email. "Rather than focus on state by state legislation, we are working with members of Congress, retailers and state leaders to get a federal bill passed this year. Federal legislation permitting interstate sales tax collection is the only way to level the playing field for all sellers and provide states the right to obtain more than a fraction of the revenue already owed."
Patrick Donoho, president of the Maryland Retailers Association, which represents bookstores, electronics sellers and other physical stores, said the group generally supports parity in sales tax collection between online and bricks-and-mortar retailers. But it hasn't formulated a position on the tax proposal.
"I think the devil is going to be in the details," Donoho said.
Some business leaders say that the tax proposals are part of overly broad language that could be applied to businesses that sell and deliver products digitally to clients, such as advertisers and creative services agencies.
Cynthia Blake Sanders, legislative chair of the American Advertising Federation of Baltimore, said the group's 450 professional members are worried that digital services they provide to clients could suddenly be taxed under the O'Malley proposal.
For instance, an agency could create a video advertising spot and email it to a client, who then downloads it. Presently, such activity is billed to a client as a service, and a sales tax is not collected. The way the bill is currently written, Sanders said, creative professionals will wonder if they need to charge and collect a sales tax from clients for the digital work product they deliver.
"For our clients, it's going to cost 6 percent more than they used to pay," Sanders said. "That's a jump in cost. ... The law of unintended consequences looms large over this."
Some state Republicans criticized O'Malley for proposing the tax.
On Wednesday, Rep. Neil Parrott, a Washington County Republican, held up his new iPhone 4 at a news conference in Annapolis and criticized what he is calling the "App tax" -- a tax on Internet downloads.
"This is the heavy hand of government," he said later in an interview. "The problem in Maryland is not that we have a revenue problem, we have a spending problem."
Sun reporter Annie Linskey contributed to this report.
Most Popular Stories
- SpaceX's Satellite Launch Is 'Game-Changer'
- Reid Confident Congress to Pass Immigration Bill
- Maui Visitor Killed in Shark Attack
- Donors Abandon GOP Over Gun Stance
- Mexico: 'Extremely Dangerous' Radioactive Material Stolen
- CEOs More Optimistic About Economy, Hiring
- Climate Change Early Warning System Urged
- Private Sector Employment Surges by 215,000 Jobs
- Newtown 911 Tapes Being Released Today
- Calif. Likes Christie, Says Tea Party's a Drag